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How to Manage Your Finances as a Solopreneur

Becoming a solopreneur is exciting: the freedom to work whatever hours you’d like, the ability to work from anywhere, and the chance to be your own boss. However, with that comes responsibility, especially money and how to organise your business finances. We’ve collated 11 ways to manage your finances as a solopreneur, whether you’re in your first or tenth year of self-employment.

Your finances are always an area that you should continue to focus and reflect on. You don’t need to have a finance or maths degree either to be in charge of your money. Just by implementing just a few tips, you can feel much more confident when it comes to your business numbers!

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

Set up a business bank account

You’d be surprised at how many solopreneurs don’t have a separate bank account for their business income and outgoings! Trust us, it will make life so much easier.

There are tons of choices on the market. However, it will depend on if you want any extras with your account, such as an overdraft or access to accounting software. Do your research, and ask any self-employed family and friends for recommendations.

It will be much easier when you’re updating your accounts to see all business-related transactions in one place. No need to go through your bank statements with a fine-tooth comb!

Pay yourself first

Every freelancer’s income is different, including when and how they get paid. Some have money trickling in throughout the month, some get paid like employed people at the end of the month, and some have a mixture of both.

This will all depend on your contracts with clients as well as if you’re working freelance, ad-hoc or on retainer. By paying yourself first, you start to think about how to manage your finances as a solopreneur properly.

Set up a tax savings pot

Most business banks allow for an instant access savings account or pot for your account. Instead of being caught out when it comes to paying your tax bill, why not prepare early? Save a set amount from every invoice you receive (20% is a good starting point) and then when you’ve hit the target amount, pay your bill early!

Build up an emergency savings pot

Whilst this isn’t always the easiest step to take, it’s important to have a ‘just in case’ fund for unexpected expenses. This applies whether they’re business or personal. There are tons of ways to build up an emergency fund. Choose from a percentage of every invoice, a set amount weekly, or any spare cash rolled over. Whichever strategy you pick, make it easy for yourself by setting up a direct debit.

An emergency fund should have enough in it to cover your living expenses/bills for at least three months.

Set up a pension

One area to organise business finances that many solopreneurs forget about until they’re older is a pension. Again, if you’re a new freelancer, you might not be able to add in much every month but something is better than nothing!

There are a handful of pension providers designed for self-employed people, such as Penfold, so choose the best for you. Set up a monthly direct debit, and transfer any old workplace pensions if it’s appropriate to.

Many of these providers also allow for lump sums to be added. Therefore, if you’ve had a great month income-wise, top up that pension plan! Even better, you’ll get 25% added from the government for every single payment you make into your pension.

Review your finances quarterly

As you start to learn how to manage your finances as a solopreneur, you’ll see that you go through peaks and troughs. Maybe winter is a quieter time for you and work ramps up during the summer, or vice versa.

If you’re an experienced solopreneur, this will be information you can find out easily by looking at previous accounts. By working around the seasons, you can prepare to get more work when it’s there and cover your expenses for when it’s slower to get work.

This is also a great time to look at your capacity. Do you have any breaks from work planned? Are you close to capacity and might need to consider outsourcing soon? You can look at which clients are the most profitable too. You can do this by looking at the income you receive from them and the time it takes you to do their work.

Create a monthly money routine for yourself

The end of the month is usually the best time for this but you could do it at any point in the month. This is the time to create invoices, collate receipts, chase unpaid invoices, update accounting software or spreadsheets you use, and organise business finances. That includes reviewing last month’s budget as well as setting up for next month.

Keeping on top of your accounts as a freelancer will make it much easier when it comes round to filing and paying your taxes.

Shorten your payment terms

As a solopreneur, we’re sure you’ve invoiced everything from 7 to 90 days. We’re here to tell you that you should be in control of when you get paid! Again, this will depend on the client. But for the most part, you get to decide when you should be paid. If you charge for ad-hoc projects, consider offering payment plans and always take a deposit once the work is agreed.

Aim for consistency

One of the best ways to manage your finances as a solopreneur is to have consistent income. Many do this by having retainer clients. This means they charge the same every month for a set number of hours or pieces of work.

Work out what your minimum monthly income has to be to cover all your expenses. You can also work towards finding more regular clients over ad-hoc work. Cash flow as a solopreneur is key so try to have a constant stream of income every month.

Raise your prices

A sticky area for many solopreneurs, raising your prices should be done at least annually. You’ve gained more experience, built up some great relationships, and completed work to any given deadlines.

Focus on what improvements have been made since having you on board and ask for that increase! The worst they will say is ‘No’ but it’s very rare they will decide to end your working relationship just for enquiring.

Get an accountant

If all else fails, hire an expert to look after your finances for you. There are lots of self-employed accountants out there as well as firms that specialise in working with those who are self-employed. They’ll be able to tell you what expenses you can claim for, your expected tax bill, and are the first place you’ll go to for financial advice.

An accountant is also a great idea if you have multiple businesses/income streams or are thinking about going from a sole trader to a limited company.

These 11 ways of how to manage your finances as a solopreneur can be scary and overwhelming. However, by implementing a few key tasks and organising your business finances, you should find that it becomes easier to manage as time goes on.