Self-employed traders have got enough on their plates without worrying about paperwork and finances. However, keeping on top of this is a necessary evil. If your finances are not in order, then the quality of your product or service will be irrelevant.
So, how do you keep those finances in check? Check out our top tips to make managing your money that bit more straightforward as a self-employed trader…
Keep your finances separate
It’s thought that as many as three quarters of Britain’s self-employed workers use their own personal bank accounts to handle all of their business transactions. Yet a study reported by Business Advice found that doing so can cause sole traders to spend two hours a week retrieving company expenses from their accounts, a burden that can amount to 15 days of paid work lost every year.
Having a designated business account makes it much easier – and quicker – to process invoices and sort your expenses.
Have a steady growth plan
Making a success of your business is clearly good news, but taking on too many orders, agreeing to tight turnarounds or aiming to take on projects that are beyond your capabilities are going to lead to trouble down the line. By trying to go ‘too big, too soon’, you might find that you stretch your financial resources too far – having to spend too much on stock, for example – and jeopardise your hard-won reputation. Steady growth, where you expand at a manageable rate and, if necessary, take on staff to help you expand, is key.
Review your outgoings
If you can keep your outgoings in check, then you’ll be able to keep your finances in check. Whether it’s the cost of stock and supplies or the amount you pay in bills or rent, you always need to be on the lookout for a better deal. If you let things drift, you could well be paying over the odds and, in turn, losing out on potential profits.
Invest to build up your funds
What do you do with the money you’re making as a business? If it just sits there mixed in with your personal account (as we’ve seen above) then there’s a chance that you’re not getting the most from this. Ideally, you need to find a way to re-invest in your business – as part of your steady growth plan – and a method to build up your reserves so that you’re ready to withstand an emergency or fund a big ticket purchase in the future. Interest rates are currently low so you might have to look beyond sluggish savings accounts and consider how you might be able to invest to grow your businesses. Clearly, all investment comes with a risk so you need to be confident that you know what you’re doing. You can seek expert advice or use a demo account before you begin foreign exchange trading, for example. By using your profits wisely – growing and reinvesting them – you’ll stand a better chance of keeping your finances in check.
Keep a close eye on cash flow
Finally, you need to have a good understanding of how to manage your cash flow. As Brookson One notes, you need to set sensible payment terms – that won’t cause a disaster if they are missed – and develop a smart system for chasing the money you are owed. Failure to get invoices paid on time can cause huge headaches when, in turn, it comes to paying staff and suppliers so it’s vital to work this out if you wish to keep your finances in check.