Being self employed can be tough. As well as marketing your business to ensure you have enough work and clients to be profitable you also have the responsibility of managing your finances. If you’ve never run a company before, this can seem daunting.
However, it need not be a scary prospect. Our guide looks at the three main financial areas you should consider when you set up your own business.
A business bank account
It is useful to have a bank account specifically for your business. Many banks offer incentives to companies if you open a business account with them, particularly if you’re a start-up. You will often find that you benefit from a year or two’s free business banking when you open a new account.
Shop around for accounts and make sure that you find out what fees and charges apply to each account and what interest rates or payable. And, it’s worth finding out what service you can expect from your bank; for example do they have a dedicated business advisor at your local branch?
When you start your own business you should consider making sure you have the right insurance in place for you, your income and your business assets. Insurance you may want to consider includes:
• Life insurance – you may have lost ‘death in service’ benefits when you left a
previous employer and need to ensure your dependents have sufficient protection
• Income protection – if you can’t work due to accident or sickness then your business profits may suffer
• Home insurance – many traditional home insurance policies don’t cover business stock or equipment and so you may need specialist buildings or contents cover
• Liability insurance – if the public visit your home/business then you should insure yourself against any injury or damage to a third party resulting from your company. Additionally if you employ staff you should take out employers liability insurance
Tax and National Insurance
When you set up your own company you will be responsible for paying your tax and your National Insurance contributions.
You have to register as self employed with HM Revenue and Customs (HMRC) when you set up your new business and if you don’t, you may have to pay a penalty. You will be registered for Self Assessment (if you don’t complete your own tax return already) and you will start to pay National Insurance contributions on a weekly basis.
As you have to complete your own tax return every year, you will need to keep good records of your business income and expenses. These can include:
• Invoices for work you have done
• Receipts for expenses relating to your business
• Business bank statements
Many self employed people employ the services of a bookkeeper or accountant to help them with their tax affairs. An accountant will process your receipts, invoices and other documents on your behalf and can calculate the amount of tax and National Insurance that you are liable to pay.