Self-employed and in debt? These tips will help you manage

StepChange Debt Charity
by Lovemoney Staff StepChange Debt Charity on 29 November 2012  |  Comments 2 comments

Being self-employed isn't easy. If you are stuck in the red, we've got some simple steps you can follow.

Self-employed and in debt? These tips will help you manage

It’s easy to see why people start their own business, when making money is only limited by your own ambition and ability.

Sadly being self-employed isn’t always that easy - the economy, late-paying customers and cash flow are just some of the issues that can get in the way. We’ve recently carried out research which shows that people who are self-employed are more dependent on credit and vulnerable to a problem debt cycle.

So how do you manage your finances better if you’re self-employed? 

Make a business budget

Like your personal finances it’s important to make a plan of your business’s income and expenditure. This is vital in working out how much money you actually have available. You might think you’re running your business like Alan Sugar when in reality you’re more akin to Basil Fawlty.

We’ve found over the years that many people who are self-employed think they’re doing better than they actually are because they looked at their revenue. When you take out the business costs there is often not as much profit left over as you think.

Draw a line between business and personal

For smaller businesses it can be very hard to find the dividing line between business and personal costs, and it might seem like there’s no point in making the distinction. When you’ve got work to do, you probably don’t want to be noting down every packet of mints you’ve bought in a spreadsheet. But it helps.

Having a good idea of what costs are business-related and which are personal will make things much easier. Not only will it help with your taxes but it’ll also be an important part of planning both your personal and business finances.

Pay yourself a wage

Many self-employed people will just dip into their business takings whenever they need money for something. This can make it very hard to know how much you’re really spending.

If you take a consistent amount every month then you’ll find it much easier to have a personal budget and can plan your money better.

Plan for fluctuations in your income

While Dolly Parton might not have thought much of working nine to five, at least when you’re employed by a company you’ll usually have a consistent income. Paying yourself a regular wage when self-employed can be tricky as it often means having to accept that your income can fluctuate wildly from one month to the next.

The best way to combat this problem is to work out what your income is on an average month and set aside any extra you earn in the good months. Then when you have a month where you earn less you’ve got some money to fall back on.

Don’t use credit to prop up a business

We speak to many people who use personal credit to prop up their businesses when times are tough. This can be very tempting if your business is suffering a short term cash flow problem but it can lead to long term debt problems.

When a business is struggling it’s natural to do everything you can to support it but if this extends to using debt in your own name it can make it much harder to recover, and put extra pressure on your business.

Get debt help

If you’re self-employed and finding yourself with mounting debt problems then we can help you get back on top of things. We can help you plan out a business budget, plan your personal expenditure and work out how to best deal with any personal debts that you’ve got.

Our online advice tool, Debt Remedy, can take you through this process and give you customised debt advice even if you’re self-employed. If you’d prefer to talk to an advisor then get in touch. You’ll be able to talk to a debt advisor who specialises in giving advice to the self-employed.

More on debt:

Healthy food and a healthy bank balance: you can have both

The dangers of multiple payday loans

Overdrafts: the debt problem you didn't realise you had

New laws mean credit card debt can affect your mortgage

Budgeting was easier when we were paid weekly

Why a 0% credit card could mean 100% trouble

Losing your job isn’t the only cause of middle age debt

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Comments (2)

  • oldhenry
    Love rating 350
    oldhenry said

    What about using an accountant? A real one, I mean of course. They are usually very useful in sorting out finance and getting you to budget carefully and to monitor it. Too many owners end up propping up thier business from family funds and mortaging their house. I have seen it as I am a retired chartered accountant but there are other qualified accountants out there.

    Report on 03 December 2012  |  Love thisLove  0 loves
  • Suzana Daniels
    Love rating 0
    Suzana Daniels said


    This is Suzana and I am a member of a financial community. I have gone through your blog and found it to be very impressive and informative. I would therefore kindly like to contribute an article on debt for your site (lovemoney .com) and in return all I am looking for is a back link for my website.

    Please let me know your opinions on this.

    Many Thanks

    Report on 04 December 2012  |  Love thisLove  0 loves

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