Your Own Business: The Financial Side

Money is stress. Well, for most of us it is, or to be precise, those that don’t have it. We will struggle with our finances most of our lives, and we will feel the pinch of being poor however we look at our situation, and one of those situations is when we make the change from being employed to being self-employed, or going into business for yourself. It is a given that when you first make the tentative leap to being a freelancer or going into business with a partner or as a sole trader, the first 6 to 12 months are hard, financially or emotionally. Here is what to expect…

You will be operating without a safety net… and this is a lot for people to get their heads around, especially when making the transition from a job with security and a pension. Financially speaking, you need to plan ahead for the times where work may be dry, or you may not be making much profit. A lot of people making that change can feel vastly put-off by the notion of earning hand to mouth. And while the pay can be low, there will be times that you earn more money than normal in the space of a month. It is impossible to predict your pay in this situation, not until your company or line of work starts to even out and you know how much you will earn at the bare minimum each month. Things like pension plans are easy to put off, and people have that “we’ll cross that bridge when we come to it” attitude. But what about if you are unable to work due to injury? Do you have people that depend on you to earn an income? If so, then you need to find a system whereby you can put some money aside for an unplanned event.

You will learn a lot…  about everything! You will learn how to do your taxes properly (well, to the best of your ability) and you will learn about what you are really capable of. By going self-employed you are, in essence, wearing many hats. You will devise a system of keeping track of business expenses, and you will work many late nights to balance the books and chase payments, possibly while juggling work as a full-time parent! You will learn a lot from your mistakes. For those that freelance, make sure that you set up a business account in your name, it is easier to keep track of work finances against the outgoings from your personal spending. When it comes to doing your tax return, it is much easier to see a bank statement from one account that shows your business outgoings and expenses rather than having to cross-check everything from your personal bank account, which is time and effort you don’t have!  

You will have help from the unlikeliest sources… really! There are government advice lines and sites at your disposal, so you don’t need to feel like you are on your own in the process. A common mistake people make at the start of their self-employment is to not claim expenses, which is mainly a hangover from being employed. You are plowing a lot of your finances into making your business or freelance work profitable, and you shouldn’t have to pay tax on it. There are things like the Uniform Tax Rebate, that help people to claim back the costs of their work uniforms as well as their work tools, and a lot of people are unaware of what exactly they can claim on. This is why a lot of people have accountants to do their work, but if you are unable to afford one at this point in time, you can find help online, and you can claim on unexpected items. For example, if you work from a home office, you claim part of your utility bills for the energy used in that room, which, if you use a computer 12 hours a day, it can eat into your energy bill so having a portion of your electricity bill back will be a big help!

As more and more people choose the route of self-employment as a way to earn money, it is something that needs to be communicated, your finances are more important than ever, and you need to think long-term in how you look after yourself and your dependents. With careful planning and constant assessment of your outgoings, it will help you survive those first sticky months.

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