Majority of self-employed earning less than £1000 per month
The lockdown prompted a surge of people to start side businesses to generate funds and ride out the pandemic. Some took up the activity as a pastime while on furlough, while others faced a complete absence of income and needed another revenue stream. Individuals eventually realised it provided them with the opportunity to break away from traditional 9-5 work hours while still earning and having the flexibility and freedom to set their schedule to suit their lifestyle.
From this, we have seen a significant increase in new business ventures, yet approximately one-third of self-employed individuals are finding it challenging to manage the cost of daily living, with most self-employed earning less than £1000 per month.
What might be the explanation for this?
Many existing small businesses missed out on the Covid-19 financial assistance packages due to the criteria this caused financial distress to business owners. The recovery process from the pandemic has slowed due to the ongoing cost-of-living crisis, which isn’t helping matters. The expensive cost of energy and raw materials, raising taxes on their National Insurance and dividend income, treating them as employees through the IR35 scheme without offering them the associated benefits, making it harder for those in self-employment, especially small businesses, to make ends meet.
Small businesses often need more financial awareness and understanding of where their money is being allocated or the revenue they generate. Consequently, they need help to draw a steady income and often rely on what remains after all expenses are accounted for.
Regularly taking out small sums of money eventually adds up! Business owners tend to take out the money as needed, making it difficult to tell when and what they have spent. Smaller amounts, such as £50 or £100, eventually accumulate. Therefore, by the end of the month, they often have insufficient funds to pay themselves a proper wage.
Making excessive withdrawals from the business too rapidly can be tempting, especially when a sizable purchase has been completed, or a hefty invoice has been cleared. Though a little bonus is always welcome to reward yourself, it can lead to significant fluctuations in cash flow, and many individuals may need help to draw out as much money as they were able to before.
Entrepreneurs continually seek opportunities to innovate and improve the business or the next big venture. However, these can come with a price tag. Whether new products, training and more, it can quickly deplete the business’s funds. Overspending can drain the company’s financial resources, making it impossible to pay wages.
How do you earn more than your wage?
Even though it’s tough times right now and the majority of self-employed are earning less than £1000 per month there are things you can do and focus on in the right areas to ensure your business can be profitable and you, as a business owner, take a regular wage.
Know your numbers!
Knowing precisely what is coming in and going out is critical. This helps business owners plan how and when to pay any upcoming bills. It is essential to closely monitor what needs to be paid and what sales are being made each week. By doing so, business owners can plan how and when to settle bills, and it will allow business owners to create and meet budgeting goals, eliminate recurring expenses, cancel subscriptions, negotiate improved supplier contracts, and set realistic sales objectives. If you would more ideas on how to save money in your business check out this blog: https://www.cedarhouseaccounting.co.uk/how-can-i-save-money-in-my-business/
Marketing and sales strategies can be utilised to generate more significant revenue for your business effectively. Once you know your numbers, you can set your sales targets and market your business accordingly. Establishing appealing offers, organising clearance sales, and introducing promotions can all be leveraged to drive cash into the business swiftly. Doing a stock take and seeing what surplus stock you have to sell. This will help increase quick cash into the business.
By managing your business’s finances, you can promote a steady cash flow and thereby bring about more stability. Over time, you’ll notice a pattern that eventually allows you to offer a higher wage.
Don’t be afraid to say no to extra costs; don’t be intimidated into accepting additional expenses. Instead, ensure the business can afford them while maintaining your earnings before you agree to any significant purchases. If you would like to look into more detail on how to maximise your profits check out this blog: https://www.cedarhouseaccounting.co.uk/maximising-profits-in-your-business/
Struggling to calculate your profits and don’t need to know where to begin? Get in touch with us. https://www.cedarhouseaccounting.co.uk/contact-us/
Don’t be intimidated by the prospect of assessing your finances – it is crucial to understand them to stay in control. We can provide assistance to help you gain insight into your business performance, unlock hidden profits and prevent common issues by developing a three-month cash flow plan.
