Money advice for the self-employed

If your paychecks aren't the kind with deductions for taxes, you already know that the standard financial advice doesn't fit your situation. Here are some tips that may make things easier.

By MSN Money Partner Aug 8, 2013 4:33PM
This post comes from MSN Money contributor Liz Weston.

If you’re self-employed, you’ve probably noticed that standard money advice often falls short.

A lot of what you read assumes you receive regular, predictable paychecks with taxes already withheld and benefits covered. Just try finding advice to deal with the following:
  • A major customer abruptly changes payment policies, so that five-figure check you’re counting on to pay the bills lands weeks later than you expected.
  • Your health insurer announces your premiums will increase 39%, and your insurance broker tells you that no other company will cover you for less ... or at all.
  • Congress dithers on renewing a key tax break, so your CPA advises (at Christmastime) that you’ll need to cough up thousands more dollars to make yourself “penalty proof.”

SA, Mid-Atlantic USA, New Jersey, Businessman looking at piggybanks standing on desk © Jamie Grill, Tetra images, Getty ImagesThese aren’t hypotheticals. Each has happened to me as a small business owner. Predicting income and expenses when you run your own show is often as much art as science.


When you’re providing your own benefits, handling your own taxes and doing your own billing, your financial life becomes complex in a way that would confound most of the W-2 world.

This is what has helped me:

A business line of credit. Excellent credit scores helped me land a low-rate line of credit when I opened my business checking and savings accounts. I relied on it heavily when I was getting started to cover those inevitable gaps in cash flow (translation: slow-paying customers). I still use it occasionally to deal with unexpected expenses; I don’t carry a balance for a day longer than necessary, but I’d rather pay a few bucks in tax-deductible interest for a few days than keep a huge wad sitting idle in a business savings account.

A tax pro. I don’t write about taxes often, and almost never about business taxes. So why would I waste time trying to keep abreast of business tax law and struggling to do my own taxes when I can hire someone? Especially since that someone lives and breathes taxes, and can be counted on to represent me in an audit. We small business owners often have trouble delegating, but we’re far better off spending our time making money than wrestling with tax forms.

A simple rule of thumb. Early on, a CPA said he could bill me to make some elaborate projections, but he suggested a simpler way: save half. If I put aside half of every check that came in, I’d be able to cover my taxes and expenses. Ten years later I have a much better handle on cash flow, but it still pretty much boils down to saving half of what comes in.

If you’re an entrepreneur, I highly recommend “The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs Paperback” by Joseph D’Agnese and Denise Kiernan, two freelancers who through trial-and-error figured out a money system that really works.

More from MSN Money:


Aug 8, 2013 11:30PM

I wanted my own business all my life, at 45 I finally was able to make it happen, 1 year in the economy tanked, I'm now 51, working 80 hours a week, cant afford health insurance, owe the government 10K, and cant seem to get the business to the next level, yes i'm in trouble, but it beats working for someone else.

   I feel sorry for anyone who wants their own business today, the government has no mercy, insurance companies act like they own you,They  try to tell you what you can and cannot do in your own place, and insurance premiums never go down.

  Then there's employees.....they show up on Monday and work in reverse for the first 3 hours of the day.....they stop working at 4:50 and watch the clock until 5PM, then I stay until midnight to stay on track....

  People look at my business and say"you have ALL THIS", I reply that it takes 10K a month to HAVE" all this" and it takes 12K a month for me to write myself a paycheck.

   If you know a small business person ask them when was the last time they GOT a paycheck, I know I cant write one....My guys get paid and I get  to stay and work when they leave.

Saving money is a pipe dream, and things just seem to be getting worse, something has to change, I know several small business owners, some 20+ years in, they say its never been like this before.

Aug 8, 2013 7:55PM
MSN, if you are so good at giving advice on how to spend one's money, please advise the Washington Taliban on better uses of OUR money!!!
Aug 8, 2013 8:57PM
As a small-business owner, you just need to have a lot of cash handy all the time.  In other words, live below your means.  I always look at my income as 'long-term', in that I rarely have one job that I am using to pay one bill.  If you don't have the cash cushion, you're going to be under a lot of unnecessary stress.  Being self-employed and being a spender are not a good mix.

