Working for yourself and running your own business provides many advantages for example accessing creative freedom, independence, and flexibility of managing your own schedule.
At the same time, self-employment comes with great responsibility. The somewhat unpredictable nature of self-employment requires you to manage your money extremely attentively.
The sooner you get on top of your business finances, and by extension your personal finances, the greater your chances of running a successful business.
Here are five simple tips for the newly self employed
Explore options to make decisions on business structure
One of the key decisions you’ll make when starting a new business is what structure to operate under with regards to whether this would be best set up as a sole trader business, a partnership, a trust or a company structure.
Your business structure identifies operations and is dependent on the size and type of business, plans to expand the business, and personal circumstances.
It’s important to choose a business structure that enables you to reach your unique goals as it can affect things like who is making the key decisions, tax advantages and disadvantages, how profits and losses are shared, as well as any legal obligations.
It’s a good idea to seek expert advice and discuss your proposed structure with an accountant or a financial adviser.
Consider the value of insurance
Self-employed people should consider a variety of insurance, such as business buy/sell, loan or key person insurance, public liability, and public indemnity.
As the owner of your own business, you are your most important asset. It’s important to consider how you or your business would survive financially if you had to spend time out of business because of an unforeseen events like an illness or accident.
Further, income protection and business expense insurance needs should be considered as these can help you stay on top of your business and personal expenses if you were unable to work temporarily, giving you time to focus on your recovery.
Stay on top of your taxes
A key consideration for people who are self-employed is to understand what you owe the government and what you can claim. To avoid any tax-time surprises, periodically review and think about your taxes throughout the year, not only at tax time.
Be sure to take advantage of any government support that may be available to you. As an example, you may be eligible to buy equipment for your business needs and access cash flow benefits from the Federal Government’s Instant Asset Write-Off Scheme.
Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use. As of January 2021, instant asset write-off is only available for small businesses with a turnover of less than AUS$10 million and the threshold is AUS$1,000.
If you do have a particularly complicated tax component to your business, you may also want to find a tax accountant to help you keep tabs on your taxes. The Australian Government Business Website has a range of information, grants, services, and support from across government to help your business succeed.
Keep your cash flow going
Cash flow is the backbone of your business. It is up to you to keep money aside, and regularly setting aside a little extra will help you manage during any quiet periods or if something unexpected pops up.
To help with your cash flow, try to bill early and collect quickly. You can do this by encouraging your customers to pay on time (or even earlier) by offering incentives to reward early payment. Creating invoices that are as clear and detailed as possible can also guard against late payments.
The Australian Government My Business Health website provides some great tools, templates, and tips to help business owners manage their challenges so they can focus on enjoying their business.
Don’t underestimate your expenses
To get you started on the right path, you should be looking for ways to streamline your expenses. Focusing on spending only on what you need at the time will allow you to avoid over capitalisation.
As an example, when investing in facilities and equipment it’s best to start small and take your time comparison shopping before choosing vendors or service providers that can provide you with the best possible deal.
Being your own boss also means that you need to be responsible for keeping your financial records up to date. Be sure to keep accurate records so you can confidently navigate your books in the long run.