Six Key Financial Skills
If You’re Self-Employed
While many skills go into running your own business, you won’t get very far if you don’t have excellent financial skills.
Here are six skills that you need to master if you want to be successful in your self-employed venture.
Understanding Tax Payments
When you’re employed by a company, you don’t have to think about your taxes. The amount is automatically deducted from your paycheque. On the other hand, when you’re self-employed, things are a little more complicated. You’ll need to put money aside each month to ensure you can pay your income tax once you know how much it is after completing your end-of-year tax return. If you don’t put money aside, you could end up owing thousands to the taxman that you don’t have. If you owe back taxes and late fees, it can cripple your business. So, understanding tax payments is a skill every self-employed individual needs to master.
Being Able to Prove Your Income
Following on from the last point, it’s much more difficult to prove your income to the taxman when you’re self-employed because your income and deductions are not automatically recorded each month. It’s vital that you keep all receipts and invoices and maintain up-to-date accounts not only so that it’s easier to complete your end-of-year taxes but also so you can prove your income when the taxman asks. Thankfully, if you need to quickly create paystubs for proof of your self-employed income, you can use a simple to use online paystub maker.
Learning How to Invest for the Future
It’s not only money for taxes that you’ll need to put aside when you’re self-employed. You also need to think about your future. When you have no employer, you have no pension plan and benefits. You need to prioritize contributing to a retirement account each month, but it can be sensible to invest your money too. Learn how to best put aside money for retirement and what your different investment options are so that you can be in control of your future financial needs. You should also think about other big costs you could face in the future, such as sending your children to university or facing an emergency situation.
With taxes, retirement funds, emergency funds, and more to think about, you may now be worrying about how you manage to take control of all your different financial needs and obligations as a self-employed person. To help you maintain control and make your overall finances more palatable, think in terms of percentages. With every paycheck that comes in, divide up your money via the same percentages and you’ll be able to stay on top of your finances easily. For example, if you decide to put 25% away for taxes and 10% away for your retirement fund, stick to those percentages whether your paycheck is for £10,000 or £100. With a uniform financial plan in place, it will be much easier to ensure you have the right money in the right place and have complete control over your business finances.
Creating a Salary Timeline
In theory, running your own business means you can pay yourself however much you want. Of course, it’s not quite that simple because your salary will be determined by your outgoings, turnover, profits and losses. Many newly self-employed people choose to not pay themselves regularly at first, and that can be a good idea. The key is to have an overall view of all your business finances so you can calculate whether you can afford to pay yourself a salary at first and how much you should pay. You can also determine at which point in your business’s timeline is a good point to start paying yourself. Create a salary timeline, and stick to it.
Knowing When to Hire an Accountant
It may be tempting to hire an accountant to do all of the above and more for you. However, if you leave every financial element of your business in the hands of an accountant, it’s actually a recipe for disaster. Why? Because you need to understand key financial factors if you want to have control of your business and see it grow. After all, finances are at the heart of any business. So, whatever sector you work in, as a self-employed person, you need to have a good understanding of your numbers.
Having said that, there could come a time when you should hire an accountant. The important thing is to know when the right time is. For most self-employed people, the time to get a professional accountant on board is when your business goes to the next level. When you are spending more time looking at the books than focusing on the nuts and bolts of your business and discovering ways to expand your client list, it’s very helpful to employ an accountant who can deal with things like tracking expenses, filing invoices, and doing your taxes. As your business expands further, a certified accountant can even help by giving you sound financial advice. It’s vital you maintain key financial skills when you’re self-employed. But you won’t have the same financial expertise that a certified accountant has.
Further Reading from Skills You Need
If you are thinking about running your own business, or already do so, but feel that you need some guidance, then this eBook is for you. It takes you through self-employment in easy steps, helping you to ensure that your business has more chance of success.
The Skills You Need Guide to Self-Employment and Running Your Own Business is the guide no new or aspiring entrepreneur can afford to be without!
Based on our popular self-employment and entrepreneurship content.
Learning the above key financial skills will help you to manage and grow your business, but there are plenty of other financial skills you could learn to make your self-employment venture a real success. So, consider enrolling in a course to further expand your financial knowledge and skills. By doing that, you will be able to work towards your financial goals much more effectively. You could find a course in your local area. Alternatively, there are a number of excellent online courses that can help you to improve your financial wellbeing as a self-employed business person. You will find both courses that you have to pay for and free ones. But it’s often better to invest in a paid course because you will gain more benefits in the long run. By levelling up your financial skills, there’ll be no stopping you!
About the Author
Cristina Par is a content specialist with a passion for writing articles that bridge the gap between brands and their audiences. She believes that high-quality content plus the right link building strategies can turn the tables for businesses small and large.