How to manage money when you are self employed
The pandemic certainly caused a shift in the business landscape across the world. A lot of corporations have been forced to pivot, cut costs or shutdown entirely. With this, lots of working professionals faced job losses. In the US alone, about 10million Americans lost their jobs as a result of the pandemic. That being said though, this has caused majority to startup enterprises on their own and take on a rather unfamiliar territory of being self employed. After you have weighed the pros and cons of a home-based business and decided that self employment is right for you, your next step is to develop a plan. Your business plan should define your business and identify goals. When developing your plan, research laws that may impact your business. For starters, you must find out if you need a license or permit to operate your business. A good business plan also includes financial information such as a balance sheet and income statement.
When working on your business’ financial plan, don’t forget to develop a method for managing your new personal financial situation. Unfortunately, statistics show that many home-based businesses fail often due to poor financial planning. Following are some ideas to help make self-employment work for you.
Manage your income.
Most self-employed workers have sporadic incomes. If your income varies from month-to-month, determine your average monthly income. Then, if you have a month where you earn more than average, put the extra amount into a savings fund to supplement less lucrative months.
Keep accurate records.
Complete all of your paperwork on-time, particularly if you are billing clients or customers. Many companies will take several weeks to process invoices. Keep copies of all receipts for tax time. Because networking is so important, keep business cards and contact information in an organized manner.
Don’t underestimate your expenses.
Fortunately, more than 40 percent of all home-based businesses require less than N500k for startup. However, there are many other costs associated with running a business. In your spending plan, don’t forget expenses such as childcare, internet, insurance, dry cleaning, etc.
Pay Yourself A Salary
It can be hard to get past the thinking that every penny you bring in should be yours to do with as you please, but putting yourself on a salary is a necessary step to help control your business’ finances. If you’ve determined that you can live comfortably on, say, N200k a month, pay yourself that amount every month. If you have a better-than-normal month, resist the urge to take more, and instead leave the surplus in your business account to compensate for the months that might not be so good.
Start Planning For Retirement
This statement can apply to everyone from teenagers to seasoned business veterans — if you’re not planning for your retirement, you need to start. It may seem like a daunting task to begin on your own, but there are plenty of professionals out there that can help you choose the right plan for your situation and help you get set up. It’s easier than it seems, and you’ll be thanking yourself for taking those steps as you approach retirement age.
A little planning combined with spending discipline will make sure that your business can weather the rough months and make the most of the good months. The stability of working for someone else may be something that you miss, but if you’re smart, you can have the same amount of stability all by yourself.
