Managing Money as a Sole Trader
As a sole trader, the intuitive thing to do is to focus on gaining clients. After all, you are dependent on getting work from your clients for your income. However, if you do not manage your cash correctly you will quickly find that you are losing it far faster than it is coming in. There will always be money coming in and money going out. The most important thing to figure out is how to mitigate the outgoing expenses as much as possible.
A good way to start keeping track of this is to set up a sole trader bank account. Having a dedicated business account will allow you to keep track of everything you need to at once. When it becomes time to fill out all of the required tax forms you will know that everything on your business account statements is relevant.
Of course, you cannot rely entirely on your bank account to tell you everything. Keeping ledger and learning the basics of bookkeeping is incredibly valuable. Understanding what is happening to your money will enable you to make informed decisions on what to do with it. It is recommended that you use a piece of dedicated bookkeeping software to track everything. That way everything that needs to be connected will be, updating one piece of information will affect the rest as required.
As a business, you will be liable for all of your own tax. It is vital that you set aside a small amount each month to cover the yearly payments. Once you earn enough, you will also have to become VAT registered. As a sole trader, you will not be liable for corporation tax. The important thing is to become familiar with your tax authority rules so that you know which tax band you fit into and what the income thresholds are. These rules are determined by the state in which you live. As an example, if you happen to operate your business in New York City, you may have to use a New York income tax calculator in order to determine how much tax you will be required to pay and how you are going to budget your financial objectives in accordance with that. Once you have a detailed breakdown of the potential tax liability that you owe, you might get a clear insight as to how you can expect your business to flourish.
Claiming business expenses is a great way to help you manage your money. What this means is keeping all of your receipts. If you do not have a receipt then the expense cannot be claimed. In particular, this means keeping a record of all journeys. If you just claim your petrol then you will only get 50% back. Instead, if you track the miles travelled then you will be able to claim the whole journey back. For those working from home, you can claim home office expenses which means effective reductions in your electricity or Internet bills.
Individually the savings may seem like quite a lot of work for little return. All of the work will add up, though. The little differences may make the difference between a successful business and bankruptcy. Always be on the lookout for opportunities to save money and never disregard anything. You may be surprised just how much power you have.
