Whether you are already in business or just thinking about starting up as a sole trader, getting your finances in order should be at the top of your to do list. From the minute you make your first sale, or your first purchase for the business you need to know how you are going to manage your finances.
There are many things to consider and most start-ups treat finance as an afterthought, but life will be a lot easier for you in the long run if you start off to a good footing.
Step 1 – Bookkeeping
I know, I know you are excited to get started the last thing you want to be doing is crunching number, but this is important, you want to know if you are making a profit, don’t you? You have probably too many options when it comes to bookkeeping but the first one to make is whether you are going to hire someone to do it for you or do it yourself. If you are a volume business with lots of transactions it is probably worth hiring someone freelance, if you are a value business dealing in a few high value invoices for month then do it yourself. If you chose to do it yourself you can either use hard copy books (Cash book, receipt book etc) which you can purchase from Staples, or you can use excel to track income and outgoings or you can purchase bookkeeping software. Whichever option you chose, do it from day one and if you decide to switch at any point switch at the start of an accounting period. Check out this hand comparison of the different bookkeeping software available.
Step 2 – Open a Sole Trader bank account
This might seem silly right at the start but it isn’t, one it will make you look more professional and two, if is really important that you keep all the business money separate form your own, to you might find yourself buying tools equipment out of your own money and not accounting for it, leading to inflated profit reporting and higher tax bills. If you are worried about getting a sole trader bank account because your credit rating is bad, many providers offer credit free accounts. This is perfect for start ups and you don’t need to worry about going overdrawn etc. This is a great product to get started until you improve your credit rating.
Step 3 – Budget
Now you know what you have coming in and going out it is a good idea to make a budget and profit/loss forecast for at least your first 2 years, obviously this takes a lot of speculation, but you need to know what you need to sell to break even. Work out your break even point and then work towards making that all important profit. Once you know what you need to do to make a profit work out roughly the salary you want out of the business and budget how you are going to make it. Having these documents will also make it a lot easier when applying for business financing.