Here, Dominic Allon, vice president and managing director of Intuit Europe, explores how self-employed business owners can strike a balance between expenses management and business activity, with tips to ensure administrative processes remain efficient.
Deciding to take the plunge and become self-employed is a daunting prospect, but at the same time it could be the most rewarding decision made in a person’s life.
In a market that is fuelled by entrepreneurs and self-starters – the Office for National Statistics reported there were 4.6m self-employed people in the UK in 2016 – there has never been a more hospitable time for those that dream of becoming their own boss to make the steps to do so.
Self-employment can offer individuals a new sense of freedom, more money and better control over their working and personal life balance. But it is not always just fun and games. While they’re able to work on something they are passionate about every day, becoming self-employed is a huge commitment.
Unlike a job in an organisation where the financing, admin and HR tasks are usually managed by someone else, it is now in the hands of the self-employed, and all responsibilities lie with them.
Specifically, expenses management has proven to be a continual bone of contention. Our latest research with over 5,000 self-employed workers in the UK, found that on average, an individual spends up to two hours each week just separating business and personal expenses.
That’s the same as 15 working days a year wasted on what should be a quick and simple job – time that could be better spent earning cash or with family.
This issue is exacerbated as the UK’s self-employed workforce are allowing their finances to become entangled. Three quarters use the same bank account for their personal and business income.
This is ultimately damaging their business success because so much time is being unnecessarily wasted trying to separate business expenses from day to day personal expenditure.
When people decide to become self-employed, they often focus on their idea, how to monetise it and the prospect of growing it into something brilliant.
The reality of managing the business’ finances can sometimes become an afterthought when compared with the complexities of getting a plan off the ground.
Getting your taxes right is intrinsically linked to good expenses management.
Business costs – such as running a vehicle or buying specialised tools – can of course be deducted for tax purposes. But there is often confusion around what constitutes a business expense and what is a personal cost, and failing to understand the difference could land anyone in hot water with HMRC.
It’s important that self-employed workers get clued up on what they can and can’t claim, while also ensuring they hang onto all of their receipts – the government requires that you keep all records of your business income and expenses for five years.
People using the same account for both business and personal use must then find an efficient way to untangle the two lots of expenses on an ongoing basis.
Using online, cloud-based tools is making it increasingly easy for self-employed workers to simplify expenses management and ease the book-keeping burden. By ditching spreadsheets and using cloud-based financial management systems, self-employed workers can take the pain out of managing their finances.
For example, storing payroll and receipt processing in one cloud hosted portal can simplify and speed up the bookkeeping process, ensuring all the data is correct and up to date, as well as removing the need to manually enter expenses.
They should look at platforms that allow them to collaborate and work more effectively with their accountants, enabling both parties to get much more value from the relationship.
Managing expenses and finances accurately is vital for self-employed workers, and getting a holistic overview of how a business is performing is imperative.
For many, moving from spreadsheets to a new technology may seem like an unnecessary and minor factor in the greater scheme of setting up a business. While in fact, such nuances can have a significant impact on its success.
No self-employed worker can afford to spend significant time focusing on expenses management when there are critical customer activities to focus on – and get paid for.
As strong as a business model may be, there is no chance of success until financial management has been put at the heart of the business strategy.
Find out how to eliminate inefficient processes and document drain
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