How to Budget If You Are Self-Employed – 7 Top Budgeting Tips!
Budgeting is not everyone’s forte. If you are brilliant at it, you probably aren’t reading this blog; if you’re here, it’s because you know you need to do it better.
We are here to help you with 7 top budgeting tips to help you get better at budgeting as a self-employed person. It can be daunting to suddenly manage personal and business finances, so try some of these and let us know how you get on!
1. Be strict about keeping business and personal finances separate
As a sole trader, you don’t legally need a business bank account or even a separate one, but it is SO much easier if you do. Making things easier for yourself from the start is the best way, so get a bank account for the business and make sure all the transactions there are just for your business and your personal account and cards are just for personal use. It will make doing your accounts a lot simpler.
There are plenty of excellent business banking accounts you can set up online now; Starling, Tide, Mettle and Monzo are free, and all get good reviews, especially Starling. Traditional high street banks usually offer the first 12-18 months free, but you may need to pay a fee. NatWest, Barclays, HSBC, etc., all have business banking accounts. As a sole trader, you can use a personal banking account to avoid fees, although the bank may frown upon this if they realise it is what you are doing.
Please note that if you are a Limited company, you MUST keep finances separate as the money is the business’s, not yours; therefore, a business bank account is required. Please see our blogs about the pros and cons of a limited company and sole trader.
2. Be clear on Your Monthly Outgoings
Signing up for many things when you start can be tempting, so try to be sensible. If you can use the free CRM system or software option, do. As time progresses, you may expand and need to use the premium or upgraded versions of things, but keep track of the costs. Also, track office rental, fuel costs, stock, staffing, etc. Everything your business pays out over the month.
If you have a year or more under your belt, you can work out the average monthly cost of some of the less regular expenditure by adding a year’s worth together and dividing by 12.
3. Look at business expenses regularly
Be brutal here; reassess your outgoings every quarter and determine what is needed. Are you paying for Adobe? How often do you use it? Are you paying for things for a team member who isn’t there? Can you get a better deal if you negotiate a renewal? You might be surprised, and it doesn’t hurt to ask. It can apply to anything you pay out; ask yourself if it can be obtained for less or if you need it. Technology changes, and new things come onto the market constantly, so keep updated or ask someone who knows.
4. Use a budgeting template
There are numerous budgeting templates at your disposal, or if you prefer, you can create your own spreadsheet using Excel. Our website offers a comprehensive template specifically designed for business income and expenditure, which can be easily customised to suit your business needs. Feel free to access it by clicking on the following link: https://www.businessaccountingbasics.co.uk/personal-budget-template/
Try to allocate monthly time to update it, perhaps when you do your bookkeeping work. This will help you monitor and track your income and outgoings accurately and see any patterns or areas you can cut down on.
5. Try and create regular annual income sources you can rely on
As part of running your business, you will be trying to get new sales, whether it is a service or product you need customers of some kind. This is obvious, but the more regular and reliable this flow of work is, the easier it is to budget. It is hard to give generic advice when your business could be anything; however, wherever your customer comes from, ensure you track this (data is powerful).
Create an email list of prospects, perhaps by giving away something (a lead magnet) and utilising multiple marketing streams. So, do not just use one social media platform or one advertising type; use a few if one starts to go wrong or you lose a social media account. Subscription models work well to create regular annual income; if that fits in with your business, think about how you could make it work.
6. Be aware of quieter times of the year
The more up-to-date your figures are, the easier it is to track when the quieter times of year are for your business. Christmas could be a booming time if you are in product sales, or it might be dead if you provide a summer-friendly service. It will vary, but every business will have times of the year it is busier than others and learning this is easy once you use a good accounting system, as you can view your figures on a graph or chart and track revenue.
Understanding this can help you offset these times by running special offers or even thinking of extra products and services to provide at that time. Or perhaps you just want to plan some time off to coincide!
7. Budget for Self-Employed Income Tax and NI
When budgeting for tax and national insurance, it’s crucial not to overlook this aspect, as it can quickly become a nightmare if you do! Remember, you need to set aside money for tax, and the amount will vary depending on your turnover or profit.
Consider using a reliable online tax estimator, such as our self-assessment tax calculator, to make this process easier. By utilising such tools and planning your budget accordingly, you can transform the potentially stressful and chaotic experience of paying your tax bill into a smooth and hassle-free process. After all, receiving a substantial tax bill without having the necessary funds set aside can be overwhelming and daunting. So, preparing and ensuring you’re financially equipped will ultimately save you from unnecessary stress and worry.
Make sure you complete your self-assessment tax return on time and accurately. Look at hiring an accountant or bookkeeper if unsure of the process. They can help guide you through the complexities of filing your self-assessment tax return, ensuring you meet deadlines and have all the correct information ready for HMRC. Whether it’s keeping track of receipts or understanding tax codes, a professional accountant or bookkeeper will ensure your accounts comply with regulations and are accurate. Don’t let filing your self-assessment tax return be a headache: seek professional advice to ensure you get it right!
Accounting Software
Finally, a good accounting software package can assist in all your accounting needs, from raising invoices to tracking payments and preparing your financial statements. It helps ensure you have all the information needed for accurate reporting and saves time by streamlining repetitive tasks.
With a comprehensive accounting software solution, businesses can easily track their finances in real-time, analyse trends over time, and make informed decisions about the future of their business. As an added bonus, having a reliable and secure accounting package means you can be confident that the data you rely on is up-to-date and accurate.
We hope you find these tips helpful and can apply them to your business. Just remember to keep up to date with your accounts and bookkeeping and track everything, big and small, then budgeting will soon become second nature.
Further Reading
If you are thinking of changing to a cloud-based accounting system, check out our article on the best accounting software for self-employed.
We hope you have enjoyed our article on how to budget. If you are self-employed, please read our related articles.
