Budgeting for the self-employed

Much has been said about budgeting in the Personal Finance (PF) blogosphere. For most employed people it should be relatively easy to figure out how much money goes in and how much goes out. What if you’re self-employed?

It’s practically impossible to predict even a close income figure. Yes, you can see how much money you should be receiving in the next month or two based on outstanding invoices (if that’s how you operate. With anything retail you don’t even get that.), but the reality is that some clients pay faster, some take their sweet time, invoices get lost, and – on the plus side – unexpected quick-paying jobs come in. I’ve given up on trying to predict how much money we’ll receive in any given period.

Instead, I know exactly what our base budget is, and I know what the after-tax minimum is that we need to make to stay afloat. If we don’t make that, it doesn’t mean we’ll go bankrupt, because thanks to sticking to this budget for several years, we have a comfortable cushion to last us at least a couple of years.

For most small businesses cash flow is not stable or guaranteed, at least to a certain point in time. So it’s critical to save in those months when you do have more money coming in than going out. It’s also important to have a “barebones” budget that you can realistically stick to when times get a bit harder.

Self-discipline is the name of the game in “self-employment”. In organizing work hours, choosing business direction, promoting, budgeting – it takes a higher level of self-discipline to do it on your own. I’m not putting down those people who are working for the Boss. I know it can be extremely frustrating and nerve-wrecking, but the truth is there’s a lot less responsibility riding on most employees. By following someone else’s order you essentially give up a part of the reponsibility for your own life. Of course, there are two sides to everything, and you can feel trapped in either situation. But I’m digressing…

Having all of the above in place is helping me avoid a freak out right now, even though March ended with a loss. *sigh*