Please please advise us self employed on doing an SOA!

Keentobedebtfree

New to all of this and determined to be free of debt, but I have a question - and having searched through the forums on this subject - it seems to be a tricky one to answer:

How best to complete an SOA when self employed and when the income varies a great deal from month to month?

This is a big stumbling block for me and probably many others: it's very difficult to work out how much you can take as payment from the business each month when there are suppliers to pay at different times and different amounts of money coming in at any time during the month.

At the moment I've made drastic cuts to my spending and am taking on extra work wherever I can to try and pay off my debts, but it would be so helpful to be able to build an overall picture by doing an SOA.

:think:

I just can't get my head round it. Please help!!

TheSandman

I have a similar problem...

The way I worked it though was that I only take a payment once a year. So in December I would hope to take around £xxxxx cash but this varies depending on the rent and the amount I'm planning on leaving myself to spend (lifestyle). If the year's been tight though or I think I might need the money in the next 12 months I won't take as much and adjust my budget for the year ahead accordingly. Doing it this way takes a lot of stress away knowing everything is in place for at least 12 months and you have all the bills covered and a bit of pocket money and lets you focus entirely on working when your on the job.

It's that or if you can build a good cash pile then give yourself a salary, make periodic adjustments every 6 months based on say a rolling 24 month average company profit (taking say 67%) and maybe giving yourself a dividend if the cash pile gets too high.

Of course if your profits and spending are much the same then it's almost impossible to get to the point where the previous methods can be implemented. I know for myself I had to take the axe to all spending and work very hard for two years until I was in a comfortable position regarding likely income.

HappyMJ

I would take the annual "after tax" drawings and divide by 12 to get a monthly figure. It's up to you what figure you use. You could use last years tax credits or self assesment figures and divide by 12. If they were higher than forecast for this year then reduce the monthly figure. My own personal take on this is to try and use the minimum wage each month as a base to work from and count any extra as a bonus.

Keentobedebtfree

Thanks very much for your help.

To keep things simple for myself at this stage I think I'll take your advice and go by the minimum wage and see how I get on.

I'll do an SOA based on this and post my debts shortly.

Thanks again