It can be exciting to be your own boss. You may feel like you have more control over everything. But that control and responsibility also comes with its challenges. A place where you can easily make a mistake is with money. However, these mistakes are easily avoidable if you know what they are beforehand and prepare in advance in order to keep them from becoming your problem too.
Not Separating Business from Personal
It can be difficult to separate your personal life from your work life when you are self-employed. However, two areas you should be careful to always separate are your business and your personal finances. You need to have separate bank accounts and credit cards for your business, and make all business purchases separately.
In addition, separating your business and personal finances comes with many benefits, such as helping you save money—you can be exempted from certain fees if they’re related to your business-only accounts.
Paying Too Much or Too Little Taxes
One of the biggest mistakes made by new self-employed businesses is failing to pay the right amount of taxes. Common errors include not paying the full self-employment tax, not making estimated quarterly payments, and not reducing your taxable income. Remember to save enough money in order to pay your taxes when the time comes. When you don’t have an employer withholding your taxes from you, it can be easy to accidentally spend the money.
You can also contribute to retirement plans to reduce your taxable income. Retirement plans can be a beneficial avenue for self-employed businesses as a way to reduce taxable income and avoid some of the possible pitfalls of tax season.
Thinking in Percentages Rather Than Dollars
As a new self-employed business, your income is probably varying constantly. This can make budgeting extra difficult—how can you know how much to save and how much to spend? Instead of considering your income in terms of dollars, consider it in terms of percentages. That way, you can avoid spending too much in low-income months or saving too little in periods of high income. Figure out a budget based on percentages, and saving will become a lot easier.
Although many new self-employed businesses make the same mistakes, that doesn’t mean you will, too. You can do so by separating your business from your personal finances, paying the right amount for taxes, and thinking in percentages rather dollars. Doing so will help you be able to keep yourself and your new business on top.
Contact us today and we’ll help you get your commercial business insurance squared away!
