There are lots of great things about being self-employed. You get to set your own hours; your future is in your own control, and you can even dress up with sweatpants and go to work if you want it. But there are some aspects of self-employment that aren’t so a. For one, staying awake at night taking stress about when your next invoice will get cleared.
In your own work, you don’t always get a regular paycheck every two weeks. Rather, you have to rely on the mercy of your customers. You could demand net 30 payment, but if your significant client has a conventional policy of net 60 or net 90, they are unlikely to change the rules for you.
To lessen the number of sleepless nights that you spend tossing and turning; determine how to handle your business’s economics. This will help you plan the future of your business in a better way and your monetary issues. Here are some tips to help you kick off.
- Keep your business and personal bank accounts separate
If you are a sole proprietor, then there is no rule against managing your business and private money in one bank account. Nevertheless, to assure that you be on the IRS’s good side and get all the business deductions you are entitled to; you’ll need to keep meticulous records of income and expenses and paper, showing which transactions are made for the business.
If you own photography business or marketing crafts on Etsy or if you work from home; you jeopardize the IRS determining your business is a hobby and rejecting your deductions. Play it secure and open separate accounts for business and personal use.
- Take advantage of accounting software for self-employed workers
There are several easy-to-use software solutions designed especially for self-employed people who aren’t accounting specialists. Whatever solution you decide, you’ll need one that manages basic things like recording income and expenses, trailing deductible expenses, generating invoices, and generating financial statements.
Additionally, you will want to master how to read financial statements. Your income statement, balance sheet, and statement of cash flow are three critical financial statements to understand.
Income statements tell about your businesses revenue, expenses, profits, and losses during a specified period.
Balance sheets contain information about your company’s assets, liabilities, and equity as of the date of the generated balance sheet.
Cash flow statements show cash coming in and going out during a specified period.
Financial statements give a measure you can use to evaluate the financial health of your business at any given time.
- Plan for lean times
Cash flow is usually erratic when you are self-employed; so plan ahead for the times when cash isn’t flowing. Keep aside savings in both your business and your own bank accounts to tide you over, so you don’t end up counting on credit cards or loans and getting into a fiscal hole.
- Consult an accounting professional
According to research by Intuit, 89 percent of SMB owners state using the services of an accountant or other financial expert has made them more prosperous. Recent reforms to the tax laws have created a lot of uncertainty, so getting the help of an expert accountant at tax time will save you a lot of problems. It’s also a good idea to ask an accountant before choosing your accounting software. An accounting expert can help you find a solution that will grow with your company if you ever decide to expand.
- Charge what you’re worth
Do you still charge the same prices you did when you were a beginner? Do you feel nervous about demanding new clients for a higher rate, or do you think you aren’t a good negotiator? Start tracking time used on each client or project. When you know how much time you give to different projects; you can achieve a better understanding of what your time is worth. And creating reports for comparable projects can help you settle your price with new clients.
Plus, tracking your time will also tell how you really spend your days and help you pinpoint where your time could be put to better usage. Time is money, especially when you’re self-employed; and you need to spend as much time as possible on things that generate income.
- Stay on top of your finances
Reviewing your books at least once a week can help you see what’s on the horizon. For instance, if a big insurance payment is coming up, you should make sure you have the cash to balance it. Maybe a key client’s invoice is delayed, and you’ve forgotten to push them. Generate a cash flow projection plan and match it to where you’re at currently, to see how well you’re maintaining your finances.
Taking these easy steps, and taking charge of your business finances, can put you on the track to self-employed success — not to mention help you sleep a lot better at night.