Managing Your Cash Flow As A Sole Trader: The Do’s and Don’ts
If you're thinking of an efficient, fast, and practical way to get your business up and running, operating as a sole trader is the best option. However, when you're having trouble paying debts and costs, the consequences you'll face can financially impact your business.
When you're a sole trader, you're responsible for your business's debts. That’s why without proper management, things can go south pretty quickly. With that in mind, it goes to show you must practice the right techniques and have the right system to ensure that all your business's finances are in place.
Additionally, some business owners hire accountancy services for businesses to ensure that their finances are handled professionally. This way, you can eliminate common accounting mishaps and find ways to manage your business's cash flow.
If you're thinking of a better way to manage your cash flow, keep reading. In this article, we'll dive into the different Do's and Don't manage your business's finances. Let's take a look!
Do: Stay on Top of Your Taxes
Sole Trader businesses pay tax differently than limited companies. With that being said, there are three taxes that you need to manage when it comes to being a sole trader of your company.
- Income Tax: Since you and your business are considered the same entity, sole traders pay income tax on the profit they make. Because of this, income tax is now paid twice a year through self-assessment.
- National Insurance Contributions: Being a sole trader means you're responsible for paying two forms of NIC, which are Class 1 and Class 4. Like the income tax, this is also paid twice a year through self-assessment.
- Value-Added Tax: Like limited companies, sole traders are expected to collect VAT and pay it to HMRC until their turnover hits the threshold. For payments, you're required to pay every quarter.
Since there are many taxes and payments you need to consider and the intervals vary as well, getting accountancy services for business is key to ensure that you don't miss any deadlines. This way, you can dodge any penalties and financial issues you may have to face.
Don't: Sleep on Your Debts
Besides your taxes and HMRC, sole traders will have to deal with different types of debts to a variety of creditors, so keeping track of this can be a nightmare. Such debts include loans, account overdrafts, supplier accounts, and more.
All these can be pretty overwhelming to track, a common mistake is business owners tend to delay payments, causing more damage to their finances. So if you're struggling with your debts, instead of delaying them and putting them under the rug, it's best to take action immediately to prevent higher risks.
Do: Seek Help from Accounting Professionals
There's no denying that cash flow management isn't a piece of cake. If you're struggling with managing your cash flow, it's best to ask for assistance from a professional. Hiring a professional accountant will help you produce reliable forecasts, allowing you to optimise your financial management and accelerate the financial operations of your business.
This is because you'll get to spot underlying problems and make changes with your system, allowing you to eliminate cash flow issues.
The Bottom Line: Cash Flow Management Doesn't Have to Be Complicated
Cash flow management can be pretty overwhelming at times, and when this happens, you put yourself at higher risk for financial issues. With that being said, getting accountancy services for businesses is key to help you keep track of your payments, taxes, and debts, allowing you to operate smoothly and eliminate financial issues that could potentially damage business operations.
How Can 1 to 1 Accountants Help You?
As mentioned early, handling your business's finances is no walk in the park, and the best way to deal with this is by getting accountancy services for business.
1 to 1 Accountant is an accountancy firm in the UK committed to helping small business, sole traders, freelancers, and other similar clients manage their finances through professional accountancy services.
Do you want to streamline your business's financial management? Get a free consultation from us today!