A dream come true for many employed professionals. You get to call the shots. Set your working hours. Enjoy a degree of flexibility in your working schedule. No commuting. Unlimited earning potential. What’s not to like?
It seems there are tons of benefits to being self-employed. No wonder more than 70% of business owners say they would rather focus on growing their business than going back to their former corporate jobs.
However, being self-employed isn’t easy. In fact, it can be quite challenging to branch off on your own to start a business. There’s just too much to handle, especially on the financial front. And if you can’t ace it, you risk not being able to pay your bills.
If you’re looking to escape the 9 to 5 grind, you’ll first need to learn how to navigate the murky waters of the self-employment world. In this article, we will explore the financial hurdles self-employed people face and how to overcome them.
- Proving Your Income
If you want to apply for a loan, rent an office/apartment, or even get health insurance cover, you’ll need to prove your income.
To a corporate employee, this is pretty easy. You just need to produce a few copies of your pay stubs, and you’re good to go. However, to a self-employed person, it’s not that simple. Self-employed people don’t receive regular pay stubs because they don’t have an employer.
So, how can you get around this hurdle if you’re self-employed?
You could use a pay stub maker to create professional pay stubs. Since you’re no longer an employee, you won’t receive pay stubs or W-2 statements from anyone. However, you can act like your own boss and create pay stubs that will show the proof of income your vendors/landlord need.
- Estimating Your Taxes
The tricky thing about being self-employed is that you have to calculate your tax liability. Keep in mind that self-employed people are required to file an annual return and make estimated tax quarterly.
According to the IRS, self-employed individuals must pay self-employment tax (SE tax) and income tax. The amount of tax you pay will depend on many factors, including your total income, tax filing status, and deductible expenses.
If you’re new to accounting, you will have a hard time wrapping your mind around the world of taxation and self-employment. You might not even know when to pay the quarterly tax estimates, and this could attract a penalty of up to 75% of the taxes you owe.
You might want to sit down with a tax professional and learn a thing or two about self-employment tax. Alternatively, you could hire an accountant adept at taxation to handle the tax estimation and payments for you.
- Managing Cash Flows
Running a business comes with risks, but you can better prepare yourself for the future by managing cash flows.
Cash flow management entails tracking the flow of money in your business.
With good cash flow management practices, you can keep a tab of how much money is going in and out of your business. And by tracking cash flows, you’ll be able to better manage your debts, like paying suppliers, employees, etc., and pay them on time.
In a corporate setup, the cash flow management role is handled by an accountant or finance officer. However, when you become self-employed, the ball rolls on you.
Whether you’re experienced or not, you must take ownership of everything, including the accounting and financial docket. This can be challenging, especially if you have never handled an accounting role before.
Hire an accountant to perform all the accounting tasks for you. But if you have a background in accounting and taxation, you could invest in robust accounting software like QuickBooks and use it to manage your cash flows and perform other bookkeeping tasks.
The Final Thoughts
With a proactive mindset, the three hurdles we have covered above will not stand in your way of progress. In fact, they can be a stepping stone to your success as you challenge yourself, learn new things, and unlock the entrepreneurial spirit within you.
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