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Being a sole trader is an interesting situation when it comes to finances. It can be a little precarious sometimes, but it often doesn’t really make sense to set up a limited company. If you earn under a certain amount, the effort of setting up a limited company probably isn’t worth it. However, that can mean that your business finances are more closely linked to your personal finances. Additionally, there are other financial challenges you might face as a sole trader, such as being seen as a bigger risk by lenders. So how can you make sure you’re able to reach your financial goals?
It’s really helpful for sole traders to understand their options when it comes to managing their finances. It can be a little confusing if you’re not sure what’s available to you, especially when it comes to certain financial products. Fortunately, there are options such as self employed mortgages that can make it easier to achieve your goals. Sole traders can be seen as a bigger financial risk by banks and other lenders, but products made just for you can be helpful. They might allow you to apply for a mortgage with only one year of accounts, for example, or be more understanding of your unique circumstances.
It might seem a bit silly to say, but it’s important to treat your business like it’s actually a business. Some people who are sole traders can forget to do this, treating it like it’s just a job and forgetting about the business side of things. You might be good at providing the services that your business offers but you also need to know how to run a business. You should have a business plan and think about how to grow your business to help you reach your business goals.
As a sole trader, your business finances aren’t separate from your personal finances. Any business liabilities are also your personal liabilities, unlike if you were to have a limited company instead. So it’s important to set up a few things to protect yourself and your finances. Make sure you have a business bank account that you use for business transactions and pay yourself from. Taking out insurance is often a good idea if you want to protect yourself too. It can help you if anything goes wrong or a customer raises a legal case against you for any reason.
Planning for retirement can be particularly tough as a sole trader. You don’t have a workplace pension, even if you will be able to claim the state pension. So make sure you’re putting away your own retirement savings, through whichever methods you feel suit you best. There are multiple options that could work for you, from savings accounts to stocks and shares, private pensions, and more. Explore what’s available so you can make a plan that fits your retirement goals.
Being a sole trader doesn’t mean you can’t set and work on financial goals. You just need to know how to do it.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.