How to manage money when you are 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.
Don’t underestimate your expenses. Fortunately, more than 40 percent of all home-based businesses require less than $5,000 for startup. However, there are many other costs associated with running a business. In your spending plan, don’t forget expenses such as childcare, insurance, postage, gas, and dry cleaning.
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.
Avoid relying on credit cards. Borrowing from a credit card can quickly lead to costly trouble. If you need to use a credit card for business expenses, open an account specifically for that purpose. If you need money to launch your business, consider a small business loan instead.
Keep tabs on your taxes. Some self-employed individuals may have to pay up to a 15 percent self-employment tax in addition to their regular income taxes. To avoid tax-time surprises, periodically review your taxes throughout the year. Don’t forget to make necessary quarterly tax payments to avoid under-withholding penalties.
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.
Get help. Consider working with a lawyer who can help you with necessary, and sometimes complex, legal matters. You should also contact your insurance agent to make sure you have appropriate coverage.
Finally, realize there is no need to reinvent the wheel. The Small Business Administration (SBA) estimates that home-based businesses make up half of US businesses; take advantage of their resources at sba.gov.