As you build your business, then you can clamp down on the payment terms that you accept.  You can also dump any customers that aren't profitable.  If you have any slow-payers, either dump them or raise their price to figure in a nice interest rate for yourself. 
Aug 9, 2013 6:45AM
"Save half" is good advice.  Also, when making revenue and expense projections, add 15% to your expense expectations, and drop your revenue projections by 15%.

Keep receipts for 7 years - all receipts.  If you are writing off a bunch of business expenses (and you should be), you will get audited, it's just a matter of time.  If you are claiming lots of mileage, keep all vehicle repair receipts - these have your mileage printed on them and can be used to prove you actually drove as many miles as you are claiming.

Try your best to never let one client make up more than 10-15% of all your business.  This can be difficult early on.  If half your business comes from 1 client and they drop you, you've lost half your revenue - this can be devastating.  Also, in some cases, you'll be better off getting rid of clients if they end up costing you more than they are worth.  If they bring down morale or need to be babysat all the time and never pay on time and are always trying to negotiate a lower price, get rid of them.

Finally, don't under-charge for your time.  This is a mistake newbies make, and it's difficult to recover from.  If you build websites, and you charge someone $800 for something that your competition is charging $2000 for, yeah, you might get more business.  But if you end up working for $8/hr and this what your clients expect all the time, you'd be better off closing up shop and getting a job somewhere.  If you don't place a high enough value on your time, your clients won't either.

Aug 9, 2013 9:25AM
A large percentage of self-employed individuals do not run companies or small businesses ... they are a one-man show, barely making ends meet in this stagnated economy, and as such, most of this article really doesn't apply. I unfortunately lost my good-paying job in my early 50's, and after a few years of finding out that very few are interested in a man of that age, regardless of experience, I started a small home-based business that eventually paid the essential bills, but the financial crisis and recession took a big bite out of my profits, and things have never really picked up enough to afford the luxuries of tax-pros, or CPAs .... I am THE MAN, from morning to night, about 60 to 80 hours a week. Unlike many people who are self employed, I PAY MY TAXES, including a buzz-killing 15.3% self employment tax. I drive a 12 year old car about 7,000 miles a year, can't afford health insurance, and haven't been to a doctor in over 5 years, rent my home, and have debt, mostly associated with business and old-medical bills. I am proud to keep-on keeping on, and I don't look for hand-outs, or bail-outs .... I suck-it-up and keep hoping that tomorrow will be a brighter day. I've lived through many recessions, and other financial hardships, and at 63, I know that retirement isn't in my immediate future. Here's the kicker ..... I'm at peace with myself, and no longer have the stress that working for someone else can haunt you with. I've been off the anti-anxiety medication for years, and those old thoughts of ending-it-all are a thing of the past. Life isn't meant to be the rat-race that people crave, and the emphasis placed on money is a demon worse than drugs or physical abuse. AND, for all of you flag-waving Americans who love to avoid paying taxes, and even brag about it on these forums, you are in violation of the laws of my country, and as un-convicted, confessed felons, you have no right to bitch about anything.
Aug 8, 2013 9:30PM

Yup, the 'Big Fish in a Small Pond' demands immediate delivery, but then takes 6 months to finally pay you?  IF they actually ever do pay you? 


Been there, done it. 


I was an independent trucker in the mid to late 1970's, with my own authority.  I was a 'trucking company' and booked my own loads.  This was before the internet, where you can now easily check a customer's credit...  MOST loads are paid for by the company receiving the load, and it's done on credit.  Loads are billed by mileage and weight.  Miles=a 'per-mile' flat rate.  A heavy load is assessed a higher rate, while a very light load gets a cheaper rate.  I pulled a reefer (refrigerated trailer).  If the load needed temperature controls, the cost was higher. 


I did a 'turn' to Barstow, CA every 15 days, roughly 2600 miles each way, or 5200 miles in 12 days.  Three days down to rest and service the truck, then do it again.  I had to pay for an oil change and filters each trip out of my own pocket, and did it myself.  Lube all the grease fittings.  Fix anything else that needed care. 


Then, wait and wait for the consignee (receiver) of the freight to finally pay?  I finally got a steady customer in St Paul, MN who paid in under 30-days, and hauled produce back to them on a regular basis.  I'd run empty back to northern Wisconsin, drop my trailer at a cheese plant, and then bring the truck home. 


