As a self-employed professional, you get to enjoy the freedom and other benefits you may not have in a 9 to 5 job. But with career independence comes financial responsibilities. And if you want to be successful you need to be financially fit.
If you maintain sound financial health, you would be able to grow your business and achieve your goals with confidence. If you let your finances go out of control, you would be putting your business at risk of failure.
Below are 7 tips on financial planning for self-employed that will help you better manage and grow your business.
What you will read in this article:
1. Avoid Taking on Expensive Debt
To grow your business, taking on debt is inevitable. Whether you use business loans, instant personal loans, business credit cards, a personal line of credit, or any form of credit, make sure that you avoid taking on expensive debt.
Research and compare various loan offers; select the one with the best loan terms. A credit with minimum interest rate will save you some serious money.
2. Plan Your Expenses
One of the crucial financial planning tips is budgeting. For a self-employed, budgeting can get a bit tricky because of the monthly income fluctuation. Here are some tips to make it easier:
- Pay your bills first.
- Make a budget. Be clear about your discretionary and non-discretionary expenses. This clarity will help you when you have less cash at your disposal.
- Keep personal and professional expenses separate. This will have two benefits – it will help you during tax time and it will also avoid cash crunch situations caused due to withdrawals for personal expenses.
- Track your cash movements. It’s important that you keep a track of your cash inflows and outflows. This will help you figure out which area you are performing well and where you need to exercise cash control. This data can help you budget your expenses well.
3. Embrace Technology
Managing the finances of a growing business can get tedious. To streamline the accounting process, it is best to invest in software that can help you with accounting.
Technology has opened up plenty of opportunities to increase your customer base, stay competitive, increase profits and grow your business. Investing in technology is the need of the hour if you want to succeed in your business.
4. Hone Your Negotiation Skills
As a business owner, you may have to hire services of a lot of vendors. Before signing any contract with the vendor, make it a habit to negotiate for the best price. Carefully go through contract terms for negotiating a good bargain.
5. Develop an Emergency Fund
Being self-employed means inconsistent sales, because of which income fluctuates. It’s a smart move to create an emergency fund to help you have a steady flow of income during slow months.
- Set aside 10% each month for emergencies. An emergency fund should ideally cover your 6 months expenses.
- A personal line of credit can also be used as an emergency fund. Keep an approved line of credit ready for an emergency and withdraw from it whenever and for whatever you need. The best part of a personal line of credit is that you pay interest only on the amount you borrow and not on the entire approved credit limit.
6. Take Equipment on Rent
If your business needs equipment, leasing rather than purchasing would help you keep your costs low, thus helping you save money for a future more pressing need. If you have to buy, consider buying used equipment.
7. Reduce Debt
Debt can be overwhelming and can be a reason for stress. Write it off to have a healthy financial position.
While being self-employed can be exciting, it can be challenging too, especially when it comes to financial planning for your business. With the help of these financial planning tips, you can be better prepared to reach new heights of success.