How to Manage Your Cash Flow When You’re Self Employed

If you’re self employed managing cash flow may be an entirely new concept to you. As with most things, there are some basic concepts to grasp as well as some time to invest, but once you have nailed those concepts you’ll find managing your cash flow when you’re self employed a breeze.

1. Set a Personal & Business Budget

When you are self employed your personal finances will more than likely be affected by your business, after all if you business can’t pay you how will you pay your mortgage or rent.  By setting a budget for each areas of your life you’ll know exactly what all your incomings and out goings are.

2. Add a Buffer

Additional costs always arise – car repairs, a new washing machine or even just fancying a holiday so by incorporating a buffer you’ll always have a little bit in the bank to pay for the unexpected.  When you set your business budget make sure you add a line for unexpected costs and business re-investment, as well as adding some kind of contingency fund in your personal budget.

3. Budget for Your Tax Bill

When you are self employed the money you get paid in untaxed and it is your responsibility to work out how much tax you need to pay. An unexpected tax bill can really put a dent in your cash flow so make sure you are budgeting on a regular basis for your tax bill.  Here are my top tips on how to budget for your tax bill when you are self employed.

4. Consider Your Customer Payment Terms

Slow paying customers is probably the major cause of all the cash flow problems that I have seen when I have dealt with small businesses.  The reasons behind it can vary:

  • Poor credit control procedures;
  • A fear of hassling clients;
  • Bad clients.

Regardless of the reason if you have worked and not collected cash your cash flow will be problematic.  When you are self employed it is imperative you get paid because there is no one who will bail you out so don’t be afraid to ask your customers, politely of course, to be paid or even stop working with those that give you payment problems to find a better client base who can offer you the financial security you need.

5. Check Your Costs

On a regular basis check how much you are paying for things and look around to see if:

  • You still need them
  • If you can find those same services elsewhere for less

The less you are spending the better your cash flow will be so regularly review your spending to check you aren’t wasting any money (maintaining a budget will help you to achieve this).

6. Stay On Top of Your Bookkeeping

By staying on top on your bookkeeping you’ll always have an update date view of your business, be invoicing regularly and have an eye on which suppliers you need to pay.  Armed with all this extra information you will be able to manage your cash flow. If you’re struggling with bookkeeping and record keeping then take a read of these useful blogs:

Bookkeeping Basics for the Self Employed

Tips to Help you Keep Your Accounting Records Organised

7.  Open a Separate Business Bank Account

Clarity is the key to getting successfully organised, so if you have not yet opened a separate business bank account then consider doing so. You’ll be able to easily view your business account balance and check on payments on an app, without seeing all your personal transactions.

Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant turned entrepreneur who helps the self-employed gain financial confidence when it comes to running the numbers side of their business and filing tax returns with guides, templates and resources on the Go Self-Employed website.