Did you know that almost half of British adults don’t feel confident managing their finances? Staying on top of your money is always tricky, but working as a contractor adds another level of complexity to the task. With complete independence comes great responsibility! But fear of finances should never put you off pursuing a self-employed career or impact your success, which is why we’ve put together these top tips to make it easier.
Set Up a Business Bank Account
Around 85% of women control household finances, making most of us familiar with the ins and outs of money management. But, professional finances are a whole different ball game. To avoid confusion and overlap, it’s smart to separate your money with a business bank account, creating a clear divide between personal and professional finances.
Direct all incoming invoices into your business bank account, making it easy to see how much you have coming in. It’s also important to put all expenses through your business account, making it easier to file your tax returns and track your spending.
Get to Grips With Taxes
As a professional contractor, your taxes will be up to you to stay on top of. When starting out on your own, this can be pretty overwhelming! But, break it down and your taxes are actually super simple.
The tax year begins on April 5th of every year, and you’ll be expected to fill out a tax return for the year before. As a contractor, you’ll likely be filling out a self-assessment tax return, which is fairly straightforward and you’ll be guided through the process. The main things to record accurately are your profits, losses, and expenses for the year.
When you record an expense, be sure you keep proof of purchase. This is where your business bank account comes in handy! It’s smart to look into what you can and can’t put down as an expense when working from home, too. You don’t want to include anything that you may be penalised for later, but you also don’t want to miss out on any tax-reduction opportunities.
Your final tax bill will take into account your profits after expenses, and include National Insurance.
Set Up Payments on Account
After your first year of paying tax, we recommend you set up payments on account. This system encourages contractors to pay their tax in advance, in two installments the year before their final bill is due.
When you receive your tax bill, you’ll already have either paid in full or shaved off a large chunk, making it less of a strain to pay the remaining sum.
Know Your Options For Extra Funding
If you’re in the early stages of your contractor career, money may be a little tight. Perhaps you’re doing pro-bono work to get your name out there, or you’re undercharging to build your client base, leading to less income than you’d like.
In these cases, it’s wise to know your options for extra funding. Check out the small business loans provided by the UK government, and look into your eligibility for bank loans and financial credit cards. Contractor mortgages are available, too, helping you either remortgage your house when money is tight or get on the property market as a freelancer.
Learn How to Budget Like a Pro
Managing business finances successfully means learning how to budget. A budget ensures you track your income and expenses, balancing your cash flow to make sure you don’t spend more than you should.
Your budget should record your:
- Total income
- Business expenses
- Personal expenses
Analyse your spending to optimise your cash flow. Look at where you’re spending too much, how to cut back, and where you see the highest return on investment (ROI) for your company. Set goals based on your budget, too, such as cutting back on travel expenses or spending less on coffee to stretch your money further.
Pay Bills on Time With Direct Debits
Most businesses have bills to pay, just like a household. Ensure you meet due dates by setting up direct debits.
Not only will this help build your business credit score if you use a business account, but it’ll also reduce downtime for your company. For example, forgetting to pay for your website hosting subscription could see your site go down, losing you valuable clients and tarnishing your brand image.
Set up direct debits a few days before every bill is due, ensuring it’s paid on time regardless of weekends and bank holidays. Automated payment frees up more time to spend on your business, too, helping you earn more and boost your bank account.
Bring in Professional Advice
Around 65% of UK adults have never sought financial advice. As a contractor, we’d highly advise you don’t follow the masses!
Professional, expert help when managing your money can make all the difference, optimising your spending and reducing the amount of time you allocate to your finances.
A financial advisor can help you:
- Reduce wasted money and increase savings
- Help you budget like a professional
- Fill out your tax returns
- Increase your ROI
- Manage your money wisely
If you find dealing with your business finances stressful, an expert can even help your mental health. By setting up simple systems and guiding you through processes, you won’t have to lose any sleep over your bank balance. Reduce anxiety and give your business a boost, becoming an expert in making the most of your money.
Final Words
As a woman in business, you may already have a grasp on managing money. But, learning how to process finances as a professional is so crucial that it’s best to brush up on your skills! Hopefully, these tips have helped you understand more about the world of business accounts and give you the confidence to manage your own.