Sole traders are more than just individuals; they’re business people who are self-employed and running their own business alone.
As a sole trader, it can be easy for your life to become entwined with that of your business, as it means that your finances become combined and you find it difficult to separate a business expense from an individual one.
This can make your life difficult, particularly when it comes to paying taxes, creating budgets and accurately assessing how much money you’ve spent on your business over a period of time.
To help, here are some practical ways you can divide your business and personal finances as a sole trader and make both facets of your life enjoyable.
Use An App
There are a variety of apps out there that are designed to allow you to track your business expenses, invoices and more, meaning that you can accurately log your business finances in one place and keep them separate from your personal expenditure. This will make accounting easier and allow you to track how much money your business is costing.
Be More Careful With Money
It sounds obvious, but when you become a sole trader you need to be more careful about your spending in general. Learn ways to save money, such as buying some items in bulk and avoiding using tempting, but hard to keep track of spending methods, such as contactless. This approach will help you to save money and keep your business and personal finances under control.
Keep Your Borrowing Separate
In the finance market, there are personal and business loans, but in some cases services like overdrafts and credit cards can make the lines between borrowing for business and personal use blurry. To avoid any confusion, take out dedicated personal and business loans instead of using short term financing options. This approach will save you money and time in the long term. Check out https://www.citrusloans.co.uk/ to find a selection of personal loan options to suit any personal need, so that you don’t end up using your work credit card or dipping into savings designated for your business.
Mark Every Transaction
If you have several transactions in your bank that you are unsure of, then you’ll be unable to accurately plan your spending and completely understand your business’ cash flow. As such, you need to make sure that you label every transaction accurately and are clear about where all of your money comes from.
Create Separate Budgets
Draw up a personal budget alongside your business one, and make sure that you stick to both. This will show you how much money you have to spend, and where you need to be spending it. In both your personal and business budgets, you need to make sure that you leave a little money aside for emergencies, and some to be put into a savings account to accumulate and help you prepare for any serious emergency expenses that you encounter.
Learn To Do Your Accounts Yourself
Doing your accounts might seem time consuming and boring, but it’s an important part of running a business. It will teach you to appreciate the value of money and understand the rate of tax you need to pay for every pound you earn. Whilst it might be tempting to outsource your accounts, doing them yourself will allow you to price your services accurately and learn a valuable skill that will stand you in good stead throughout your time in the business market.
A Business Bank Account Is The Ultimate Way To Separate Your Money
Unlike other forms of business, as a sole trader, you’re not legally obliged to have a business bank account, and as such in the beginning, when you first became a sole trader, you might not have thought it necessary to open one. After all, it was just more hassle and work for you at an already busy time. However, now that your business is up and running, with more transactions, it will be tough to keep your business and personal money separate without a business account. Business bank accounts also offer a wide range of additional benefits for your company, making it easier for you to conduct your business and provide your clients with the services they want.
Separate Your Savings Too
As well as your current account, budgets and borrowing, you should also separate your savings when you become a sole trader. Create a separate account for your business savings, so that you can reinvest your profits into your business and prepare for the future. Alongside business banking options, there is also a wide range of business savings accounts on offer so that you can separate your personal and business savings.
Being a sole trader can be a serious challenge, but by using these tips you can be organised, separate your finances and make your accounts easier.