The way you manage your money is one of the first things you'll change when you move from employment to self-employment.
You are moving from an environment where you received income in equal amounts at set intervals to one where your income fluctuates.
Managing money in such circumstances is unfamiliar and, for most of us, uncomfortable.
These are some tips I developed from my experience of 10+ years of self-employment.
? KEEP GOOD RECORDS
When I first got started, an old CPA friend of mine had three words to say. "Keep good records."
Maintaining good records of your money transactions helps you in several ways.
It helps you track your income and spending so you can create a realistic budget.
Your financial records become a management tool for your business. If your records are accurate and up to date, you can track changes in income and spending ? and take appropriate action, when necessary.
There's gold in those records. As a self-employed person you can deduct all kinds of business expenses. But you have to be able to substantiate them with evidence (receipts, invoices, credit card slips, mileage logs, etc.)
Lastly, keeping good financial records keeps the authorities happy when they come calling. The IRS audit rate of self-employed people is higher than almost any other group.
? OPEN SEPARATE CHECKING AND SAVINGS ACCOUNTS FOR YOUR BUSINESS.
Having separate bank accounts in your business's name does a great deal to prove to snoopy tax authorities that you are really running a business and not a hobby.
But more important, it helps you to keep your records straight.
Money you generate and spend in the process of conducting your business goes through your business account, all other money goes into your personal account.
TIP: If you are a sole-proprietor, don't intend to have employees, and don't anticipate a need for business loans, your account can be a separate personal checking account. All that is necessary is that your account be in the name of your business.
If your bank insists that you open a higher cost 'business acccount,' consider going to a credit union, where rates and terms are more favorable than those of commercial banks.
? THE BANE OF FLUCTUATING CASH FLOW
Managing fluctuating income is one of the biggest challenges of self-employment.
The most difficult part of having a fluctuating cash flow is dealing with the anxiety that arises when cash flow is tight.
Most people who have been self-employed for a considerable amount of time develop a simple faith that money will flow again. But it gets uncomfortable for us, too, when the downturn is severe or prolonged.
Here are some tips on coping.
Have a marketing plan and stick to it.
Shift your spending to mimic your cash flow. In other words, spend more when money comes in, cut back when it is not. And put away some cash for a rainy day.
Keep your obligatory monthly payments as low as possible. These are the necessities that are billed monthly such as telephone and other utilities, car payments, etc.
If you must put a purchase on a monthly installment, as, say, most people do when they buy a car, opt for the longest-term loan possible.
A longer loan term lowers your required monthly payment. This makes it easier to fulfill your obligations during lean months. Pay more than is required during fat months to pay down these loans (this will reduce your total interest payments and pay off the loan more quickly).
Rather than paying for web hosting and other services on a monthly basis, opt for an annual installment that comes due during a fatter month. Not only do many web hosts give you a discount for choosing the annual option, you eliminate one payment you must come up with during a lean period.
Continued.
Ellen Zucker has been successfully self-employed for over 10 years.
Self-Employment 101: It's about making a living and creating a life! ... Observations, information and resources for those of us who are self employed or just thinking about it. http://www.selfemployment101.com
E-zine subscribers can get Ellen's articles delivered to their email inbox.
Every business regardless of size needs a "Business Image Manual"... Read More
You've heard it before; we're living in an information age.... Read More
How often have you thumbed through a business opportunity magazine,... Read More
The Customer Analysis section of the business plan assesses the... Read More
One of the first things you will need to set... Read More
Ask anyone trapped in a cubical about their entrepreneurial dream... Read More
Auto detailers are often asked to clean boats and detail... Read More
One way to determine your companies mission statement is based... Read More
Often smart entrepreneurs look for out of the way businesses,... Read More
The following tips have come from a wide variety of... Read More
The reason we Franchisors call it an exclusive territory is... Read More
IntroductionIt is widely recognised that Email and the Internet is... Read More
If you're like the rest of us, you've spent a... Read More
During the 1980 presidential campaign, candidate Ronald Reagan vowed, if... Read More
Writing a business plan is a fundamental step to ensuring... Read More
Having a successful business means also having a good working... Read More
If an organization lacks a mission statement, it is worthwhile... Read More
To have one of the popular in home daycare businesses.... Read More
Business checks are available in many styles and varieties. They... Read More
You only have so much time in a day right?So... Read More
Here are some sound debt collection techniques that can be... Read More
As an Investment Representative you've worked hard to build trust... Read More
With the massive explosion of start-ups and home businesses developing,... Read More
It has been discussed allowing Franchising companies to electronically disclose... Read More
(Although this article is geared towards small business owners, the... Read More
$elling $elling $ellingWhat makes a great sales person? Well, the... Read More
Have Some Time to Yourself One of the most important... Read More
When the recent Games of the XXVIII Olympiad came to... Read More
Did you know that satisfaction is the number one emotion... Read More
Many mobile car wash operators would like to add de-ionized... Read More
The employer / employee relations environment has been constantly evolving... Read More
Most business owners know when they need an accountant, but... Read More
Do you own a franchised business? Over 400,000 franchised businesses... Read More
Washing the exterior of a truck. Sounds easy right? Well,... Read More
Small businesses need Public Relations, possibly more than large corporations,... Read More
When someone owes your small business money, you certainly feel... Read More
There is a great deal of abuse going on in... Read More
There were only an estimated 1800 active franchisors in this... Read More
For really tough boat hull cleaning you will need to... Read More
You've heard marketing and advertising gurus quip, "Sell the sizzle,... Read More
To maximum potential profits and dollars in a mobile washing... Read More
Does your company have a community relation strategy? Have you... Read More
We're birds of a feather, public relations and small business.... Read More
Costs of over regulation and over disclosure end up hurting... Read More
Over the years I heard the best way to learn... Read More
Before you start a business we encourage you to prepare... Read More
I recently met with a very successful magazine publisher who... Read More
You bet it's worth it. Publicity via news releases, along... Read More
Someone new to business ownership recently told me, "Before I... Read More
Tap these treasures of ideas. The best money you can... Read More
So what exactly is a "Small Business Lone Ranger?" A... Read More
One of the greatest pitfalls in e-commerce is Field of... Read More
The Operations Plan is a critical component of any business... Read More
Here are some of the questions that you need to... Read More
Want your small business to flip instead of flop?! Statistically... Read More
That sizzling sound you're hearing may be a symptom of... Read More
Increase your profit potential by identifying ? and avoiding ?... Read More
Most smart entrepreneurs and all large corporations have Employee Relations... Read More
A janitorial cleaning service is one of the best businesses... Read More
You've probably heard the statistic that 95% of small businesses... Read More
As you reflect on this year and prepare for next... Read More
You may be in Mail Order, Direct Mail, or you... Read More
Business card size works well for invitations to special events.What... Read More
Forget everything you've ever heard about the U.S. Small Business... Read More
With all the cabinet refacing business opportunities out there, you... Read More
If you want to start a business in 2005, and... Read More
Small Business |