I've NEVER been paid for any load going to the Chicago area?  So I quit taking loads there.  Most of the places there charge the driver to unload their product.  But they never pay the freight bills! 


Diesel fuel back then was under 50-cents a gallon, but the truck averaged 5mpg.  Fuel cost about $250.  I had to pay out of my pocket for tires, repairs on both the truck and trailer. 


Getting 'stiffed' by dead-beat customers cost me money.  They got their product (which they had to pay for separately), but they never paid for the transportation. 


Sue them?  The lawyer fee's would be more than the freight bill? 


Small business, lots of problems.  Today, it's pretty easy to get a credit rating for a company.  In 1976, damn near impossible.  Once I got a dependable 'back-haul' to St Paul, MN, I had a pretty good business.  My out-bound loads were Wisconsin cheese, and the consignee paid regularly, about 60-days later. 


I paid of my loan for the truck and trailer in 2 years, then bought a better truck, and paid it off in a little over a year. 


My down-fall was my wife, who took care of the mail and banking...  ALL this money?  Every time I came home, there seemed to be new furniture, new clothes etc. 


I went 'out of business' in 1980, and got a divorce later the same year. 

Aug 8, 2013 8:30PM
Actually putting half away is good advice. Then at the end of the year when all your expensives have been paid and your taxes have been paid, If there is any left, AND THAT"S A BIG IF! Go have a party and have fun with the rest.
Aug 9, 2013 12:45PM
Is being wealthy a crime now days?  for an average person to gain wealth? 
Aug 9, 2013 9:21AM

Good Article. A good surprise from MSN.

While having that line of credit to cover those unexpected expenses is necessary for the cyclical nature of most business's, you should have a well thought out statement of cash flows to be able to 'predict' when you might need to tap into that credit line. Also, keeping a low Debt/ asset ratio will be the most healthy thing you can do - making sure that your debt is at least in line with others in your industry. By putting half of revenues back into your business, it will not only make this possible, it'll give you the opportunity to grow your business.

Aug 9, 2013 9:47AM
You can save half of what you make as long as there is enough to split in half.  The problem is when you are self-employed after working for someone else for 25 years it's hard to convert.  I have found that my CPA saves me the most money in the long run.  In the short run it's about keeping up my personal financial investments that is going to save me.  I know now that my later years in life will be protected because of what I did in my prior years and because of what I'm doing currently.  Save and invest every dime you make that is not spent on either paying your bills or investing in your business.  Be careful of investing in your business because it can be a huge sinkhole.  It was for me.  I now invest in me and my future. 
Sep 20, 2013 10:51AM

owning 2 distributerships , one in beverage , the other in bread ans biscuits, 80 ours a week is a vacation, between book keeping, income tax recording , murchandising and the company sales rep, merchandiser,salesperson, 80 hours is a vacation , but your time,travel, expenses, are not an issue, just how much can the government take for taxes and social security , and the insurence for health and life , which again with a country that is health care for profit we pay through the nose

Sep 20, 2013 11:54AM
Your headline is misleading.  Not everyone who is self-employed is a business owner!
Sep 20, 2013 9:37AM

self employed is a b.s you are slave to gov't  tax. crooket. staffers

ins. companies..,city rules. what ever your making it can be made

by a robot or in china for just 10% of what your making  it. for.  charging for it.

'self employed  is a myth its outdated early 1900s thing of the past.

Aug 9, 2013 1:28AM
I wish I could write the truth here, or anywhere, but the NSA is watching all our communications and so our freedom of speech is impinged upon to fine minutiae. They might come get me if I really told you whats what....Enjoy your "freedumbs"...
Aug 8, 2013 8:19PM
Wait til you read my new book entitled "The Mafia Guide to Running a Small Business."

Fuggedabout all that crap in the article.  Listen to the "Honorary Consigliere"
Aug 9, 2013 1:15AM
I am self employed and I don't declare the money I make or pay taxes on it.  It's MY MONEY!!!  I have a regular job and that job gets taxes taken out, that's more than enough for the government to waste!
Aug 8, 2013 11:18PM
Self employed~shut up~ I have to buy gas for my truck~All else is a given~Sheesh~Who writes this stuff MSN?
Sep 20, 2013 4:08AM
 This rag of Obozo propaganda is dealing out money advice? lol
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