Forget about the freedom that self-employment comes with; it comes with a price. Being your own boss calls for a high level of responsibility and discipline in most aspects like time management, integrity, among others. The most crucial aspect, however, is making enough money to meet your monthly needs and responsibly take care of the money.
Whether you are the one running the books or you have hired someone to do it, as a self-employed person, you need to have a grasp of the financial flow as the one in charge. Any penalty of a late payment bill, tax, or any financial blunder will affect you directly. You may not be an accountant by profession, but here are some tips to control finances if you are self-employed.
1. Keep track of every coin
In accounting, recording every coin that comes in, and any that goes out is crucial. In small entities, where cash flow is minimal like two or three transactions in a month, a simple list in whichever format will work.
More activities in the cash flow may need a detailed record like a spreadsheet. If you get
Intimidated by spreadsheets, consider buying an account book and go the old fashioned way – handwrite. If possible, try and back up your records especially when you store them on a soft copy. Things happen with machines and you may lose your records in the blink of an eye.
There are specialized accountancy software in the market today that can help do more than the basics if you choose to purchase it. However, such software works well in bigger businesses with many transactions compared to small startups with few entries.
If you are using an accountant, ask them the best format and best method to keep track of your income and expenses. Remember never to get tired of recording all the cash and payments. Do not rely on your memory and it is best practice to record immediately so that you do not forget.
2. Separate your business account from personal funds
The business belongs to you, and so do the funds, right? Wrong! You should separate your finances from the business funds right from the start. Though as a sole trader this is not a requirement from the law, it helps to keep track of your business income and expenses more manageable.
When the business is small, you can open a second personal account and dedicate it to the venture instead of a business one. Company accounts most of the time charge monthly fees and transactional fees while the personal ones are free hence a small business will minimize its expenses.
3. Organize your receipts
Declutter by all means but keep all the receipts in an organized way. Not in the pocket of your last worn outfit! You can either use a scanner to scan all the receipts and file them as per their dates.
Another option is to staple all small receipts to A4 papers and file or scan them to ensure the small bits of paper do not fall or go missing. If the receipt content is not clear, indicate on it, and still file. It is better to have receipts you do not need, than miss a proof of an actual expense.
4. Issue well-numbered invoice
Invoices should be in duplicate or triplicates. Issue an appropriate invoice to every customer that buys your service or product, and keep a copy.
Every invoice page should have a unique reference like a combination of letters: A01, A02, or just numbers: 001, 002, and 003. Take what works for you and your business.
Take time and research on the requirements for invoices in your locality for better understanding. Word processor can help you make an invoice, or if you are stuck at pre-technology, just handwrite it. Whichever approach you choose, issue to all your clients with invoices and always keep a copy.
Besides helping you to get money from dodgy or slow-paying customers, well-documented invoices help with your tax return process.
5. Avoid procrastinating
Procrastinating and putting accounts off is tempting, but can cost you more than necessary. You do not have to be caught in the mad rush of having your accounts done last minute. Avail all the information your accountant needs to file the returns and pay taxes early enough. If your accountant gives you a deadline on anything, stick to it.
You can beat the deadline rush that most people get caught up in by setting your records in order way earlier. Rushing during the deadline may come at a cost.
6. Seek professional help
While some branches of accounting functions are simple and straightforward, others are complex and need a professional in the field. Tax matters are some of the things that you may need to consider engaging an expert in the field unless you are one. It is common to find people referring to themselves as accounts with no relevant qualifications. Check with the Chartered Accountant in your area to validate an accountant’s authenticity.
A good accountant will help you save money and help your business grow in the right direction. When the company is making losses, a professional accountant will point out any red flags and offer sound financial counsel.
Any business has to have its finances in order before succeeding. If you choose to go the self-employment way, ensure that you have a grasp on significant accounting functions. When your finances are in order, you are most likely on the right path to success as an entrepreneur.