# 3 Common Financial Hurdles for the Self Employed (And how to Overcome Them)
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-08-10
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Financial Hurdles in Self-Employment: How to Overcome Them
Meta Description: Learn how to prove your income, estimate your taxes, and manage cash flows as a self-employed individual. Overcome the financial challenges of self-employment.
URL: https://financedigest.com/3-common-financial-hurdles-for-the-self-employed-and-how-to-overcome-themhtml

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Self-employment, huh!

A dream come true for many employed professionals. You get to call the shots. Set your [working hours](https://www.financedigest.com/madrid-street-sweepers-death-prompts-curbs-on-heatwave-working-hours.html "Madrid street-sweeper’s death prompts curbs on heatwave working hours"). Enjoy a degree of [flexibility in your working](https://www.financedigest.com/the-flexible-working-revolution-is-here-so-why-arent-you-tracking-expenses-on-the-go.html "‘The flexible working revolution is here – so why aren’t you tracking expenses on the go?’") schedule. No commuting. Unlimited earning potential. What’s not to like?

It seems there are tons of benefits to being self-employed. No wonder more than [70% of business owners](https://www.freshbooks.com/press/releases/freshbooks-survey-finds-majority-of-self-employed-professionals-have-no-intention-of-returning-to-traditional-employment-more-than-7-in-10-intend-to-grow-their-business) say they would rather focus on growing their business than going back to their former corporate jobs.

However, being self-employed isn’t easy. In fact, it can be quite [challenging to branch off on your own to start a business](https://www.financedigest.com/overcoming-challenges-faced-by-women-in-business.html "Overcoming challenges faced by women in business"). There’s just too much to handle, [especially on the financial](https://www.financedigest.com/document-admin-drains-productivity-businesses-especially-financial-services.html "Document admin drains productivity in all businesses, especially those in financial services.") front. And if you can’t ace it, you risk not being able to [pay your bills](https://www.financedigest.com/norwegians-can-now-pay-their-bills-via-facebook-messenger.html "Norwegians can now pay their bills via Facebook Messenger").

If you’re looking to escape the 9 to 5 grind, you’ll first [need to learn how to navigate the murky waters of the self-employment world](https://www.financedigest.com/why-the-world-needs-more-women-controlling-the-money.html "Why the world needs more women controlling the money"). In this article, we will explore the [financial hurdles self-employed people face and how to overcome](https://www.financedigest.com/overcoming-information-overload-in-the-financial-sector.html "OVERCOMING INFORMATION OVERLOAD IN THE FINANCIAL SECTOR") them.

1. **Proving Your Income**

If you want to apply for a loan, rent an office/apartment, or even get health [insurance cover](https://www.financedigest.com/app-based-insurance-cover-for-millennials-possessions-and-experiences-back-me-up-powered-by-ageas.html "APP-BASED INSURANCE COVER FOR MILLENNIALS’ POSSESSIONS AND EXPERIENCES: ‘BACK ME UP’, POWERED BY AGEAS"), you’ll need to prove your income.

To a corporate employee, this is pretty easy. You just need to produce a few copies of your [pay stubs](https://www.financedigest.com/why-you-should-consider-using-pay-stubs.html "Why You Should Consider Using Pay Stubs"), and you’re good to go. However, to a self-employed person, it’s not that simple. Self-employed people don’t receive regular [pay stubs because they don’t have an employer](https://www.financedigest.com/uk-employers-see-slight-fall-in-pay-awards-over-2023-xperthr.html "UK employers see slight fall in pay awards over 2023 – XpertHR").

So, how can you get around this hurdle if [you’re self-employed](https://www.financedigest.com/accessing-government-money-if-youre-self-employed.html "Accessing Government Money if You’re Self-employed")?

You could use a [pay stub maker](https://www.paystubs.net/) to create professional pay stubs. Since you’re no [longer an employee](https://www.financedigest.com/half-of-employees-aged-40-and-over-in-the-accounting-banking-and-finance-industries-think-they-will-have-to-work-longer-to-live-the-life-they-want.html "Half Of Employees Aged 40 And Over In The Accounting, Banking And Finance Industries Think They Will Have To Work Longer To Live The Life They Want"), you won’t receive pay stubs or W-2 statements from anyone. However, you can act like your own boss and [create pay stubs that will show the proof of income](https://www.financedigest.com/5-mistakes-to-avoid-when-creating-passive-income.html "5 Mistakes to Avoid When Creating Passive Income") your vendors/landlord need.

