Updated January 2023

Accounting professor and CPA Lisa Drake

Lisa Drake, CPA

In honor of National Financial Wellness month, I asked my pal, Lisa Drake, a CPA, for her top five tactics to build and maintain your business' financial health.

5 business tips for freelancers & contractors

This information is not intended as a substitute for professional financial, accounting, tax, insurance or legal consultation; it is provided “as is” without any representations or warranties, express or implied. Always consult professionals when you have specific questions about any financial matter.

1. Separate your accounts.

Set up a separate bank account for your business (income and expenses), and consider a credit card for business-only transactions. "There's nothing worse than having to separate out transactions at the end of the year to figure out whether you've made money or not," Drake says. "It's cleaner this way -- trust me." The extra work of managing that additional account is still less stressful and time-consuming than a mad dash to separate it all out right before the filing deadline.

2. Use credit carefully.

Speaking of credit cards, resist the temptation to use that credit to cover operations, especially when business is slow. Why? You can easily rack up a huge amount of debt you'll struggle to pay off when business picks up. "Interest on the debt keeps accruing and it's a vicious cycle," Drake laments. "Better to not get into the trouble in the first place." Tip: Paying those accounts off each month is good business.

3. Work with a pro.

Even if your finances and taxes are simple, it pays to meet with a CPA or EA (Enrolled Agent) to make sure you've got things set up right, are paying the right amount, and are tracking the right things. "These pros can help you maximize deductions and avoid troubles with the IRS," Drake says. NerdWallet has a good article on why you need a CPA.

4. Build a war chest.

It's a sad fact of life, but finances often ebb and flow. Resolve to set aside some (or set aside more) cash to cover you when business is slow or clients take their time to pay you. Tip: "You have to have a war chest stocked with at least 4-6 months of operating capital," Drake counsels. "And more is better."

5. Pay your taxes.

Seems obvious, but a lot of freelancers and contractors are confused about when and how much they have to pay in taxes. Yet another reason to meet early with a tax professional! While you're salting away that cash, earmark some for income tax payments. "The feds and probably the state want their fair share," Drake laughs. "And those guys get testy when you don't ante up. Tip: Stay ahead of it with estimated tax payments. If you don't know how much to estimate, your CPA or EA can help you with this. It's the best way to avoid a nasty surprise come April 15th."

Lisa Drake used to be a CPA with the heart of a teacher. She has over 25 years of accounting experience most of it specializing in small business. Always interested in education, she began teaching accounting part-time and later became a full-time instructor at Foothill College. Now she's a teacher with the heart of a CPA (and yes, CPAs do have hearts).

Related Content