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During so-called ‘normal’ times, having a firm handle on your finances – as a freelancer or contractor – is important.
But in a cost of living crisis, your financial savviness could prove to be the difference between failing, surviving or even thriving in business on your own.
So how do you go about getting your freelancer finances in a healthier place?
1. Get clear on your position
Without a firm understanding of your existing situation – whether good, bad (or ugly!) – you’re in no place to start thinking about ways to improve it. So a review of your finances should be the starting point.
Nobody is suggesting a full-blown financial audit. But an analysis and breakdown of your spending, earnings and upcoming tax liabilities (personal and business) will provide you with the information you need to make smarter financial decisions – whether that’s to strip out unnecessary costs, set aside a little extra for tax every month or even extract more profit from your business.
2. Start saving for the short-term
A rainy-day fund is vital. While demand for freelancers and contractors is sky-high again following Covid-19, you never know what’s around the corner. So try building up a safety net – between 3 and 6 months' worth of money – in the event you need it.
A quick and relatively simple way to do this is by setting up various other accounts (usually as part of your existing business bank account), where you can squirrel away an allotted amount every month.
While you’re at it, you might want to do the same for tax – opening VAT, Corporation Tax and even a personal tax return savings account. This way when tax payments are due, you shouldn’t have any nasty surprises.
3. Plan for the long-term
Paying the bills in the here and now should always be the priority, but that’s not to say you shouldn’t disregard your future – and action you can take today.
From setting up a pension scheme (which is a tax-efficient way of saving for retirement) to potentially even investing in stocks and shares (although you should always seek professional advice on this) there are plenty of things you can do now, that you may thank yourself for a lot further down the line.
4. Prepare for the unexpected
If the pandemic has taught us anything, it’s to expect the unexpected and, ultimately, prepare for it – or as best you possibly can.
With this in mind, one of the wisest things any business owner can do is to protect themselves with insurance. There are plenty of business insurance policies available – whether to mitigate professional negligence, cover the cost of a broken laptop, or even cover legal fees should you take someone to or be taken to court.
Insurance offers vital protection and peace of mind, enabling you to focus on doing what you do best – running your business.
5. Engage the help of an expert
When it comes to tax and your financial affairs, non-compliance, honest mistakes and poor money management can be very costly.
It’s why, when looking to get your finances in shape, don’t rule out engaging the support of a trusted accountant, whose job it is to help make sure you operate tax compliantly and tax-efficiently – two vitally important things to get right if you run your own business.
For a friendly chat about how Caroola can support your tax and accounting requirements, please contact us.