View catalogue
Going Self-Employed #2: Managing Your Finances
Going self-employed as a tradesperson comes with its fair share of challenges and managing your money is right near the top, as it may not always be a smooth ride. In the second post of this series, we draw on our own experience from running a business and gather our top tips for managing your finances when you’re self-employed.
It’s essential to have a good understanding of your expenses, pricing, and profit margins, as well as budgeting for things like marketing and equipment such as vans, tools and IT stuff. A simple budget – like allowing for £500 to be spent on Google Ads, should be calculated as part of your overall ‘start up’ business budget plan. A simple but manageable budget will help you make informed decisions and ensure the financial stability of your business.
Investing in a training course on business finances can give you confidence and help you in the long run to not only manage your own finances well, but manage a bookkeeper or accountant. ‘Finance for non-finance managers’ is just one example.
Below are some of our top tips on managing your finances as a self-employed tradesperson!
1. Separate Personal and Business Finances
Having all your money in one heap doesn’t work – you should open a separate business bank account to keep personal and business transactions apart. Avoid using personal funds for business expenses and vice versa. You should also maintain accurate records of all your income and expenses – you can use simple and inexpensive accounting software like QuickBooks, FreshBooks or Xero to really help.
2. Hire an accountant
This is necessary to make sure you comply with UK law and complete your ‘year end’ books on time so you don’t have HMRC knocking at your door! (We use Lawrence Rose Chartered Accountants down in Swindon.) Don’t underestimate how important this is to get right from the start. Trust us, handing a big pile of receipts and paperwork to an accountant after your first year of trading is not the way an accountant likes to work, and is likely to cost you far more in the long run!
3. Budget, budget, budget!
Create a detailed but simple budget that includes both personal and business expenses and work out how you can track this. Again, there’s plenty of apps available to help you: FreshBooks, PocketGuard, MoneyHub, and Monese to name but a few. If you have a bank account with Monzo or Starling for example, their banking apps also offer budgeting and money management tools.
Plan for your tax obligations and put money aside for replacing or maintaining equipment, and always allow something for unforeseen expenses. Set aside money for your taxes and don’t fall behind! And wherever possible (and at whatever age) put some money into a pension as your business grows, and as much as you can afford. Our director Daniel Hopkins knows this well: “At 55 I’m still playing catch up with my own pension contributions – time stands still for no one and moves fast!”
4. Cash
Having cash available as a financial cushion is critical for challenging times, to expand and grow (if you want), and also to spend on some nice things. Daniel recommends being cautious with spending to begin with: “Most businesses that fail do so because they run out of money – not because they’re not profitable. When starting out, forget the 5-star holidays and fast cars (this will come later if that’s your goal) but focus on being modest with your spending. Build up your cash balance as quickly as you can for those rainy days that will come along. My mantra with money is ‘it’s a by-product of running a successful business and should never be the only focus.’“
5. Insurance
Make sure you’re fully insured, including liability and health insurance. This will protect your business, yourself and your personal assets. You should also take a look at “keyman insurance” to protect your business in case of loss of a key individual – if you were unable to work, would the business fail?
6. Taking payments
There’s always that one customer who takes forever to pay, right? No one wants to be chasing customers for payment, especially when you’ve just started out as self-employed and your business needs cash. Make sure you clearly outline payment terms in contracts with customers, invoice promptly and follow up on late payments regularly, to maintain a healthy cash flow. Don’t be afraid to pursue legal action if you’re being ignored.
7. Stay organised
Your financial records and all paperwork are as important as the work you do for your customers on a daily basis. Keep all financial documents organised for easy access, and regularly review financial reports and statements. Make sure you manage your time and set some aside regularly for admin jobs. Don’t be afraid to ask for professional advice, and definitely don’t ignore a ‘money’ problem – consult with a financial advisor or accountant for personalised guidance if you’re unsure about anything.
Have you recently made the leap from 9-to-5 to being self-employed? How did you find managing your finances for your business, and what would be your top tips? Let us know!
Don’t forget to check out the rest of our “Going Self-Employed” series aimed to help tradespeople new to self-employment!
