Business Budgeting: A Guide For Sole Traders
Managing the budget for any business requires two things: conscientious spending habits and an eye for detail. And whilst larger companies may have more complicated financial records, it can be just as tricky managing the budget for a sole proprietorship. How so? Because you’ll most likely be doing it all on your own.
Sole traders have the unique task of balancing their business budgets independently. This means monitoring your own company spending, weighing up the pros and cons of business growth investments, and perhaps even deciding independently whether or not to hire additional staff.
There are a myriad of things to consider when it comes to managing the budget of a sole proprietorship, and as a result, it can be tricky to know where to begin. Thankfully, this guide has been developed to provide sole traders with a little direction.
Set up solid financial infrastructure for your business
The first thing you’ll want to do is make sure that your business is operating with a strong financial foundation. This means securing a business bank account, registering your business correctly for tax purposes, securing business insurance, and opening a line of credit. Be sure to conduct a credit card comparison before you land on any credit account – just to make sure that your selected credit provider and their rewards programs are as beneficial for your business spending as possible.
It’s also important to note that even though some of your company’s foundational expenses are tax deductible (like the purchasing of tools or securing your business insurance), you still want to make sure that you have enough financial resources to sustain your enterprise between your business tax returns.
So long as you’re able to set up the right banking and credit accounts for your business, however, you should find that your company can continue to grow on this stable fiscal ground. And on that same note, ticking all of these boxes now can also help sole traders get a better gauge of their company’s start-up costs. And it does pay to be as accurate as possible here, as you can better pinpoint when your company is estimated to break even and finally make a profit.
With this solid financial infrastructure in place, you can enjoy peace of mind that your business has access to all the financial assets that it may need over the course of any given financial year.
Just like any business, your sole proprietorship will find firm financial footing by generating a consistent cash flow. This means that you can expect a certain amount of earnings every month or quarter. The best way to generate this consistent income is simply to provide services that your customers will need at routine intervals.
For sole traders who provide plumbing or electrical services, this could mean establishing a maintenance or servicing calendar for your clients. That way, you can guarantee that you’ll receive a callout from these customers as the servicing of their plumbing or other home appliances will be due. Offering these maintenance services is no guarantee of repeat business, but so long as you forge strong relationships with your customers and provide an exceptional standard of service, there’s no reason why they wouldn’t call you again when their servicing is due.
Another option is to expand on your customer base. Do you only cater to domestic customers or households? Then why not start offering commercial or industrial services as well? Gain a bit of experience working with heavy duty systems and expand on your website so that it includes dedicated service pages that target commercial and industrial customers.
As we briefly mentioned, sole traders may find that a lot of their business expenses are actually tax deductible. Purchases like office supplies, tools, and equipment can actually be claimed back on your next business tax return, as can your business insurance premium, some transportation and fuel costs. To make sure that you’re claiming back everything you feasibly can, it’s imperative that you keep track of all your business expenses in a clear and easily accessible way.
Thankfully, setting up a dedicated business bank account and separate business credit card can help you maintain clear records of your business purchases that are entirely separate from your personal spending. By compartmentalising your business purchases in this way, you’ll find it a lot easier to navigate the process of lodging your tax return.
Finally, we’ll mention one more time that even though your business expenses may be tax deductible, sole traders should avoid the impulse to make more business purchases than they need to within any given financial year. Overspending can result in your enterprise depleting its budget well before the end of the financial year period comes round. And you don’t want to find yourself under-resourced in the middle of the year.
With that, it’s important to think critically about every business investment you’re looking to make. Prioritise business purchases that are likely to generate a reliable return on their investment. For example, by purchasing more tools, you may be able to offer a larger list of services. Contrastingly, taking out a lease on a fixed business premises when you offer field-based or roaming services may not be the best business move. If you need to list a company headquarters on Google Maps, then you can set up your Google My Business account without a fixed address. All you really need is a mailing address to get your Google listing up and running, and your mailing address can easily just be a P.O. box.
Has this guide for sole traders provided you with all the financial insights you’ve needed? Then be sure to bookmark this page so that you can absorb all of this fiscal info at your own pace.