13 Tips: How to Prepare Your Finances When You’re Going Self Employed

I’ve been running my business now for almost 2 years, and a financial expert for almost 20 years. In the last 2 years I have learned so much about running a business and how to prepare your finances when you’re going self employed.

Even now, there are daily things that I learn in my business. When you’re running your own business, especially in the early days, you are literally the CEO – The Chief Everything Officer!

It’s hard, right? You have to learn how to do your accounts, create and manage invoices, do Facebook lives, how to market, sell, and package your offers. So often what happens with money and finances is it gets left to the last task on the list. We generally find it quite ‘icky’, we don’t like having these conversations, and we often don’t know what we’re doing.

So I want to share my 13 top tips that I wish had been shared with me when I was at the beginning of my journey for knowing how to prepare your finances when you’re going self employed.

How to Prepare Your Finances When You’re Going Self Employed

Tip 1

Have a separate business account! If you’re a sole trader, just go ahead and open up a new account. It doesn’t need to be a special account, just a way to separate your personal and business income and expenses.

If you are a limited company, then go ahead and open a limited company business account. Some banks will charge a small fee for a business account, and some won’t. There are some free business banks on the market such as Starling Bank (who I’m a huge fan of) and Tide.

I’m a huge fan of the Profit First model in business, which you can read more about here, and one of the reasons I love Starling Bank is that you can set up pots in order to use the Profit First business model.

Tip 2

Decide whether you’ll operate as a sole trader or a limited company. Generally, advice suggests that if your income is less than £50,000 per year then you can stay operating as a sole trader. Once you get above that, it could be more advantageous to set up as a limited company.

If you’re in any doubt at all, check out all of the free resources on HMRC’s website. They often do some great FREE webinars that are worth listening to. Alternatively, speak to a financial adviser, and then register your business.

You’ll also need to review whether you’ll need to be making National Insurance contributions. If you want to still be eligible for things like the state benefit, maternity and child benefits, then you need to ensure that your contributions are kept up to date.

Tip 3

Have some kind of idea as to what your income and expenses are likely to be. This can be difficult, of course, but it’s a vital part of the planning stage of your business.

You may know in advance that you’ll have vital subscription services to pay for, such as email marketing systems, video conferencing software, stock image and editing software, booking systems, bookkeeping, and website expenses.

From here can you can think about the sales you’ll need to generate and the type of emergency fund you might need as a back up. You’ll also need to consider whether your clients will be paying you upfront or after the fact, too.

Skill swapping is a great way to keep initial costs down, so think about who can swap skills with in your circle in order to keep your start up costs down.

Tip 4

Put money aside for tax! I often see new entrepreneurs make the mistake of not putting money aside for tax from day one. What then happens is they are financially unprepared for the inevitable tax bill 18 months or so later.

I recommend that any income that comes into your business, you skim off around 20% and shimmy it aside into a tax pot.

Tip 5

Track your income and expenses weekly from day one. I know that this is the most boring subject for most of you, but it’s so important! If you really despise the idea of this, then think about outsourcing it to a bookkeeper.

Either way, get really good at organising your receipts, your expenses, and your income. I prefer to use a manual spreadsheet method rather than apps, and any receipts that you have can be put into envelopes marked with the month and filed.

If this sounds like hell, there are some really amazing apps and technology that can make this process super simple. Your bank provider may have links with some of these, so check this out. For example, Xero connect with Starling Bank which makes the process easy and seamless.

Quickbooks is another option, as well as FreeAgent which is really cost effective to run. And if you have employees, I fully recommend Sage.

If you’re working with an accountant, ask them what software they use, as this will be integral to ensuring your relationship works well.

Tip 6

Sort out your contracts. Right from day one you’re going to need contracts for all your services and digital products. Your services and products are assets, and you need to protect those.

They don’t need to be hugely expensive, and having these in place will remove some of the inevitable stress that comes with refund requests and non-payment. I recommend having a separate email address to handle these things, such as admin@themoneypanel.co.uk. Also think about using a VA to send any emails necessary, as it helps to remove any emotional connection from the process.

Have a clear system in place as well as your contracts.

Tip 7

Review your protection needs. When you leave employment, you often leave behind a wealth of protection benefits such as sick pay, pensions, death in service benefits, and private healthcare.

When you go self employed the last thing you want to do is think about any of those things, but I would say if you’re going to think about anything from day one it needs to be income protection and life insurance. If you can’t work in your business, then you can’t generate any income, and that’s going to have financial implications.

Depending on your business will depend on the level of income protection you’ll need. You’ll often be quite surprised at how low the payments for this can be.

I've been running my business now for almost 2 years, and a financial expert for almost 20 years. In the last 2 years I have learned so much about running a business and how to prepare your finances when you're going self employed.

Tip 8

Re-start your pension contributions. Don’t put any pressure on yourself to do this from day one, as you can probably get away with doing this after 6 months to a year or so once your income is established (unless you’re employing people)

As a self employed person, I actually believe that it makes more sense to make pension contributions annually rather than monthly as you may have been used to, and then offset these against your tax along with your tax return.

Tip 9

Look at grants. Very simple, just do a Google search for “business grants in [your town]”. Often you’ll find that you can access business start up grants that will help you to make those start up purchases or invest in your new business, or work on your personal development.

It’s also worth contacting your local universities and colleges to see if there are any students looking to add to their portfolio. For example if you need social media management, photography, or other other skills such as these.

Tip 10

Have a look at your home insurance. There may be certain stipulations on your home insurance when you’re setting up a business at home, so you’ll need to review these.

If you’re looking to offset your utilities, you may need to speak to an accountant about this, especially if you own your home.

Tip 11

Review any other insurances that you may need as a business owner. This could be things such as Public Liability Insurance or Professional Indemnity Insurance. These cover you if someone tries to sue you or if you’re selling products.

Tip 12

Outsource! Personally, I outsourced in year two of my business, and it literally changed my business. What it enabled me to do was to use the time I was spending on admin, editing, and various other tasks to grow the income in my business.

A lot of people think they can’t afford to outsource, but actually you should be outsourcing way before you even think you can. I highly recommend a book by Rob Moore called Life Leverage on this topic, there are some real nuggets of useful information in that book.

You can work with Virtual Assistants which is a really low cost way of leveraging your time, and these days you can get VA’s who specialise in a whole variety of different areas. So think about what is taking the most time in your business that you could outsource now.

For example, if you took on a UK based VA at £20 per hours for 3 hours per week, that will cost you £60. But that could free up time, for example, where you could take on 3 discovery calls and secure thousands of pounds worth of clients.

The great thing about VA’s is that they often won’t be on a contract basis or directly employed by you, so you can adapt as you need on a month to month basis.

Tip 13

This is a big one! Avoid working for free! As women, we are far more likely to offer our services out for free than men. This is all down to our self worth, and our self value. As women, we are brought up to have giving personalities.

So think about your money mindset. Think about investing in understanding your money mindset and your worth. Practise saying out loud what your services cost, and get used to the feeling of saying it.

Don’t devalue your services for clients who aren’t willing to pay what you know you are worth.