Being a sole trader can reap huge rewards. You get a large amount of freedom when it comes to the work you accept and can have a much more flexible work schedule compared your industry peers. However, there are some things that a sole trader needs to bare in mind when it comes to the financial side of things. As a sole trader, you need to consider expenses, tax, and any unexpected costs. These are pivotal to ensuring that you keep yourself in a stable position, so we have put together 5 financial tips every sole trader should follow.
Don’t do everything yourself, use support
As a sole trader, it is highly unlikely you are able to complete every aspect of your day to day workflow as well as your business upkeep. You may not have the skills and/or the time to complete everything that needs to be done, so making sure you have the funds available to get work completed is important. Some may find it difficult delegating tasks and hand responsibility over to others, but, it can save you a lot of hassle and will allow you get on with your day to day job.
There are multiple areas of your business that you could outsource for support, these include your website, marketing, and your accounts. The latter is where we hope to help sole traders, with our accounting for sole traders service aimed at streamlining your business and helping you grow. With either a complete or premium package available, you have a choice as to how you manage your books. Get in contact to find out more.
Register for VAT
As a sole trader, you must register for VAT, even if your turnover exceeds the VAT threshold. The current threshold sits at £85,000, and is made up of ‘taxable supplies’. However, many sole trader businesses opt to voluntarily register for VAT, as it can have its financial benefits.You can claim back the VAT that other businesses charge you, and and it makes your business look bigger, as by paying VAT you are suggesting to other businesses that you are making more than £85,000, creating a bigger impression.
One of the negatives of this is that you may potentially end up losing money as a result of paying VAT. If your output tax (the VAT you charge) exceeds you input tax (the VAT you pay), then you will lose out in the long run. It also involves more paperwork, which is another time-consuming practice that you may not be willing to do. The pros and cons depend on each individual business. This is where our accounting services for sole traders can also help.
Set up a contingency fund
One of the biggest risks you face as a sole trader is being unable to work due to illness or a range of other reasons. Having a contingency fund and plan in place is vital to keeping yourself afloat. This contingency plan is also vital for anyone who is using your services. They need the reassurance that if you start some work for them, that it will be completed no matter what the circumstances are.
The best way to set up a contingency plan is to organise a spreadsheet, which has a comprehensive list of who you have work scheduled for, when the completion date is, as well as updates as to what has been completed on the account.
This should be accompanied by the measures that will need to be put in place should the contingency plan need to be entered into effect, as well as how the work is going to be funded.
Set up a business bank account
While you may be the business owner, and more than likely the sole worker, that does not mean you should have all the money in your own personal account. Money management is the main benefit of this, as it will allow you to work out exactly what your business is earning every month. From this, you can put any expenses, bills, insurance and contingency money in one account, and pay your wage into your own personal day-to-day account. This way round you know what is what, as well as knowing what money is yours to spend, without jeopardising your business.
Sole trader insurance
Off the back of what we have said above, insurance should be highly considered if you are a sole trader. While this may be of some extra expense to your outgoing bills, it is a financial consideration any sole trading business really should have. While you should go for the standard business insurance, you should also consider getting public liability and professional indemnity insurance, dependant on what your business is.
For more information on how was can support you, take a look at our Sole Trader Services. Alternatively, would our Freelance Accounting Services or Contractor Accounting Services be more beneficial to you? Check them out, as well as what else we have to offer here at 3 Wise Bears.