There are many advantages to being self employed. In fact, for most, the advantages far outweigh the disadvantages. However, if you asked someone who is self employed what’s one thing they don’t like about calling the shots is that income is unpredictable. Unlike a job where a check is waiting for you every couple of weeks when you’re self employed it’s usually the exact opposite. You could be feasting one week and starving the next.

Budgeting for a Small Business

Even if your income is unpredictable you should still create a budget. This budget should be done for the whole year and should be an estimate of what your income and expenses will be. This doesn’t mean one line for income and another line for expenses. You should have a breakdown of the types of income streams you have as well as the types of expenses. 

This is where good bookkeeping comes in. If you are keeping good books you’ll know what products or services are selling best and what to focus on. On the flip side you’ll know where your money is going. If you are tracking the health of your business you’ll find that there is more predictability than you might expect. 

Taxes for the Self Employed

Another benefit to staying on top of your bookkeeping is that you’ll know what to expect when taxes are due. There is nothing worse than finding out that taxes are due but there is no money to pay them. A recent survey found that running out of money was the second most common reason why small businesses fail.

As a self employed person income taxes are a little different. Instead of getting tax taken out of your paycheck you are expected to pay your taxes, also known as estimated taxes, on what is basically a quarterly schedule. 

Then there are self employment taxes to deal with also. Self employment taxes are payments for Social Security and Medicare.

You may also be responsible for sales tax. Sales tax is not your money. It’s the government’s money and as a business owner you get the privilege of collecting the tax for them. They do not care that your business income is unpredictable. They still expect those taxes to be collected and paid.

Ways to Plan Business Income

There are some ways that you can make your income more predictable. If you have large ticket sales consider offering payment plans so that a fixed amount is received regularly. This will allow you to plan more efficiently and also provide working capital to pay bills. You can do the same thing on the flip side with expenses. Instead of waiting for the due date to pay a large bill paying it over installments will allow you to budget for those items.

It sounds like a lot but with good bookkeeping and a sound budget you won’t be blindsided by it all. You can do this!

More Tax Tips