If you’ve made the decision to become self-employed, opting for a flexible working style to allow for personal commitments or dependants, you are not alone. There are a large amount of UK workers who are finding that the standard 9-5 hours are not working for them and are seeking to find better flexibility in order to work when and where they choose.
If you’ve gone from employment to business owner to follow a passion, you’ll already be on your way to ticking the first box of success tips for the self-employed. Satisfaction. In order for something to work, you have to believe in it. And to believe in it, you need to love what you’re doing. Following a passion puts you in the perfect place to pursue a dream and see results. But what other tips could help you be successful in your self-employed venture when it comes to your finances?
1) Keep a copy of receipts
Ensure that you snap a copy of every receipt you have relating to your business. It can be easy to mislay or lose receipts and when it comes to completing your self assessment, it could become tricky to remember.
Store them in a separate file on your computer specifically for your expenses and then back them up to a cloud account so you can assess them at any time from any device.
If you’re a Xero user, keeping receipts is easy (just ask us how!)
2) Set up a separate bank account.
You may think that as a small sole trader you won’t be doing many transactions and it’ll be easy to keep track of business expenses. But the fact is that it will only get more complicated as time goes on and the ease of keeping business separate from personal can get muddled, it just makes sense to be organised right from the beginning. It also is a neater way of working and if the tax man needs to look at your accounts, it’s easier to produce the paperwork.
3) Have you got everything you need to start your own business?
When you start your business, you have several responsibilities to manage, such as registering the business, setting up with HMRC, insurance, assets and materials, plus probably a few more things that you hadn’t thought about!
Ensure you’ve got all this in hand before you start work. Seek proper financial advice if you’re not sure about the best working practices.
4) Register for self-assessment in time
When you become self-employed, you will be required to complete a tax return for each year of trading. A tax year runs from the 6th April to 5th April and self-assessment tax returns are due by the following 31st January. You will need to register your business status by 5th October prior to the deadline January date to avoid penalty fines. Always register as soon as possible to avoid any hold ups or disputes and to ensure that payments can be made in time of the deadlines.
5) Keep your books tidy
Good bookkeeping is an essential habit to get into from the beginning. Not only will it help with balancing your finances and keeping track of expenditure, it is a legal requirement to keep records for a certain amount of time, depending on your business status. Five years is usually the minimum amount of time required for records to be kept.
Keeping your books tidy will help you save time and money in the long run!
6) Put aside relevant funds
Don’t fall into the habit of spending as soon as the income comes in. Especially as a small business owner, used to bringing in a wage, it can be tempting to take out and spend all the funds that you have worked hard for. However, remember that you need to pay the tax man, you need to pay National Insurance Contributions, plus any other expenses that you occur along the way.
It can be a good idea to pay these funds into a separate bank account, so you have the money when the bills come in. Take a look at the Government website to work out your income tax and NIC calculations.
7) Be a good boss to yourself
You’ll soon discover that everything you need (and want) comes at a cost. When your computer needs fixing, it will cost you. Need some stationery, it will cost you. Often when this realisation kicks in, some people find it hard to buy the things that they actually need for the business. This can also filter down to not treating yourself too, knowing that all money spent comes from the business profits. However, to be happy and productive in your business, you need certain things along the way – including a few treats here and there!
Be a good boss to yourself and ensure that you’re able to provide everything you need in order to work efficiently. Also, when it comes to selfcare, this is just as important as the equipment needed. Look after yourself, take regular breaks and grab a coffee on the way into work every now and again. You’ll feel better for it and it won’t always seem like hard work when you have a few nice things to look forward to.
8) Pay yourself
When you’re being conscious of the tax and expenses you need to pay on a regular basis, don’t forget to actually pay yourself! If you’re able to get the business up and running by not taking a wage for a few months, the bank balance may look a bit healthier for it but when you need to be paid, don’t feel guilty for doing so.
Also, when starting out as self-employed, it can be hard to find clients but remember to charge what you are worth. It can be easier to work for pennies just to get the work coming in, however it will be harder to raise those prices once you’ve started. Start as you mean to go on, set your rates and stick to them. And then when it comes to payday for you, it will be worth the hard work.
At the end of the day, you want to focus your efforts on your business and not your finances. If you’re not a numbers person, your accounting could take up valuable time that is much better spent in growing the business. This is when it’s time to outsource to an accountant. They have the expertise and time to dedicate to your business, and are also there to advise as and when you need them.
If you’re in the process of setting up as self-employed, it’s always a good idea to get financial advice to ensure you’re starting on the right track before it’s too late.
Here at Kara Accountants, we work with local businesses, freelancers, sole traders and limited company contractors to ensure smooth running of their business, offering a range of services to suit each business need. If you’d like to find out how you can be more efficient in your business by outsourcing to an accountant, we’d love to speak with you. Get in touch to start a conversation.