Three personal and business finance tips for sole traders
Are you a sole trader in the UK? Here are three tips to help you balance your personal and business finances.
According to the most recent report from The Department for Business, Energy & Industrial Strategy, almost 60% of UK businesses are run by sole traders.
This means that the majority of businesses in the UK employ only their owners. As a sole trader, you earn all the profits from your business, but you also need to pay all the bills, including tax.
Profits from your business are categorised as personal income. So keeping personal and business finances as healthy as possible is important to ensure that you manage your hard-earned money effectively, and enjoy the lifestyle you deserve.
1) Shop around for affordable credit
You may need to use credit in order to run your business and pay your personal expenses. If so, make sure you choose credit cards and any other forms of credit with care.
It’s worth spending the time comparing companies that offer credit cards, and finding those that offer the lowest rates of interest and the most favourable benefits and terms and conditions.
When it comes to other forms of credit, such as credit lines from banks or third-party financiers, it’s also essential to look for affordable interest rates and ethical terms and conditions.
If you don’t shop around for credit, you may end up spending more than you need to in order to handle business and personal expenses; credit with lower interest rates, for personal and business expenses, will mean more money in your bank.
2) Create and maintain a strict budget
As a sole trader, you need to know where you stand, money-wise – because if you’re not on top of your money, who else is going to look after it for you?
This means you need to keep tabs on incoming and outgoing cash. A strict budget, which includes all personal and business expenses, will help you to understand your own financial picture, and make smart spending decisions.
Your budget should include all monthly expenses. And, when you put together your detailed budget, don’t forget about taxes. It’s easier to set aside money monthly for taxes, rather than needing to scramble for cash for twice-yearly Payments on Account.
Once you have a budget and stick to it, you’ll see where any money is being wasted. You’ll be able to trim expenses and use the money that you save to move towards your business and personal goals.
3) Align your personal and business finance goals
To create more balance between your home and business finances, align your personal and professional finance goals.
One smart way to do this is by finding ways to minimise your tax deductions. The money saved can be put towards investing in smarter ways to run your business, such as better technology or outsourcing tasks that take up a lot of your time that you aren’t good at, or keep you from jobs that can move your business up a level.
This can help you to find a better work-life balance – improving your personal life too.
Even if you can’t find ways to save money on tax, ensuring that your personal and business finance goals are in alignment will mean that you’re working smarter in your business, and for the right reasons.
You’ll have a clear idea of what you want your personal life to look like, and what financial goals you need to hit to make it happen. This can enable you to make better informed decisions to help you shape a business that is able to fund your personal ambitions, while ensuring that your work-life balance meets your immediate needs.
Photo by Dylan Gillis