Top Tips For Managing Your Finances
There are around 250,000 hair and beauty professionals in the UK with over 50% being freelance*. With no rent, bills or employees to pay, it costs very little to run a mobile beauty business and you get to keep all the profits yourself. BOOM, right?
Yes, but there are those little things like cash flow, VAT, tax returns, expenses… It can all seem a little daunting but by putting a few simple things into practice and keeping on top of your finances you can say goodbye to the account’s anxiety.
We’ve pulled together our top tips to help you manage your finances:
1. Register as self-employed
You want to keep it all above board so don’t forget to register as self-employed – you need to do this within 3 months of working for yourself and receiving payment from your first invoice.
Registering is an easy process done via the HMRC website.
2. Keep a record of all your receipts
Software like Quickbooks and Xero all have easy to use phone apps that allows you to record your expenses as you go along. Every time you make a business purchase just snap a picture of the receipt and save. No more bulging wallets full of receipts and a rushing as self-assessment time comes around.
These apps can also help you see you manage your income by keeping track of bills, payments and profit & losses.
TOPTIP: Remember to keep your documents for at least five years in case HMRC request to see them.
3. Claim all of your expenses
So many freelancers pay more tax than they need to because they don’t think to declare all of their expenses. All work-related expenses should be claimed when you're filling in your tax returns. Just be sure to keep all of your receipts (see point number 1!) and invoices in case you need to provide evidence!
Make sure you know what you can claim. Things like:
· Hair and beauty products
· Travel expenses
· Marketing and advertising
· Mobile phone and landline - business use
· Fuel and vehicle running costs
· Accountant fees
Make yourself aware of all the business expenses you’re allowed to claim, or you could be losing out.
4. Separate your personal finances from your business finances
Although managing personal & business finances from the same bank account may seem convenient in the short-term it can cause a lot of headaches long-term.
By keeping separate accounts for each, it is far easier for you to track and manage all incomings & outgoings and pay yourself a salary.
6. Create a separate account for tax and National Insurance
As a self-employed hairdresser or beauty therapist, it’s really important that you put money aside as you earn to cover tax and National Insurance rather than having to cover a bill at the end of the year with no savings. A separate account helps to remove the temptation to dip into over the tax year.
The amount varies depending on your income and expenditure but setting aside between 25-30% of your income should be enough to cover tax and NI payments.
It's useful to keep in mind that the current personal allowance before you pay tax is £12,500 which means you don’t pay anything until you’ve earned this amount over the tax year. This means you can pay yourself up to £1,000 a month without having to pay any tax.
7. Stay organised
Make a note of all the key dates in the financial year ahead. This way you won’t lose track of what you’re meant to be paying and when.
The key dates for the tax year 2020/2021 are:
· 6 April 2020 – first day of the new 2020/2021 financial year
· 31 July 2019 - deadline for payments on account for Income Tax
· 31 October 2019 - deadline for postal submission of Self-Assessment tax returns for tax year ended 5 April 2020
· 31 January 2021 - deadline for filing Self-Assessment Tax Returns for tax year ending 5 April 2020
· 5 April 2021 - end of the 2020/2021 financial year
8. Batch process your financial tasks
“I’m going to get to it later”
“I’ve got loads of time before the deadline”
Don’t lie to yourself, you know that’s not going to happen! Ignoring your financial responsibilities doesn’t mean that they will go away. In fact, the longer you ignore them, the more unmanageable they become.
Put aside one day of the month for finances. On this day you will do nothing else but go through your pile of invoices, bills, and payments.
9. Review your pricing regularly
Product price increases, fuel costs, the value of your time and work. These are all things to consider when you are pulling together your pricing. Increasing rates without losing business can be stressful because you never know how your clients will react.
But remember your price should be reflective of the value of your work and even though you won’t have the same overhead costs of a salon you still need to recoup the expenses you have to cover as part of your running your business. You could consider charging a small amount towards fuel expenses for those outside a certain radius, or increasing your margins on certain services like full head of highlights or nail art.
10. Take a free course
Even with helpful tips and guides like this it can be really confusing when you’re self-employed. HMRC run a series of free webinars that include everything from tracking your businesses expenses to how to complete and submit your self-assessment.
So, there you have it, our top finance tips for freelance hair and beauty professionals. For more advice and inspiration, head over to www.capitalhairandbeauty.co.uk/inspiration.