Taxes & business banking for the self-employed


Money Matters: how freelancers can avoid expensive mistakes

Last updated on Feb 21, 2020

Kate Bailey

Freelance Editor

Sep 9, 2019

Money. Money. Money. You can’t have a business without it, and it’s a lot of work to have a business with it. We are a bank, we would know. Hopefully, we all work our way to the latter side of that self employment result spectrum, despite all that work. So usually when money goes missing or has to be spent and we were not expecting it, it often occurs from a mistake. And any mistake that costs you money when it should not have, is an expensive mistake. So, let’s look at how you can avoid them.

And hey, we know not everything can be about money, but it really is the turnkey solution to 99% of business problems. So, avoiding expensive mistakes by keeping your cashflow on lock seems like a pretty interesting topic to remind ourselves of, especially when so much of our days are devoted to other things.

Bookkeeping (a classic…)

 Previously, we have spoken about when you need to ask for help, and in this case, well it’s is usually the one people answer most with - yes. For many self-employed, the bookkeeping is a real challenge and chore - instead of focusing on the core tasks accumulate regularly tons of paperwork and time. How to handle your bookkeeping requires a decision between economy and safety. Granted, consulting a tax advisor has its price, which sometimes leaves a hole in your wallet.

On the other hand, there is the time required to handle the entire bookkeeping and tax declaration, as well as the uncertainty of making mistakes. No matter which way you go as a self-employed person, mistakes in tax returns are quickly expensive and stressful, as anyone dealing with the Finanzamt would know. Really, they are mean even when you have NOT done anything wrong...


The real problems are not impending penalties for tax cuts or tax evasion. Rather, self-employed people are already threatened by high back taxes and the interest due on them. Because sometimes it can even take years before errors in tax returns are noticed and punished. Suppose you set up your own business in 2019. Then your first business tax returns will be due in July 2020 - so in particular ...

  • the revenue surplus calculation
  • the income tax return with information about your self-employed and/or commercial income,
  • the VAT return and possibly also
  • the trade tax declaration.

At the earliest in the fall of 2020 you will then hold your first tax assessment as a self-employed person in your hands. Congratulations, isn’t adulthood grand? With a tax audit, the tax office can now take up to ten years time - and in specific suspected tax offenses even longer. Now, for the sake of simplicity, small businesses are usually audited for three years at a time. If errors are found in a subsequent external audit, they will not only affect the 2018-2020 review period but all previous financial years. In this case, that's almost five years!

*Important*: The described time gap is not an extreme case, but the default scenario. Of course, suspicious tax audits are also possible at an earlier stage - but then you probably have a much bigger problem. So let's just stick to the 5-year gap for this example...


Then, in the course of half a decade, even with manageable turnovers and profits, five-digit tax arrears surprise you at how all of a sudden they manifest! For many people affected, this not only means the end of their independence: they often face private bankruptcy.

The influence of the expert avoids mistakes and uncovers hidden saving potential, which usually makes up for the costs of the tax accountant. In addition, you can adjust the services of the accountant depending on your budget. You can do the manual accounting yourself with some supportive tools so that the accountant can act in an advisory capacity. The choice is yours, but this topic absolutely had to take the number one spot on the most expensive list because it really, really, and we will say it again REALLY is one of the most expensive mistakes.

Most freelancers do not charge enough 

It’s very easy to fall into the trap of cutting your prices to win work, especially if you’re new to freelancing. But this is an expensive mistake. Same with offering discounts for customers you want to win over or have repeat business with, when there is not contract backing it up, of course. Often clients will value your work based on your rate - which is hardly synonymous with how a self employed person or freelancer would value themselves. So, if you cost less than other freelancers, they may assume your work is not as professional. It’s also very difficult to drastically raise your rates later on, so starting out low may condemn you to a career of poor rates. It’s not good for your self-esteem and job satisfaction to charge too little either. If you’re constantly working for too little, it’s easy to become resentful and hate the work you’re doing. You may rush your work to try to make projects more cost-effective for you or take on too many projects to ensure you earn enough.

Much better to establish a fair rate and confidently quote this rate to clients. If they value quality work then they will pay. If they just want a cheap job, then maybe they aren’t the type of clients you want to attract anyway.

Not having the right tools for the job

Ever try to make a custom table with a non-electric drill? Well, I once knew of a freelance woodworker who did this for months. It did not help his health, it took a long time, but he was adamant he could beat the expense of the electric drill. His work was beautiful of course, but, he really did not have the right tools for the job. He even was able to take on 3x more clients. So before you launch a career as a freelancer, you need to invest in the right tools for your job. At its most basic, this will probably include a laptop and phone.

And don’t simply assume that your old laptop will do. A crashed programme in the middle of a work project can be an expensive accident. And a slow or virus-infected laptop can cost you precious work time – especially if it decides to play up on a deadline. The heart races even at the thought.

So before you embark on any freelance projects, make sure you have all the equipment you need, and that it’s in good working order. Maybe consider getting your laptop serviced, make sure your printer is functioning and has ink and paper, and check you have all the relevant software you need to open your clients’ documents. (It’s also worth investing in some kind of backup device or system and regularly protecting your work and files.) You may also want to investigate other apps and software that will help you to work smarter and juggle your responsibilities better – automating processes, setting up alerts for important emails, and enabling you to work on the move if you need to. This could be you are a designer and your laptop is too slow much like the Drill, it’s about what MORE you can do not about doing things for no reason.

Junge Geschäftsfrau mit Laptop und Headset in einem Kundengespräch.

Not marketing your business or services properly

As a freelancer, you can never afford to stop marketing. Just because you’re busy now doesn’t mean it’s always going to be that way. At any given point your most profitable client can disappear – and leave you financially out on a limb. Maybe they’ve gone out of business, your contact has left, their need has changed, they’ve employed someone full time to do your work, or they simply found a better freelancer… there are dozens of reasons why clients stop using their freelancers, so you can never afford to relax. It is definitely one of the hardest parts of accepting the price of freelance life but it is also crucial to sustained success - you want 12 good months a year, not just 3! There are lots of ways you can help spread the word about your services, both free and paid. Here are that will jog your memory or even just act as a little check-list.

  • Listing on an online freelance directory.
  • Freelance job sites.
  • Social media profiles and activity.
  • Paid social media ads and updates.
  • Networking – both online and face-to-face.
  • Write a blog.
  • Your website.
  • Google Adsense ads.
  • Establishing a reputation as an expert in your field.

It may take some experimenting before you find the perfect mix of marketing but there should be some presence or existence you can maintain - because it can be very expensive when someone goes looking for you and you exactly, and you are nowhere to be found.

Interestingly, most of these examples we use in the article really demonstrate the best way to avoid expensive mistakes in your business is to be proactive about your business. Tackle items head on and when you have time - it is not the easiest thing always, but it always pays off - it could never be considered an expensive mistake, of that we can be sure. Hopefully these four examples ring true for you in your business, and hopefully, you are avoiding expensive mistakes!