Self-employment is rarely easy, but it can be rewarding and has obvious benefits, such as being able to pick the jobs you want to work on and the hours you want to work. In fact, more and more of us are choosing this way of working — there were 4.8 million self-employed Brits in 2017, according to figures by the Office for National Statistics.
However, one of the main drawbacks of self-employment is that it can make financial planning tricky. Unlike being employed, you’re unlikely to be paid regularly. And what you do get paid can vary from month to month. People who are self-employed either have to wait for invoices to be paid, or what they can take as a salary depends on how well their business is doing.
Consequently, if a surprise expense crops up, you might not have the funds to pay for it. So, to make sure you stay financially organised, follow our guide to dealing with unexpected expenses when you’re self-employed.
Save while you can.
If you don’t have an emergency fund, you should start building one now. True, this will mean that you sacrifice some of your disposable income. But the sooner you start to save, the less you’ll need to regularly put aside.
You could decide on a fixed amount each month. This will help you with your financial planning for your business going forward.
Reduce company spending.
Very often, there’s a simple way to respond to surprise costs: reduce company spending.
Try starting with your suppliers. You might be able to negotiate a fairer deal on items you buy from them regularly. You’ll be more likely to achieve this if you speak directly with them. Phone conversations can be very effective. Even if you don’t plan to, saying that you’re going to cancel your contract can be a good negotiating tool and can encourage your provider to offer you a better, cheaper deal.
Put your savings into your emergency expenses fund.
Borrow from family or friends.
When a surprise bill or expense appears that your bank account can’t cover, it can be tempting to go to a lender. But, especially if you’re a young business, you may not be able to get a loan or overdraft facility.
As a last resort, you could consider asking family or friends for help. They’re likely to be more lenient with payback periods than a creditor. This could be particularly useful if your enterprise is still young and in its early days of profit turnover.
Before you approach them, you should work out exactly how much you need to borrow and when you will be able to pay them back. You could even offer to pay them back a low rate of interest as an incentive.
Surprise costs needn’t leave your business struggling. But once you know how, you’ll be able to deal with any unexpected expense effectively. You’ve no doubt worked hard to build your own business. With these tips, you can protect it.