How to determine the right amount of money to leave in your business.

As an IT contractor, mastering your finances is a crucial skill for long-term success. By calculating your starting costs, accounting for taxes, and creating a buffer for ‘in between contracts,’ you can establish a solid financial foundation that supports your business growth.

Starting out as an IT contractor can be both exciting and overwhelming. You’re balancing client projects, building your reputation, and simultaneously navigating the financial aspects of your business. One of the key decisions you’ll need to make is how much money to leave in your business accounts.

💡 Tip 1: Calculate Your Starting Costs

Begin by understanding your initial expenses. Calculate costs such as equipment, software licenses, marketing materials, insurance, and any other overheads. These costs are essential for setting up your business and can vary depending on your niche and location.

💡 Tip 2: Account for Taxes

Taxes are a reality that all contractors must face. To ensure you’re prepared come tax season, set aside a portion of your earnings for taxes. Consulting a tax professional can help you determine a more accurate estimate based on your specific situation.

💡 Tip 3: Create a Buffer for ‘In Between Contracts’

One of the unique challenges of IT contracting is the potential gap between contracts. During these periods, having a financial cushion is essential. Aim to build an emergency fund that covers your essential living expenses for at least three to six months. This buffer will provide peace of mind and keep you afloat during lean times.

Financial Planning Tools

Embracing technology can greatly simplify your financial planning. Consider using budgeting and accounting software to track your expenses, income, and taxes. These tools can provide insights into your cash flow, helping you make informed decisions about how much money to leave in your business.

For personal finance I recommend YNAB , otherwise, I recommend a spreadsheet for company forecast.

As always, I am here to support you with any questions so don’t hesitate to get in touch

Millard Technical Services

Disclaimer: The information provided in this newsletter is for general informational purposes only and should not be construed as professional financial advice. Consult a qualified financial advisor for personalised guidance based on your individual circumstances.

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