Self employed budget advice please

balijay

Hi, I’m trying to organise my finances better. Currently, everything is paid but I am frequently borrowing money from one bank account to pay into another and often get charged by the bank because I am just not organised enough. I’m self employed and I think I need to somehow separate my work and personal finances so that I pay myself a wage – does that make sense?
DP and I earn roughly the same – he pays the (hefty) mortgage and I pick up everything else. We get a little help from tax credits, plus I also get child benefit for 3 and child maintenance from my ex.
I have done a detailed MSE budget. On paper there is plenty of money to go around with some left over but it never works out that way in reality. As I’m self employed my money arrives in bits and pieces, weekly, monthly, into the bank, cheque, some larger payments every couple of months – you get the idea. What I need help with is how to organise monthly Direct debits, pay for food shopping, fuel, kids school stuff and activities, dentist, hairdressers, yearly payments like ground rent etc and then put a monthly sum aside to cover Christmas and birthdays.
Ideas so far include:
Using multiple bank accounts with debit cards
Have everything paid into just one a/c, pay myself a wage then divide the rest into envelopes?
Get a credit card and pay in full each month
Use some sort of app to track spending

Or something else? I’d welcome advice from other self-employed people on how to get organised – I’m giving myself a headache!

Eco_Miser

If there should be plenty, but isn't, there's a leak somewhere, so you need to record every penny you spend. This can be a high-tech as an app, or as low-tech as pencil and notebook. I use a spreadsheet (Open Office).

Using a card, either debit or credit, ensures purchases are recorded, but misses any cash payments. Do you buy much with cash?

Having a separate account for your business should help, but will you be organised enough to always use the right card?

Since your income is irregular, you need to build up a buffer, so you can still pay your monthly bills in a bad month - and remember the surplus in good months is to cover the bad months, having another bank account to squirrel this surplus away until it is needed may help.

But mainly, plan out, on a spreadsheet or otherwise, what money you expect to pay out each month, what money you expect to receive every month, and how you are going to deal with the difference, positive or negative. Do this as far ahead as you can, obviously the further in the future, the more guesses you will make, and revise it as you send out bills/ receive payments, take on extra commitments, etc.
Keep reviewing the current /next moth and move money in plenty of time to meet payments, to avoid incurring charges.

getmore4less

separate the business from personal,
you can't work out if you are making money if you don't.
you need the business to hold cash if there are expenses to be paid.

if you do a business budget that is based on what you think the business will do you can start to build up a buffer in there to manage the business cashflow and pay yourself from that start with low pay and build up when there is the money..

Cash flow does not change a balanced budget just when you can spend on some things but for a business it can take it down if you can't pay for the things you need to run it.

personal you can delay buying things.

do a personal SOA based on the low ball income from the business if it does well/better you can pay a bonus for discretionary spends and extras if the base line does not cover all the wants.

http://www.stoozing.com/calculator/soa.php
also go back over 2015 and find out where the money went.
thats your starting point for 2016, and start the spend diary.

If you can start with a big enough buffer in the business account it should just drop out once you untangle

if not enough to start one now try to build up around 1/10 th of the annual in the buffer as fast as you can but draw 1/12 so it grows.

polymaff

You've got some ideas and have received some good advice - but I'm afraid that the core issue is a more disciplined approach. For instance, paying yourself a "wage" is pretty meaningless in self-employment - but making sure that payments from a business account to a personal account - and vice versa for cash introduction to the business - are visible and obvious transactions.

Be aware that most banks will object to you using a personal bank account for business purposes - and business accounts cost.

Does HMRC know that you are runnning a business by the way?

EDIT: Are you sure that there is a leak - or are you just failing to record all transactions?

tiger_eyes

I get irregular self-employed payments throughout the month. I just pile them all up in my business income account, then pay myself at the end of each month, as if I had a salaried job. Each monthly payment is divided into various accounts to cover future tax bills, monthly debits and discretionary spending, and whatever's left goes into savings, mortgage overpayments, etc. So on January 31st, I'm making sure all my February bills are covered.

daveyjp

Not having a separate account for business expenses is the road to ruin. Happened to friends of ours who had businesses, but weren't business people. They just didn't want to work for anyone else so bought and sold stuff, had a mobile shop, started a modded cars accessory business, courier, vehicle graphics. You name it they tried it.

Cash in, cash out, scant regard for any proper financial housekeeping.

They did this for years then the taxman came a knocking.

Bankruptcy soon followed.

MoneyMission2015

Another thing to mention just in case you've not thought of it, you need to make sure you're putting money aside to pay your tax bill. I'm sure you already do but you haven't mentioned it amongst your other expenses so just wanted to make sure this wasn't overlooked.

You should definitely start working out how much profit you are actually making and how much of that you will pay yourself in wages and how much you will keep in the business to pay for more equipment/stock etc. Then as tiger eyes suggested, pay it to yourself in a lump sum at regular intervals. My husband pays himself weekly, some people prefer monthly. Just choose which works best for you. If you want to go to monthly but are currently paying yourself weekly or in irregular payments, try doing it gradually. Start weekly, then fortnightly, then eventually go to monthly.