Independent contractors are an option many people choose for employment when they go into business for themselves. Rather than working as an employee for a business, contractors offer a service under contract. They do not enjoy some of the benefits of employment, such as insurance or employee-sponsored 401k accounts, but they do enjoy independence and generally can command a higher per-hour salary when compared with salaried workers.
Many people dream of the day they become an independent contractor in business for themselves. In reality, while there are many benefits to being a contractor, there are risks as well. You will have less of a safety net and may have fewer legal remedies outside of civil court if professional relationships with clients sour. Your bookkeeping needs may also be complex since you may have multiple clients and potentially even multiple streams of revenue. Here are some tips for contractors on how to keep things straight.
1. Keep Your Business and Personal Finances as Separate as Possible
One of the first things you will want to do as an independent contractor is to set up a separate checking account for your business. In fact, depending on your industry, you may want a few business checking accounts. If you work in construction as an independent contractor, you may have one account for payroll, one for vendors and one for your revenues. Keeping your finances separate helps you stay compliant, makes bookkeeping simpler for you and offers a layer of protection against liability.
2. Protect Your Finances by Ensuring You Understand and Follow the Rules
Understand what a contractor is and ensure you keep the right records. It can be useful to work with an outsourced bookkeeper who can act as a CFO and examine your processes to ensure you enjoy healthy cash flow while you meet all legal requirements. A good bookkeeper can recommend a good bookkeeping system and can help you find ways to make record keeping work for you.
3. Keep and Back Up All Relevant Records
Keep more documentation than you think you need, and keep more notes about your finances than you think you will require. If there is ever any question about your records, you want to be able to answer fully and honestly. Make sure you back up all documents on secure severs so they remain accessible, no matter what.
4. Make Sure Your Bookkeeping Approach Is Poised to Grow With Your Business
What will happen if you work with a subcontractor or decide to open a new office? What about if you decide to go from independent contractor to a business with employees? Look for a flexible system and a bookkeeper who can make these adjustments with you. Outsourcing your needs, for example, means working with someone who can support you as your business grows and can ensure you save time so you can grow your business instead of working on the books.
5. Use Your Bookkeeping as an Active Partner in Your Financial Success
Don’t just keep records to obey the legal requirements as a contractor. As someone in business for yourself, you are responsible for your own success, and your bookkeeping provides some big clues. Your bookkeeper can help you determine where you may be losing money and which clients are offering the biggest returns on your efforts. A review of your bookkeeping can help you determine your budget and evaluate your spending. It should be where you turn when you work on your business plan.
As an independent contractor, you are aware of the power of outsourcing. If you’re looking to outsource your bookkeeping, contact SLC Bookkeeping for a free consultation to learn what our bookkeeping services can do for you.
