Many people who are self employed struggle with the financial management aspect of running their own business. Harry Pontikis has been running seminars for the self employed for over 9 years and has identified 8 common financial headings which cause them the most hardship and often leads their profitable businesses to unnecessarily difficult times.
1. No emergency cash reserves
- The worst time to approach a lender for money is when you need it
- Therefore, the best time to apply for a loan is when you don’t need it.
- This is done by attaching a Line of Credit onto equity and leaving it as reserves
2. Paying commercial rates
- If a loan is secured by residential property, you shouldn’t need to pay commercial rates
3. Starting projects with own funds and then applying for finance
- Lenders will not consider a development or construction project which has already begun.
- This is because it is no longer considered land and can’t be valued as a home;
4. Fixing rates and limiting ability to pay off loans
- You need to know when to fix your interest rates and when to leave them variable.
- Trying to preempt the movement of interest rates is not a good reason to fix your interest rates.Limiting your exposure and ‘hedging your bets’ may be a good reason to fix your interest rates.
- Fixing your interest rates and then refinancing to access more equity or because your situation has changed can be an expensive exercise.
- Good planning is necessary regarding your future financial needs
5. Failing to complete tax returns on time
- Not having financials to show a lender when borrowing money may lead to higher interest rates and more fees
- Always better to have your tax returns completed and up to date
6. Allowing a default to be registered against your name on the Credit Register
- Defaults can cause major issues with obtaining any sort of credit – whether they are loans, utilities, mobile phones, etc
- Not worth allowing one to be registered against your name as it remains for up to 7 years
7. Growing too fast
- Many businesses face the greatest challenges when times are good – not having strict financial disciplines in place may cause excesses in spending and cash flow often causes a business undue hardships.
- Lenders have many products to help businesses with their cash flow challenges. Including lending money without requiring property – often known as invoice or cash flow finance.
8. Giving too much business to one lender
- A misconception that a lender is likely to treat a self employed person better if all their business is with them.
- Better to spread the risk across multiple lenders
- Competition with lenders is a healthy way to get great rates and loans