8 Simple management practices to deal with fluctuations in income


Self-employment can be a rollercoaster ride.
Annie Bourque | Journalist

Self-employment can be a rollercoaster ride--you don't always get contracts when you need them, and sometimes you get more than you can handle. Here are 8 simple and effective management practices to help you through slow periods.

1) Set your expectations for the year
At the start of every year, it's important to determine what kind of work you can expect to get over the next 12 months. This process should be repeated every three months. If you lose clients, replace them as soon as possible. 

2) Make a budget and stick to it
In business, money talks. Monthly budgets are a must and should include three separate columns: 
  • Fixed personal expenses such as your mortgage and groceries
  • Business expenses such as advertising, equipment, and office supplies 
  • Income 
3) Build up a safety cushion 
Our specialists recommend that you set half your income aside for slow periods. That may sound like a lot, but self-employed workers have to pay taxes too. Be sure to build up a safety cushion for unforeseen expenses like broken equipment or an emergency dentist appointment. 

4) Set money aside for taxes
"When self-employed workers receive $1,000 in payments, they should put $325 in a savings account for income taxes, another $150 for GST and QST payments and $106 for the Quebec Pension Plan," explains Bertin Pelletier, account manager at Fradette et Associés CPA. 
 
5) Get incorporated or register? 
Incorporation can be an attractive option for some--having to pay a mere 19% in income taxes is certainly a plus. "That means you'd only have to pay $19,000 on $100,000 in income," adds Pelletier. Other factors such as your business area and profits also play into the equation. It's generally best to consult an accountant or tax specialist before making a decision.

6) Salary or no salary? 
Should you pay yourself a salary? "Self-employed workers rarely pay themselves a salary as it entails a whole lot of extra paperwork for government agencies like RQAP (Régime québécois d'assurance parentale), Régie des rentes, Fonds de service de santé, etc."

7) Discipline with a capital D
Self-employed workers must carefully and strictly manage their finances. "Whenever you get a cheque, you have to put some of the money aside for taxes. It's not your money. You have to be disciplined or you won't succeed. Though, if you have $3,000 left over at the end of the year, you can probably afford to go on a little trip," muses Bertin Pelletier. 

8) Avoid the most common pitfalls

Mixing business finances with personal finances
We strongly recommend getting a planning specialist or account manager to assess your financial needs. "It's important to draw a line between the personal and business aspects of your finances. You should really have a dedicated business account," advises Judith Lussier, account manager at Desjardins. Not using ATM cards can help you resist the temptation.

Making decisions on a whim
If you need a vehicle to meet with clients, "don't buy yourself a brand new truck. That's unnecessary," she explains.  

Not planning for the worst
Could you survive if you couldn't work anymore due to an accident or illness? "There's insurance out there designed specifically for such circumstances. People often don't think of getting it until something happens to them," she clarifies. 

Spending your own money
There are times when you just have to buy new equipment. To avoid getting in debt, some people choose to make payments in cash, which isn't always the best option. Taking out a loan may be the best course of action depending on the project. Talk to a financial advisor to determine how you should fund your business.

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