One of the biggest challenges for people who are self-employed is managing their finances effectively.

Poor financial management is often the primary reason why many small businesses fail. More than 60% of small businesses in Australia have experienced cash flow issues in the past year.

Whether you are just starting out or have been working for yourself for some time, you will face many uncertainties with your income and expenses. Income from self-employment can be inconsistent. It can be weeks or months between each income payment you receive depending upon the availability of work and the timing in receiving payment for work completed. Careful management of your money is essential to avoid failure of your business leading to debts that you cannot afford.


Money Matters to Consider

Cash flow

Cash is what allows your business to operate smoothly. Planning is required to ensure your business always has enough cash to meet expenses as and when they fall due.


Factors that can affect your business cash flow

  • Accounts receivable – the timing of payments for any sales that your business has made but have not received payment for.
  • Accounts payable – the timing of payments that you owe to your suppliers.
  • Credit term or the length of time you allow your customers to pay their invoices by.
  • The amount of inventory you have. Extra stock will tie up cash that could be used elsewhere.

It is common to face cash flow difficulties due to customers delay paying their invoices, effectively using you as a low cost bank to fund their business.


7 Ways to Improve Your Cashflow


  1. Ask for a deposit upfront. This will help to offset some of the time involved in selling the work, and pay in advance for the work you will complete before you would otherwise invoice.
  2. Encourage your customers to pay faster by offering incentives or small discounts. For example you may offer a 10% discount for prepayment. This will allow your business to have a regular flow of cash coming in.
  3. Speed up the invoicing process by invoicing electronically.
  4. Have a payment follow up process, such as sending out prompt email reminders if an invoice has not been paid for by the due date. Many accounting systems can automate this process for you.
  5. Reduce your credit terms.
  6. Offer more payment methods to make it easier for your clients to pay you.
  7. Request clients sign up for a payment plan via credit card.

If a client refuses to pay your invoice, you may have to engage a lawyer to recover your funds.


Budgeting for expenses, wages, and tax


When you are first starting out in your business, you face uncertainties in the income that you bring in.

A budget is an importantr guide to manaing your spending to cover for the essential expenses for each month, such as your taxes, business loan repayments, wages, and insurance.

Reduce unnecessary spending as much as possible, at least until your business and income reach a stable phase.

Create separate accounts for your business and personal expenditures. This will give you more control over your money and better insights into your spending.

As a self-employed individual, you are responsible for reporting your business activities to the ATO. Depending upon your business, Business Activity Statement (BAS) reporting and payments are completed quarterly. You must set aside enough money to cover your taxes as you do not have the benefit of having your taxes withheld automatically for you by an employer.

If you find difficulty in managing your cash flow, consider switching to monthly reporting to help stay on top of your tax obligations. Consider opening a second bank account where you can set aside money to pay your taxes. This ensures you won’t be spending money that is not yours to keep.


Single Touch Payroll


The ATO now requires businesses to use Single Touch Payroll (STP) reporting. Before the new legislation, businesses used to report employee’s wages, tax, and superannuation information once a year. With the new STP reporting, businesses are required to submit a report to the ATO after each pay electronically. To be STP ready, you will need to use online payroll software. There are also low-cost options for micro-businesses that employ less than 4 staff. These can be found on the ATO website.


Pay yourself and save


For the hard work you put into your business, you would feel deserving of spending every dollar that you bring in. This habit can ultimately get you into financial trouble. Instead, work out the amount you need to live on each month and pay yourself a fixed wage. It will ensure you keep money in reserve.

Creating a personal budget will help you to be better prepared to overcome the financial challenges of running your own business.


More tips to managing your money

  • Avoid using credit you cannot afford. Maintain an adequate amount of savings. When you are low on cash, you can use the funds from your savings account instead of relying on credit which you will need to repay with interest.
  • Keep a record of all your income and expenses related to your business. This will ensure you don’t miss out on any tax deductions you are entitled to.
  • Contribute to your superannuation fund and plan for your retirement. You are solely responsible for ensuring you have enough money saved up for your retirement. Start contributing to your superannuation fund as soon as possible to reap the benefits of compounded growth.
  • Plan for your holidays. As a self-employed person, you no longer get the benefit of having paid holiday leave. It is up to you to set aside money regularly to fund your break from work.
  • Protect your income. If you fall sick or become injured, and is unable to work, having income protection insurance will help to cover your expenses during that time.


Managing your small business finances can be an overwhelming task. Poor financial management is a source of unnecessary stress. To get on the right track, contact Moiler for a confidential discussion on how to improve your financial management to build a successful business.


Other articles you may be interested in:
Minimising your business operating costs


This document has been prepared by Moiler Wealth, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. The information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. 9 December 2019.