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How to handle inflation as a sole trader
Sole traders have had an especially difficult few years as inflation surges. We’ve got three tips to help lighten the load for your sole trader business.
As inflation began surging in early 2022, sole traders were initially able to offset the effects by changing their clients more. But their ability to keep up was limited: as of March this year, we appear to have hit a pricing ceiling. Only 28% of sole traders have recently raised their rates, as opposed to the 56% who did last June.
Recent research from Hnry shows that many sole traders say they’re paying more for suppliers and services, saving less, or eating into their savings. Half of all sole traders believe they’ve worked for less than minimum wage in their last year. Here are three practical suggestions to help ease the strain of inflation on your sole trader business.
How to cope with inflation as a sole trader(external link) — Hnry
- Automate everything you can
Research from October 2022 shows that sole traders are only spending around half of their working week (55%) on actual work.
The rest gets taken up with things like:
- admin and taxes (18%)
- finding work (15%)
- travel (12%)
Freeing up some of this time could mean taking on more projects, or working bigger contracts, resulting in a boost to your bottom line.
To get some of this time back, start by identifying the boring, repetitive tasks that you’d happily outsource.
For example, is chasing invoices taking up a lot of your time? Are you struggling to find new clients? At the risk of sounding like an infomercial, are taxes getting you down?
Good news – there’ll be a way to either streamline, automate, or use AI to take that task off your plate completely.
Once you know which tasks you no longer want to deal with, you can start finding the right solution for your needs.
That could mean anything from creating a new booking form on your website, to building an automatic sales pipeline in Excel, to working with an accounting software company that automatically chases clients who are late paying their invoices (politely, of course).
Digital Boost also has a range of courses that can help you streamline work and improve your productivity.
Booking forms(external link) — Jotform
How to build a sales pipeline(external link) — Hnry
New Zealand Business Number is a unique identifier available to every business in New Zealand. Sole traders can register for one.
If you’re a sole trader, you can use your NZBN to:
- prove that your business is real and valid
- easily share and update your business information
- speed up your interactions with government agencies such as Inland Revenue, ACC and the
- Ministry of Business, Innovation and Employment
auto-fill your business information in online forms that require your NZBN.
Applying for an NZBN(external link) — New Zealand Business NumberAutomating now can mean you save time later. If you can free up just 2 extra hours a week, you’ll save 104 hours per year – that’s the equivalent of creating an extra 2 and half working weeks a year. What could you do with that extra time?
2. Claim all the deductions you’re entitled to
Claiming business expenses can save you thousands of dollars each year. If you’re not claiming everything you’re entitled to, that’s essentially savings left on the table. Less than half of all sole traders in Aotearoa say they claim all the tax deductions they’re eligible for. The average reported value of unclaimed business expenses was $5,611.
As a general rule, you can claim a tax deduction for a business expense as long as the expense relates directly to:
- earning income, or
- running your business.
Claiming expenses (external link)
This, however, is just a starting point. You should also know that:
- not every business expense will be a valid deduction
- not every tax deduction is a business expense
- some tax deductions are industry specific, for example a tradie won’t be able to claim everything a contractor can.
So, how do you know that you’re claiming everything you should claim?
The IRD website and our resources are good starting points for learning about expenses
Types of business expenses(external link) — Inland Revenue
Beyond that, it’s aways a good idea to talk through your expenses with an accountant (or a registered tax agent, like Hnry). They might spot something you’ve missed.
3. Take care of your mental health
You are your business. Your business is you. If your mental health begins slipping, your business will suffer. From this perspective, taking care of your mental health isn’t just essential, it’s good business sense.
It’s tempting to work harder and longer during challenging economic times, but this is often not a good long-term strategy. If you have to put in extra hours, do your best to create time and space elsewhere to recharge.
We’ve got practical tools and tips from experts that can help you create a mentally healthy approach to business and life.
Being a sole trader can be hard, especially when you’re just starting out. Don’t be afraid to lean on your networks, and ask for help if you need it.
Despite all the challenges, being a sole trader is intensely rewarding. The autonomy, freedom, satisfaction, balance – there are so many reasons why more and more people decide to start their own business.
Source: https://www.business.govt.nz/