Prior to making the decision to the start up your own Limited Company, read our advice on managing your money;
Money management as a freelancer or contractor
Working for yourself as a contractor is exciting and can be hugely rewarding. With the autonomy and control comes a need to manage your affairs and finances. Think about the following money management tips to help you take control of your finances…
Open a business bank account
If you wish to start up your own Limited Company this is compulsory, it will make things far easier for you to create a viable budget and manage your accounts – just the one place to receive payments, withdraw your salary and dividends as well as meet tax and business expenses. When opening your bank account, it is also worth considering a second account, maybe a deposit account to ensure that you can “ring fence” the tax monies that your company will owe.
Project your monthly income & expenses
By the very nature of contracting, there are often breaks between contracts. Income can fluctuate depending on days worked and timings of new roles. As a freelancer it is important to budget and forecast for breaks in work. We recommend that you review your annual income over the last year or two and think about the minimum you need each month to live on. This information is useful when determining how and when you will extract funds from the company as it will allow you to also consider building up a surplus to be drawn in periods when you are not working.
Set milestone payments
If your contract with your agency or end client does not allow for weekly or monthly invoices and payments, you should ensure that you build in stage payments to avoid having to wait until the end of the project to be paid. You can look to agree milestones in the project that will allow you to be paid and manage your cash flow. Remember - do not be anxious about suggesting this approach to your clients, many companies are used to these requests.
Have you thought about what you would do for money should you have a gap between contracts? Think about building up a ‘cash cushion’ - savings to call upon when you’re in this exact situation or have unexpected expenditure. If you are a contractor who tends to withdraw all available funds on a regular basis and have no emergency funds, it’s definitely worth getting in touch with one of our accountants to discuss how this can be avoided. The security of knowing you’re covered for a period of time is very comforting and will ensure you feel more secure.
Here at Genie Accountancy, we can offer you further advice in regards to all of the above, our aim is to ensure that your limited company is a success. By getting to know you and understanding your goals, your dedicated accountant can work with you to develop your business and save you tax. From a business perspective, we will continually review your books and records, making proactive suggestions as the year progresses allowing you to implement change and manage your finances in the most effective way possible.
To speak to one of our new business advisers give us a call on; 01296 468 185