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Running your own business can be enormously rewarding. In control of your own destiny, creating a service or product that you’re passionate about, working only with people you choose to…

Every silver lining has a cloud

But this can sometimes be balanced by feelings of anxiety, especially in relation to money. Irregularity of cash flow, not having enough saved for tax, over-reliance on the business as your future ‘pension’…

By its very nature, self-employment means having to become an expert in lots of different areas: sales, marketing, technology… and, of course, finances.

For your business to succeed, you not only have to keep the business finances in good order, but you also need to be on top of your personal spending. And many business owners struggle with managing both.

Pack your own parachute

When you’re self-employed cash flow can be constantly fluctuating. You might describe this as a ‘feast or famine’ experience. It takes awareness and discipline to not think ‘way-hey, we’re in the money!’ when you have a good month. All too easy to spend freely when money’s flowing in, while not setting aside a safety net for when money doesn’t flow as well.

Other traps self-employed people regularly fall into is mingling business and personal finances and ‘forgetting’ to set aside money for future costs like tax and VAT. This makes it impossible to get really clear about how much you’re generating from the business in profit terms and whether you’re overspending personally.

It’s then difficult to evaluate how well the business is doing and finding the figures needed for your accountant, or the money to pay the taxman, becomes traumatic.

Even more importantly, it doesn’t help you create strong boundaries between your work and personal lives.

So, how do we alleviate these stresses and strains?


Whatever business you run, it’s vital to have a separate business account for all business income & expenses. Even if it’s not officially a business account, set up an account that you treat as such.

Keep all receipts for the business in a separate place to receipts for personal spending. A shoe box will do – the important thing is not to mix them up.

Switching to autopilot

It’s much easier to manage personal spending if you receive a set amount each month on a specific date. And to make sure your basic outgoings can be met when you’re sick or on holiday.

Set up an automatic regular payment from your business to your personal account on a set day each month. Treat it like a salary even if it isn’t. That will free you up to work on more valuable challenges.

Prepare for a safe landing

Making sure that you’re covered when it comes to saving for tax, national insurance (and VAT, where applicable) will significantly reduce your anxiety.

Again, there’s a simple solution, that just needs a little bit of work to set up,  but is an automated-easy-to-follow process.

Come up with a simple ratio or percentage that you would apply whenever you receive an invoice payment. For each payment, take this percentage and place it in a separate savings account, only to be used to pay tax bills.

Ask your accountant or financial coach to help you work out a suitable ratio to apply to cover all your likely tax, national insurance and VAT bills. If you’re self-employed, here’s a handy HMRC tool to help you work out tax & national insurance.

Many people who use this approach find that they have some ‘tax’ funds left over and easily create extra savings in the business.

This is the Captain speaking

Whether you’re operating as a sole trader or a limited company, see yourself as a director of your business. Often people experience a psychological paradigm shift when they move from sole trader to a limited company, treating themselves with a different level of respect and expecting to be paid a regular salary and share of the profits. But you can create this mind-set shift whichever legal structure you operate.

Treating yourself as a key member of staff puts you in a better position to grow the business and separate yourself away from it.

In summary…

Keep your business finances in good order and lift through the dark clouds

1. Have separate accounts for business finances and personal spending.

2. Automate fixed payments into your personal account on a regular basis for personal spending. Make sure you keep back some money in the business as a safety net for regular and occasional expenses.

3. Transfer a pre-determined percentage of your business turnover every month into a savings account for tax, national insurance and VAT.

4. Use accounting software – like Freeagent or Xero – to record business income and expenses on a regular basis, or at least a simple excel spreadsheet. This will help you keep a regular check on the health of your business and plan for regular and occasional expenses.

5. Prepare accounts as soon as you can after the tax or accounting year is complete. The sooner you do this, the more time you’ll have to make sure you’ve set aside the right amount of money to cover your tax bill.

We’ll cover this more in our next article ‘It’s not about what you earn, it’s about what you keep‘.

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