Conquering the first customer and having the ability to organize what you desire under the layout of your venture and startup is one of the most gratifying exploits. Independent consulting is such a stimulating venture and a big undertaking, where you as a professional must take charge of multiple tasks and responsibilities.
If you have just become an independent consultant, then let us be the first to applaud you because you are in for one of the utmost fulfilling encounters of your life, but to succeed there’s an undeniable condition that you must assume, and that is to know how to financially guard yourself. If this matter is disregarded within your strategy, you will find yourself in a whole heap of redundant stress and exhaustion, therefore, having a financial plan and a good strategy will help you avoid the most common financial mistakes.
Five frequent financial missteps you should be aware of:
1. Not Separating Business and Personal Accounts
When you start as an independent consultant, it is more likely to use your finances to fund the venture. But mingling personal and professional financial accounts is never a good idea. This is a mistake you must avoid at all costs. When you flourish as an independent consultant, it is important to have bounds among your professional and personal finances. Separating business and personal accounts plays a substantial role in how you function as an independent consultant and in what manner the business world distinguishes it. Distinguishing among personal and business finances can offer a range of advantages, comprising tax compensations and the capability to defend your resources. Also not separating your personal and business finances causes more hitches to dispense your business revenue to funding interventions, making it further problematic to progress your business credit. So, make sure to have separate accounts for your personal and professional expenses and assure your success.
2. Not Having An Emergency Fund
Another slip-up you should make sure to avoid is not having an emergency fund. For new independent consultants, having a backup endowment is one of the last things they pay attention to. But planning a stout and durable financial foundation is too imperative for you to leave out. Some people think that having an emergency fund is only suitable for those who work eight-hour jobs, and this is a very wrong and harmful perception. In this world of uncertainty, you don’t know when the crisis may hit, whether you are an independent consultant, so it is always a great practice to have a backup. It does not matter if you have just started as an independent consultant, having the right plan in place, and only saving 30% of your earnings will save you a lot of distress in the future. Your emergency fund will shelter you from the unforeseen financial blow and can save you from debts.
3. Not Planning For Taxes
When you sell your services as an independent consultant, how you get paid depends on the understanding between you and your customer. You may get paid weekly or monthly according to the terms and conditions that you have set in your work agreement, and the services and the payments that you receive when you provide your services are not measured as a salary for tax objectives for the reason that your customer does not withhold your tax amount. This signifies that no federal income taxes, social security taxes, or Medicare taxes are deducted when you obtain your earnings, so in the midst of it, you often forget to plan for your taxes. But being an independent consultant means that you are self-employed, and you must pay and manage your taxes. When you don’t plan on paying taxes you may fall short in approximated quarterly taxes which may lead to a tax penalty. The extent of the drawback will hinge on how much you didn’t pay.
4. Budgeting Not Effectively
When you are operating your own business and its finances, several negative consequences can occur from functioning without effective budgeting. And when you elongate the implementation of an efficient budget, these consequences can turn out to be more serious than you imagine. Keep in mind that your effective budgeting can manage revenue, expenses, and potential cash flow. Consider budgeting as a means you utilize to design the upcoming events to make sure that you have sufficient “resources” to incessantly operate your consulting business. If you attain this effectively, the self-assessment of your conduct will imitate your generated profit. But if you fail to do so, well, you may either find yourself in considerable profit loss or be cleaned out of the consulting business.
5. Not Diversifying Streams Of Income
Being an independent consultant does not mean you only need to offer one service and go out on a limb. Instead, consider diversifying your streams of income by pondering over how your consulting business can diversify. By offering several different services, you can prosper your consulting business in numerous ways. Polish your expertise more efficiently to offer multiple services to keep things inundated while you deliberate the resulting phases. You often undervalue the sideline services which may bring in more revenue than you would think. As a self-employed independent consultant, you need to stay well-versed in shifts in your business and the world.
Develop a Business Plan
To avoid the prior mistakes when you dive into becoming an independent consultant, it is only fitting to develop an adequate business plan, be more thorough and realistic in offering your services, know your expertise and potential customers more efficiently to succeed, and at last, reach out to your target customers in the most effective way and make sure that the services you offer are being carried out in a way that will bring the outcomes your customer desires. To assess the prospect of that result, you require to know the best approaches. Center your original business plan over a precise assortment of services within your skills and proficiencies.