I’ve been working with a few self-employed clients recently and by simply restructuring their finances they are now in a position to make some significant savings and free up good cash flow.

Self employed will often have a substantially different financial position to a normal working couple. Let’s compare a self employed to a normal working couple;
Your average working couple (on salary or wage) couple is probably earning $100,000 in total, so a monthly income of $6500 after tax. A self-employed couple may have an annual cash flow of $400,000 going through their business and often this money is not taxed directly (tax is paid later). So their monthly cash flow may be $33368.

The working couple’s monthly income of $6500 may mean they have use of this money for ¾ of the month (done by scheduling bills for the end of the month and putting a lot of their spending on credit). So they may have on average $4875 (75% of $6500) in their account which can be used to offset their mortgage cost. Simply by doing this each and every month they may be able to pay off their mortgage up to 10 years earlier.

The self employed couple likely does not have as much of the monthly cash flow money ($33368) sitting in the account, let’s assume they have access to 60% of it. 60% of 33368 is $20020. If they were to utilize this amount against their mortgage then they will be able to enjoy 4 times the interest savings of the working couple.

In additional to ensuring optimised cash flow it is also important for business owners to review any debt they have. Credit cards, overdraft accounts, lines of credits and mortgages have significantly different interest rates, ranging from 5.5% up to 30%. Making use of the lower rates and minimizing the higher interest rates will help with income and cash flow.

An annual review of your business’s finances is a worthwhile endeavor for any self-employed or business owner.