How to set yourself up for financial success as a sole trader
With nearly 5million people working for themselves in the UK, self-employment is now a vitally important sector of the labour market. Certainly, if the rapid growth of independent working is anything to go by, this way of working is increasingly viewed as a positive career choice and one that offers individuals greater freedom and independence over their work and day to day life.
If you’re one of the many thousands of people getting ready to make the leap into self-employment in 2019 as a sole trader, there a number of important financial decisions to consider. Each of these are crucial when laying the foundations for a successful life of independent working – that goes for whether you’re a freelance creative or a tradesperson.
Engage an accountant
Legally speaking, you don’t have to engage an accountant, but if you’re worried about the tax side of running a business, you’d be wise to. There’s an argument to be made that as a sole trader, your time is best spent winning clients. This is why so many self-employed people hand their tax matters over to an accountant. A good place to start is by finding an accountant that specialises in advising sole traders – and there is no shortage of reasonably priced practices out there.
Take out insurance
Insurance is no longer a luxury. It’s a vital part of any sole-trader’s toolkit, that quite often you must have in place for legal reasons. Insurance also provides peace of mind and financial protection in the event of accidents, mistakes, legal disputes and even enquiries from the taxman.
There are a number of different insurances you can take out that kick in when you need them most – from tax enquiry insurance that protects you from a HMRC investigation, public liability insurance to cover the cost of an accident at work or legal expenses insurance that, for example, will cover court costs when recovering debt from a client.
With insurance in place, you can get on with running your business safe in the knowledge that you are protected in the event of any nasty surprises. Rhino Trade Insurance, for example, offers a range of tailored products for sole traders and small businesses.
Open a new bank account
If you choose to start up a limited company, you’ll need a business bank account. If you opt to work as a sole trader, you can receive payments into your personal account, but opening a separate account is considered a smart move. When it comes to working out how much tax you owe, having your personal and business finances apart will make life easier.
As a result of the rise of self-employment, there are now plenty of current accounts designed for sole traders. You can set one up online in minutes at Coconut and keep a closer eye on your income, expenses and tax bill estimate.
Many self-employed people need to invest financially when taking on a client – whether that’s in materials, staff, premises or technology. To help you do this at the beginning, sole traders often look to finance. Borrowing money could be key in helping you get your business off the ground, depending on which industry you work in.
Thanks to new technologies and the growing number of people working for themselves, there are now more alternative lenders, that many people consider friendlier towards the self-employed than high street banks. Whether it’s iwoca or Funding Circle, don’t rule out approaching these types of finance providers.
Keep one eye on tomorrow
It’s very easy to become so consumed with the day to day running your business that you forget to plan for your future. Focusing on earning money to pay the bills should, of course, be the priority, but you need to also think about life after work too.
As a self-employed worker, you’re eligible for the state pension. However, this amounts to only £164.35 a week, so you might want to think about tucking away some of your earnings to build up a pension pot. There are plenty of pension products out there for the self-employed now. Pension Bee, for example, is designed to make things simple.
Once you’ve settled into self-employed life, there are a number of other financial decisions to consider – from engaging a financial adviser whose job it is to help you make smarter moves to buying property as a business owner. These first steps, however, will help you hit the ground running.
Steve Wade, Managing Director of Rhino Trade Insurance, a provider of specialist cover for self-employed tradespeople