As a small business, you may not have an accounting team to take care of your finances for you, which puts you in charge of this massive responsibility. Because of this, you should take a look at these tips for handling finances more effectively, whether you’re a solo business owner or a freelancer.
Set Up Safety Nets
You need to plan for the worst and having a safety net in place will help you recover quickly and get back to work. Your essential equipment could break down unexpectedly. Your home office could get flooded. Your cash-flow could suddenly dry up. These are all problems that could cause you to lose days of productivity and crucial income.
Here are some actions that you should consider to protect your work life.
If you’re a small business owner that relies on important equipment to manufacture products or complete services, you should get equipment breakdown insurance to help you cover the costs of repairs or replacements.
Freelancers may not need such intense coverage because their equipment needs are small– it’s not necessary to apply for this coverage if you’re responsible for a single computer or telephone. However, you should still set up small protections for your devices. Have proof of warranties on-hand so that you can easily access discounted (or free) repairs within the allotted timeframe.
You could also consider joining an extended electronic warranty program through a brand or tech store to maintain low repair costs and replacement options. But be sure to research the average repair costs for the equipment you own. You might find that the costs of the warranty program far exceed the costs for repairs. If that’s the case, you’d be better off creating an emergency fund that you could use whenever your equipment needs to get fixed.
Have an Emergency Fund
An emergency fund is an excellent safety net that you can rely on whenever there’s a problem like an equipment breakdown or building issue — think plumbing, electrical or heating trouble. Any self-employed worker should try their best to create an emergency fund to help handle small emergencies right away without disrupting their regular budget.
While you’re building up your emergency fund, you should consider applying for an online line of credit to use as a back-up. A line of credit could help you deal with small-scale emergencies when you don’t have immediate access to savings. Click here to see the requirements for this line of credit and how it works to see if it’s a good option for you. It could help you get through a rough patch.
Separate the Personal and the Professional
Another thing that self-employed workers should do when it comes to their finances is keeping the personal and professional finances completely separate. An all-too-common problem is to use personal credit cards to pay for business expenses. Instead of doing this, you should have business bank accounts and credit cards for these expenses.
What’s the issue? Mixing personal and professional expenses will make bookkeeping a challenge. Keeping the two separated will make sure that you don’t have to comb through bank statements and receipts to record expenses properly.
Mixing the two can also affect your credit scores — both your consumer credit score and your business credit score. Using separate business accounts will help build strong business credit, which can make future funding and expansion opportunities easier to achieve.
Prepare for Tax Season
When you’re self-employed, it’s always wise to prepare for tax season well-ahead of time. You don’t want to scramble when those deadlines finally arrive, especially if you owe more than you originally expected.
Make sure to check the IRS website for the annual tax calendar to see what your deadlines are for quarterly payments and filing your returns. You should also double-check the site to see what deductions you can make for the fiscal year.
Whenever you’re budgeting for payments, always save a little more than you need. Having a buffer will help you in case there’s a calculation error, and you somehow owe more than you previously thought. The savings may never come in handy, but it’s always worth having the peace of mind.
The best lesson that you can take away from this is that preparation is key. You can never be caught by surprise when you’re ready for anything and everything.