Many people choose the role of self-employment for various reasons, some have a great idea they want to pursue, some want to be their own boss and some want the flexible working hours, but with the benefits come the limitations. If you’re self-employed, you may not have someone handling your finances unless you hire an accountant and they can be expensive. Budgeting and managing money is a huge part of running a business, and if you don’t get it right you could not only go without getting paid, but you could also bring your business down with you. Your business needs a solid cashflow to succeed, so making sure money is going in and out of your business properly and making a profit is vital for you as a business owner.
Larger companies have teams dedicated to creating and managing a business budget, so don’t underestimate the importance of it. Planning your budget can be mind boggling but you just need to be realistic. The basics are; how much money do you need to run your business, how much business do you hope to get, and how much do you think you will bring home at the end of the month. Looking back over last year can help with future planning. For example, take last year’s total outgoings and divide it by 12 to see how much on average you should be forecasting for next year or adjust it to fit your needs better. It’s always best to underestimate how much business you will get than over estimate, and try to spend less than you planned. By doing this, you should keep your cashflow balanced and stable. Remember to give yourself a wage and keep it separate from your business, don’t include any savings or wages that you earnt last year into your budget otherwise you are going backwards. Focus on the money that will be coming in for your outgoings and you should find a balance.
Prioritising outgoings is a great way to shed payments you don’t really need. Make a list of all of your outgoings and put the essential bills at the top; like your supplies or your business rent. If you’re paying for advertising space that isn’t really getting you any return or a subscription that you seldom use, you could cut these from your monthly out goings. By doing this you can also make a note of what bills are going out and when, so you are always on top of your cashflow.
Credit check if you supply to businesses
Credit checking is vital in the business world. Late payments are plaguing SMEs and disrupting their cashflows thus affecting business stability. If you are dealing with a business make sure you credit check them before you do business with them. Check their payment history and be sure they pay their bills within a reasonable time scale, if you don’t you could face not being paid on time or worse, not being paid at all. Get a free trial of Creditsafe today and do your due diligence before signing any lengthy contracts.
Keep your business and personal finances separate
Mixing business finances with personal finances can become a dangerous avenue to go down for sole traders or the self-employed. If business starts to slip, you may be tempted to put personal finances in to revive it, instead of re-working the structure and trying to find the problem. Or alternatively, you could fall into the trap of treating your business and personal finances as one and spend money that the business needs to operate on personal living needs. This also then becomes a problem and your business could suffer. Our advice is to keep your business and personal finances separate, in different accounts. Give yourself a wage, and don’t dip into either of the pots to help the other. This keeps things clearer and easier to manage than if you are blurring the two pots of money together.
Record everything and monitor your outgoings
Monitoring your outgoings is vital, as there can be mistakes. Introductory rates have change of interest clauses and interest rates could fluctuate on a monthly basis. By recording all your outgoings and staying on top of it every month you are more likely to spot a mistake if one is made.
Also monitoring your suppliers and business customers is also advised. If one of your suppliers is struggling, their company credit report will show you that; likewise with your business customers. Its better to spot the warning signs of a company failing and doing something about it than to find out they have become insolvent and you’re left without supplies or money for your services. Creditsafe’s Risk Tracker monitors any business you choose to have on the monitoring system and will automatically notify you by email if anything on their credit report changes, allowing you to make decisions for the future with the stability of your business in mind.
Savings is always a good idea, so if you do get more business than you planned, putting that extra income into a separate pot and saving it for emergencies ensures you will never be short of cash if a problem does occur. Good luck!