Becoming a sole trader can be highly exciting, but it’s not without its challenges. While that’s to be expected — you’re doing everything yourself for the first time, after all — it can prove to be pretty overwhelming, especially since sole traders are expected to wear hats that they’ve never worn before.
You’ll have become a sole trader because you’re great at what you do, not because you love — or even understand — all of the admin tasks that operating as a sole trader can bring. Putting the right processes and tools in place in your first year not only makes your foray into life as a sole trader more straightforward, but it can also set you up for success on a long-term basis, too.
If you’re new to the world of sole trading, then this page is for you. We’ll outline some tried and true strategies for ensuring your first year runs as smoothly as possible.
Separate Your Finances Immediately as a Sole Trader
Opening a business bank account on day one can have long-lasting, positive impacts that can seriously reduce your stress levels later down the line. It’ll make it a lot more straightforward to get an accurate view of your business’s financial landscape, as well as make it easier to see whether your business is actually profitable. Opening a business bank account takes minutes, so don’t overthink it — just do it.
Get On Top of Tax Early
Many sole traders underestimate how stressful tax can be. After all, it doesn’t get deducted automatically, and as such, it can be easy to spend money that should have been saved for when the tax bill arrives.
Understanding your tax obligations and building them into your operations from day one as a sole trader, can make things easier to manage, as can having the right tools. There are tools built with Making Tax Digital for Income Tax in mind, which can make things much easier to manage and give peace of mind that every transaction is logged, every expense has been claimed, and everything will be filed on time. Plus, aside from making sure that your taxes have been filed correctly, it can simply save you bags of time — and as an early-stage sole trader, that’s something that you’ll very much appreciate.
Build a Financial Buffer
Most sole traders go through some lean times on occasion. Even if business is booming now, there’s a lot of value in understanding that things might not always be that way. Building a financial buffer as a sole trader will allow you to roll with the punches when the slow periods arrive. If you have 2 – 3 months’ worth of cash reserves, then having less work for a month or two will be an inconvenience, not a crisis. Plus, having this level of financial buffer can help in other ways, too. Many first-year sole traders can become a little desperate once work drops, and consider taking on all work that’s offered to them. Having some cash in the bank gives you the confidence to say no, and be more selective about the jobs you take on.
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