Finance basics for sole traders
Start as you mean to carry on by getting your business finances organised in the early months of trading. Here’s some basic rules:
Start selling from day one, if not before!
Don’t spend money on expensive advertising or marketing campaigns thinking business will come to you – you’ll have to go and find it! Cold call prospective customers, get your friends and family to spread the word, and network like crazy. Think like your target customers – where do they shop? and how do they shop? That way you’ll know where to find them.
Have a dedicated business bank account
Don’t use your personal bank account, set up a new bank account just for your new business.
Pay all your business earnings into your business bank account and pay all your business expenses from it too. Transfer your ‘wages’ for personal spending into your personal account so the two are kept very separate. It’ll be much easier to keep track of your business finances, and your personal bank account won’t form part of your business records.
Take as little money out of the business as possible
Don’t get carried away and buy the best/newest/fastest of everything. Imagine you’re an employee having to justify your spending to the MD, only you’re the MD! If you can lease or hire rather than buy then do it, if you can work from home then do it.
Business Tax advice
Take a look at this range of books on business structure and tax outlining some of the different approaches you can take to managing your business tax.
Save for your tax bill
Open a high interest savings account to put money aside for your tax bill. HMRC’s free ‘Self-Assessment for the Self-Employed’ workshops will help you estimate how much to save each month for your tax bill, but as a very rough guide it’s 22%
Invoice as quickly as possible
Aim to get payment up-front or on delivery. If you really can’t, make a point of getting your invoices out as quickly as possible, especially if it’s a big order. And make sure your invoices are clear and accurate, and have details of how and when to pay.
If you haven’t been paid on time don’t be embarrassed to chase overdue payments – you’re in business to make money and you won’t make money if it’s in someone else’s bank account!