Earning a living as a self-employed person can sometimes be stressful. You might face uncertainty around the way that you manage your income, as well as the other aspects of your financial life.
Fortunately, there are a few simple tactics and strategies that might help you to stay on top of your money, and allow it to work for you.
Assessing your financial health and setting a baseline
You’ll want to start with a frank and complete assessment of your existing finances. This should include an overview of your cash flow that distinguishes business from personal finance. You might also check your credit history to see whether any quick wins can be found by correcting the record.
It’s also worth setting goals at this stage. How much of a buffer do you need, if your income should dry up? How much of your income would you like to invest in your pension, and how much should be invested in improving your business?
The tax rate for self-employed people, according to the Resolution Foundation, is around 17% relative to 27%. This, however, ignores the fact that employed people enjoy benefits that are funded by their employers. What matters is that you should factor any taxation-related changes into your plans for the future.
Borrowing wisely: when and how to use debt
In some cases, it might be wise to resort to debt in order to see your business through a lean period, to manage your cash flow, or to make an investment in skills and equipment.
When you’re weighing the benefits of self-employed loans, you’ll want to think about the purpose they serve, and the alternatives available. Think about the guarantees you’ll be committing to, the way that your loan is secured, the effective rate of interest, and the amount of interest that you’ll ultimately pay, in total.
Alternatives to traditional borrowing: grants, equity, invoice financing
You don’t always need to borrow money, in the traditional sense. Applying for funding from a government-backed scheme, like a Start Up Loan, can make a big difference to your prospects, especially during the tricky period after your enterprise initially launches.
You might also consider more unusual forms of finance, like peer-to-peer or invoice finance. The latter uses unpaid invoices as collateral, and it can be perfect if you’re struggling with cash flow.
Saving, investing and protecting your future as the self-employed
You’ll want to think about how you’re going to be resilient in the face of future challenges. Building the right emergency fund, and investing in the right insurance, might help provide peace of mind in a challenging, inflation-blighted economic environment.
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