Finance Hub: 5 financial strategies every new self-employed professional needs to know

By Cheryl Thompson

Thanks to technology, connecting with clients and customers across the globe has never been easier, making self-employment more accessible than ever. But all the connectivity in the world won’t make up for cash flow challenges, which is the number one reason small businesses close, with 82% citing cash flow problems as the main reason for closure, according to Business Insider.

If you’re considering a solopreneur career, here are five smart strategies to help you manage personal finances while balancing the needs of your business.

1. Prepare for expenses. The freedom of self-employment still comes with costs you need to anticipate and be prepared for. Talk with industry peers and do your research to identify the expenses relevant to your personal and business needs, then create a minimally viable budget. Your business income should ultimately cover these expenses, but make sure you have sufficient personal savings and business cash reserves available while your business grows. Keep your personal and business accounts separate.
2. Create a separate bank account. Setting up a business bank account is crucial for managing business expenses, building business credit history for future growth, and providing essential liability protection. It also helps protect your individual accounts in the event that you become a victim of fraud. If hackers gain access to one account, they won’t have access to the other if they are separate. Another consideration is using a company credit card, which can help you track business purchases and monitor expenses. Whatever credit card you use, have a disciplined repayment plan to help you manage monthly payments.

1. Track income. Unlike having a salary position or an hourly job with a set schedule, self-employed workers can have strong months and others where income is less consistent. Determine a monthly average, and when you have a month where you earn more than average, set the extra amount aside in savings to supplement less lucrative months. For consistent tracking and recordkeeping, consider investing in bookkeeping software to help track who owes you and how much, when it was received and where it goes.

1. Understand tax implications. Unlike having a job where an employer automatically withholds Social Security and Medicare taxes, self-employed workers have to budget for and pay those taxes, either quarterly or annually, or risk a hefty tax bill in the spring.

1. Stay organized. Make sure your records are accurate and your paperwork, particularly billing, is completed and filed as needed. Because many companies can take several weeks to process invoices, keeping a calendar of incoming and outgoing payments can be helpful. Keep copies of all receipts for tax time.

By planning, tracking and protecting your finances, you give your business the stability it needs to grow. To learn more about Arvest small business accounts, call 866-314-0315 to talk with a business specialist.

Cheryl Thompson is vice president and business banking manager at Arvest Bank – Greater Kansas City. She can be reached at cthompson4@arvest.com.

With more than $27 billion in assets, Arvest is a full-service bank that delivers financial solutions to individuals and businesses of all sizes. Since entering the Kansas City market in 2009, Arvest has grown to become one of the top 20 banks and the sixth-largest mortgage lender in the region. The bank has 20 locations in the metro area, including 8 in Johnson County. Arvest is an Equal Housing Lender and Member FDIC.