2. **Estimating Your Taxes**

The tricky thing about being self-employed is that you have to calculate your tax liability. Keep in mind that self-employed people are required to [file an annual return](https://www.financedigest.com/uk-taxpayers-compare-the-stress-of-filing-self-assessment-return-with-undergoing-medical-and-dental-surgery.html "UK taxpayers compare the stress of filing self-assessment return with undergoing medical and dental surgery") and make estimated tax quarterly.

According to the IRS, self-employed individuals must pay self-employment tax (SE tax) and [income tax](https://www.financedigest.com/the-sixteenth-amendment-and-income-tax.html "The Sixteenth Amendment And Income Tax"). The amount of tax you pay will depend on many factors, including your total income, tax filing status, and deductible expenses.

If you’re new to accounting, you will have a hard time wrapping your mind around the world of [taxation and self-employment](https://www.financedigest.com/self-employed-taxpayers-and-making-tax-digital.html). You might not even know when to pay the quarterly tax estimates, and this could attract a penalty of up to [75% of the taxes you owe](https://www.financedigest.com/banks-recover-75-of-defaulted-debt-owed-by-large-corporate-borrowers-finds-new-global-credit-data-report.html "Banks recover 75% of defaulted debt owed by large corporate borrowers, finds new Global Credit Data report").

The solution?

You might want to sit down with a tax [professional and learn a thing](https://www.financedigest.com/three-things-every-payments-professional-needs-know-psd2.html "Three things every payments professional needs to know about PSD2") or two about self-employment tax. Alternatively, you could [hire an accountant](https://www.financedigest.com/why-is-accounting-coming-up-short-when-it-comes-to-new-hires.html "Why is Accounting Coming Up Short When It Comes To New Hires?") adept at taxation to handle the tax estimation and payments for you.

3. **Managing** [Cash Flows](https://www.financedigest.com/how-smes-can-improve-cash-flow.html "How SMEs can improve cash flow")

Running a business comes with risks, but you can better prepare yourself for the [future by managing](https://www.financedigest.com/what-is-the-future-of-ip-management.html "What is the future of IP Management?") cash flows.

Cash flow management entails [tracking the flow of money in your business](https://www.financedigest.com/5-fx-metrics-your-business-should-be-tracking.html "5 FX METRICS YOUR BUSINESS SHOULD BE TRACKING").

With good cash flow management practices, you can keep a tab of how much [money is going in and out of your business](https://www.financedigest.com/breaking-down-the-barriers-of-ar-automation-to-help-businesses-save-money.html "Breaking down the barriers of AR automation to help businesses save money "). And by tracking [cash flows](https://www.financedigest.com/covid-19-cash-flow-and-revenue.html "Covid-19 – Cash Flow and Revenue"), you’ll be able to better manage your debts, like paying suppliers, employees, etc., and pay them on time.

In a corporate setup, the cash flow [management role is handled by an accountant or finance](https://www.financedigest.com/how-parents-can-help-students-manage-their-finances.html "How Parents Can Help Students Manage their Finances") officer. However, when you become self-employed, the ball rolls on you.

Whether you’re experienced or not, you must take ownership of everything, including the [accounting and financial](https://www.financedigest.com/midlands-accountants-say-its-never-too-early-to-get-financial-protection.html "MIDLANDS ACCOUNTANTS SAY IT’S NEVER TOO EARLY TO GET FINANCIAL PROTECTION") docket. This can be challenging, especially if you have never handled an accounting role before.

The solution?

Hire an accountant to perform all the accounting tasks for you. But if you have a background in accounting and taxation, you could invest in robust accounting software like QuickBooks and use it to [manage your cash flows and perform](https://www.financedigest.com/goodbye-excel-spreadsheets-hello-performance-management-tools.html "Goodbye excel spreadsheets, hello performance management tools") other bookkeeping tasks.

**The Final Thoughts**

With a proactive mindset, the three hurdles we have covered above will not stand in your way of progress. In fact, they can be a stepping stone to your success as you challenge yourself, learn new things, and unlock the [entrepreneurial spirit](https://www.financedigest.com/entrepreneurial-spirit-turn-your-hobby-into-a-lucrative-career.html "Entrepreneurial Spirit – Turn your Hobby into a Lucrative Career") within you.

**Brought to you by Paradigm Digital Ltd**


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