As a freelance court reporter, you don’t have financial officers to make sure your business finances are running smoothly. Having an accountant will help you at tax time, but there are responsibilities you will need to pay attention to yourself throughout the year. The better you are at meeting these responsibilities, the easier your financial life will be.
Here are 4 best practices when it comes to managing the finances of your freelance business:
1. Keep business and personal bank accounts separate.
Setting up a separate bank account for your business is one of the first things you should do when setting up as a freelance court reporter. It is much easier to manage your revenue and expenses if you do not mingle accounts. Having all revenue and expenses in one account will allow you to more easily figure out how much it truly costs to run your business, which, in turn, allows you to analyze where money is being spent and whether your expenses are reasonable and necessary.
There are legal reasons to keep your accounts separate. If you have set up your business as an LLC or corporation, there are rules on keeping your accounts separate. To mingle them may put you at a high risk should you ever be involved in a lawsuit or an audit. Contact a business attorney to get the specifics of your business type and the rules that apply concerning your bank accounts.
2. Put aside money for taxes.
Self-employed individuals are required to pay their own taxes every year. You will likely be making quarterly payments to the Internal Revenue Service, and possibly your state and/or local city. It’s a good idea to plan for these taxes, making sure you hold enough out of every month’s revenue to cover the amount you will owe each quarter. Knowing how much to hold back will allow you to avoid taking too much out for income. If you don’t keep track, you’re running the risk of falling short when it’s time to pay taxes. This could cause you to pay high penalties that you wouldn’t have to ordinarily pay.
3. Plan for slow times.
Every month’s revenue is not exactly the same. There are times when work is plentiful, and times when things slow down and you won’t have as much work. It is important to plan for the slow periods. Save money aside for those slow times. The good news is work always picks back up again. The bad news is it is not always easy to predict how long a slow period will last. If you save money for these times, you will avoid the feelings of panic when your checks are suddenly smaller this month and you have the same monthly bills to pay, but less money to pay them. Your life as a court reporter will run much more smoothly if you save money aside to use when work slows down.
4. Start collections right away.
Not only are you responsible for sending invoices to attorneys and court reporting firms for which you have worked, you also are responsible for taking action on collecting on invoices that are past due. In a perfect world, all clients would pay your invoice as soon as they receive it in their office. And many of your clients will do exactly that. But there will be some that take a very long time to pay. And a few that will never pay at all. You can cut down on the latter two groups by having procedures in place for collecting on overdue invoices. This may simply be a phone call 5-10 days after the due date has passed to ask when you might see payment. If you’re like most court reporters, you don’t like making these telephone calls. But experienced reporters know that the sooner you begin to call on outstanding invoices, the more likely you are to be paid in full. If you wait six months, then begin to make phone calls, your chances of collecting are much smaller than if you began your collections process right away.
In the business of freelance court reporting, handling your finances is not a difficult task. These four tips will help you keep the money running smoothly through your business and help you be successful as a freelance court reporter.
If you enjoyed this article, you might also like “Organizing Court Reporting Expense Receipts for Tax Time.”