How to Budget If You Are Self Employed – 7 Top 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 tips to help you get better at budgeting as a self-employed person. It can be daunting to suddenly be managing personal and business finances, so try some of these and let us know how you get on!

How to budget if you are self employed

1. Be strict about keeping business and personal finances separate

As a sole trader, you don’t legally need to have 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 yourself a bank account for the business and make sure all the transactions on 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 great business banking accounts you can set up online now, Starling, Tide and Monzo are some of the free ones, and all get good reviews, especially Starling. Or traditional high street banks usually offer the first 12-18 months free then 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 and therefore a business bank account is a requirement. Please see our blogs about the pros and cons of a limited company and sole trader.

2. Be clear on what your monthly outgoings are

It can be tempting to sign up for a lot of things when you start out, try and be sensible. If you can use the free option of a CRM system or software, then do. As time progresses you may expand and need to use the premium or upgraded versions of things but keep track of exactly what the costs are. Also track any 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, then 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 expenditure regularly and assess if anything can be renegotiated/subscriptions cancelled

Be brutal here, reassess your outgoings on a quarterly basis and look at what is actually needed. Paying for Adobe? How often do you use it? Are you paying for things for a team member who isn’t there anymore? 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 money or do you need it at all. Technology changes and new things come onto the market all the time so keep up to date or ask someone who knows.

4. Use a budgeting template

There are lots of budgeting templates available or you can create your own spreadsheet in Excel. We have one on the site based on personal expenditure that you can adapt for your business use, it can be found here:

Try and allocate time every month to update it, perhaps when you do your bookkeeping work. This will really help you monitor and track your income and outgoings accurately and see any patterns or areas that you can cut down on.

Personal or business budget template
Example of our Budget template

5. Try and create regular income sources you can rely on – create a sales pipeline

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, make sure you are tracking this (data is powerful).

Create an email list of prospects, perhaps by giving away something (a lead magnet) as well as utilising multiple streams of marketing. So not just one social media platform or one advertising type, use a few, in case one starts to go wrong, or you lose a social media account. Subscription models work well to create regular income, if that fits in with your business, have a think about how you could make it work.

6. Be aware of quieter times of 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 tax

This is such an easy thing to forget and such a nightmare if you do! You need to set aside at least 25% of your income for tax, and this will increase depending on your turnover/profit. But use a good tax estimator online (HMRC have one) and then budget accordingly. This makes paying your tax bill a doddle and not a stressful, crazy time. Getting a big bill without the money set aside can be awful.

We really hope you find these tips useful and that you can apply them in 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 on How to Budget if you are Self Employed

If you are thinking of changing to a cloud-based accounting system, check out our article on the best accounting software for self-employed.

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