Are you ready to make the leap into self-employment? Branching out on your own lets you create the career and life you want, but it also comes with a lot of financial responsibility. Now you’re on the hook for bringing in enough money each month to cover your personal costs and your business expenses.
Before you ditch your day job, you should know what to expect when it comes to the startup costs for a business of one. Here’s what I’ve learned from my experience building and managing my own solopreneur budget.
Estimating Startup Costs for a Business of One
When you launch your business of one, there are a variety of regular, recurring costs that you’ll need to account for when developing your budget. For example, everyone needs to pay taxes on earned income. But exactly how much you pay depends on your gross revenue, business expenses and unique financial situation.
As a rule of thumb, I always set aside 30 percent of every payment I receive. I usually pay a little less in taxes when it comes time to file, but saving a bit extra gives me peace of mind. This way, I always know I have enough cash earmarked for taxes when each quarterly estimated tax payment is due and when I file my complete return each spring.
You may also need to pay filing fees if you decide to form an LLC or another business structure. If you operate as a sole proprietor, you won’t need to pay any fees to do business.
Every business looks a little different from the next, and your costs will likely vary from the expenses of other solopreneurs. But it’s helpful to get an idea of how other solo acts structure their budget once they get going. Overall, my normal, ongoing expenses are usually about $1,500 per month. Here’s a breakdown of the business budget I keep as a freelance writer:
- Technology: When you run your own business, you’re responsible for paying for your internet and business phone. Other technology costs may include those associated with hosting your website or using a variety of apps and services, such as an online scheduler. All together, I usually spend about $200 per month on technology.
- Health insurance: If you freelance full-time, you must cover your own health insurance costs. I pay about $300 per month for my health insurance in Massachusetts.
- Networking: As a solopreneur, you may choose to invest in memberships to industry-related organizations or pay to attend local networking events. I usually spend about $150 per month in this area.
- Travel or commuting: Whether you travel to attend a business meeting or regularly head to the local coffee shop to knock out an assignment, you may incur a variety of commuting expenses throughout the year. If you use a car, be sure to track your business mileage for tax purposes. I spend about $20 per month on these expenses.
Coworking space: If you’re interested in getting out of your house and surrounding yourself with fellow freelancers, you may want to look into the costs of joining a coworking space. I spend $325 per month on my membership.
- Contractors: Of course, you can’t do it all on your own. In certain scenarios, you may want to invest in a virtual assistant (VA) or another third-party vendor. I spend about $500 per month on contractors.
How I Manage My Business Budget As a Solopreneur
It’s important to remember that the items I outlined above just include my normal, recurring expenses. In order to ensure I remain financially stable, my budget also needs to account for infrequent or one-time costs. This may include processing fees or an annual payment to my CPA, who helps me file my taxes.
For peace of mind, I know I always need to be prepared each month with up to $3,000 to cover expenses. Like every other freelancer, it’s important to me that I don’t fall into the trap of business debt. I account for taxes first, and pay my expenses second. Then I fund my retirement accounts. I leave a little in my business checking account to cover months when my expenses are higher — like if I travel to a conference. Once everything is divided up, I pay myself the remainder.
My Budgeting Tips and Tricks
I’ve been self-employed since 2013, and I’ve learned a few things about budgeting along the way. Based on my own experiences, here are a few tips to keep in mind as you build your own budget:
- Operating as a solopreneur doesn’t give you free rein to spend however you want. Expenses are still expenses — even if you can write them off on your taxes. You may have revenue pouring in, but if you can’t keep costs under control, your actual profit will suffer for it.
- Your budget should reflect what’s essential to staying up and running as a solo enterprise. What do you actually need to do your job well? Start there and build a lean budget around those line items.
- One essential business expense is a CPA. After all, your tax situation becomes much more complex when you’re earning self-employment income. A CPA can make sure you’re filing appropriately and taking the deductions you’re entitled to — without writing off anything that’ll send up red flags with the IRS.
- Eventually, you’ll want to reinvest in your efforts — and you may need to spend in order to grow. As a freelance writer, I reinvest to create growth by working with a VA. My VA handles tasks from scheduling meetings and researching new opportunities to sending invoices and keeping track of my finances.
By structuring your business budget to fit your needs and identifying areas where you can streamline your processes, you can gain some of your valuable time back. For me, I spend that time writing more articles — which helps me increase my revenue. Sure, the expenses of the freelance lifestyle may seem overwhelming at first. But once you have the right budget in place, you can ensure you remain financially stable on your journey to become a profitable business of one.