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5 tips to manage your business finances

Key takeaways

  • When you’re self-employed, you’ll need to determine how much you’ll charge for your services so you can estimate revenue and expenses. 
  • A key expense to consider is how much salary to pay yourself, which should be enough to cover your personal expenses.  
  • Opening separate bank accounts for your business can help you limit personal liability, establish credibility, and manage taxes.  
Being self-employed is easier when you have an idea of what you’ll bring in and what you’ll spend to keep your business going. This means understanding what your revenue and expenses will be. Clearly defining these numbers can also help you secure loans or attract investors, if you decide to have them. Consider these 5 tips to manage your business finances.  

1. Estimate revenue and set your price

For a clearer picture of your business’s financial health, you need to first estimate your revenue or the total amount of money you’ll earn in a set period (such as a year). Don’t confuse revenue with profit—that’ll be the total revenue minus your expenses. 
Determine how much you should charge 
Your revenue will depend on how much you charge for your products and services. Freelancers and small business owners use many strategies to establish pricing, including: 
  • Cost-plus pricing assesses the cost of completing a project (materials, expenses, time), and then adds an additional percentage as profit. Calculating a desired cost-plus price can be a useful way to determine your minimum acceptable price. Be sure to find customers willing to pay this price if you want to be profitable. 
  • Market-rate pricing looks at market averages for your industry and area to determine pricing. For example, if you freelance, look at what freelancers with similar skills and experience are charging to understand what clients will pay. 
  • Value-based pricing bases the cost on the ultimate value to the end client. In this scenario, you may charge clients based on a percentage of expected profit or new business. 
If you’re a freelancer, you may choose to charge an hourly rate or a flat project rate. You could provide certain discounts for work quantity or consider a retainer agreement. Special services, such as rush jobs with a faster turnaround, might include an extra fee. 
Remember that your rates should increase over time, as your experience and quality improve and as your cost of living goes up. 
Project how much money you’ll bring in 
Once you know how much you plan to charge, you can project your revenue by estimating the total products or services you plan to sell and multiplying by your price. Consider best-, average-, and worst-case scenarios based on past months, or ask others with similar experiences how much they were able to sell or work in their first year. Or start your freelancing as a side business first, which may help you better gauge what your revenue could be. 
You may want to set a revenue goal based on what you’d like to earn. At a minimum, you probably want to earn enough to cover your monthly business expenses (which should include a salary that covers your minimum personal expenses). Set your goal based on what you’ll need to maintain a realistic work-life balance. 
Once you’ve identified your target revenue, consider what it’ll take to reach that goal. How many hours will you need to work, jobs will you need to take, or products will you need to sell? 
Regardless of how you determine your revenue, it may feel like a guess. That’s OK. Even an educated guess will help you plan and serve as a guidepost as you get started—telling you if you’re on track or need to adjust your plan. 

2. Consider your fixed and variable expenses

As a freelancer or small business owner, you’ll need to consider expenses as a part of your financial planning. Your expenses include both fixed expenses and variable expenses. Fixed expenses are costs that don’t change, regardless of how much you use a product or service, such as a car payment. Variable expenses change according to how much you use a product or service, such as gasoline. 
What you’ll spend money on as you start working for yourself will vary based on your product or service. 
Your first expense should be your salary. Your salary should be enough to cover your personal expenses. Some freelancers pay themselves the same amount every month, while others pay themselves based on the amount of work. You should also factor in employee salaries and benefits if you plan to have employees in the future. 
Other common expenses when you’re self-employed may include: 
  • Actual office or physical space costs – This may include rent, equipment and supplies, utilities, inventory, communications equipment like cell phones, and any licenses or permits you may need. 
  • Other business essentials – This may include insurance for both you and your workplace, lawyer and accountant charges, fees you may need to pay to online work platforms, gas if you use your car as part of your business, as well as advertising and marketing costs. 
  • New personal expenses – This may be particularly important if you’re quitting a traditional job and may include health insurance, disability insurance, or more money for retirement savings if you’re losing an employer match. So consider building your own benefits package and adding the cost to your salary.  

3. Estimate your actual expenses

Some expenses will have established costs that don’t vary, such as license or permit fees. Others can be far less well-defined, like salaries or travel. Do your research and talk with vendors, service providers, or others to get an idea of what to expect. 
Once you’ve estimated your expenses, you may want to organize them into monthly and one-time expenses. Add these up to get a clear picture of what you’ll need to cover them. 

4. Open bank accounts for your business

Before you start receiving money and making payments, you’ll want to open a business account. This could include a checking account, savings account, credit card, or a merchant services account that enables you to accept credit card purchases. A cash management account offered by brokerage companies may also be an option. 
If you already have personal bank accounts, you may wonder why you should also open one for your business. There are several important reasons. 
  • Limit personal liability – Incorporating your business provides an extra layer of protection from personal liability. There may be exceptions to that protection, and you should talk to an attorney to decide how to structure and run your business to stay protected. 
  • Establish credibility – Business accounts can also help to provide an air of professionalism to your business—rather than customers paying you personally, they’re paying your company. 
  • Maximize tax deductions – You’ll need to keep records for business expense deductions, such as office supplies. You may be able to deduct the cost, or part of the cost, of some of your business expenses. Tracking them apart from personal expenses makes it easier to ensure you don’t miss deductible expenses and may save you time when filing taxes. For more information, visit  
Fidelity doesn’t provide tax advice. You may want to consider consulting a tax professional. 

5. Separate business and personal finances

The line between personal and business finances can be blurry when you’re a freelancer or small business owner. After all, you are the business! However, while it’s important to consider both business and personal expenses as a part of your financial planning, it’s best practice to manage them separately—ideally in separate accounts. 
Here are some ways opening a separate account for business expenses can make a difference: 
  • Better track cash flow and manage expenses – A clearer picture of money coming into and going out of accounts you use for work lets you plan more accurately. 
  • Be more prepared for tax season – Keeping work finances separate can help simplify the tax filing process, which may help avoid mistakes and potential penalties. 
  • Make your work more attractive – When your finances are organized, it can be a sign your work is too, giving those you do business with peace of mind. 
As you plan your budget, be certain you keep a separate budget for yourself and your business. The salary from your business should be income in your personal budget. It should also be an expense in your business budget.  
It may seem like a minor point now, but this type of separation can provide a lot of clarity later as your business and personal goals evolve. 

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Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

This information is general in nature and provided for educational purposes only.

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