Reference: Adapted from business.govt.nz

As inflation began surging in early 2022, sole traders were initially able to offset the effects by charging 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 shows that many sole traders say they are paying more for suppliers and services, saving less, or eating into their savings. Half of all sole traders believe they have 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.

1. 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 administration and taxes (18%), finding work (15%) and 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 would happily outsource.

For example, is chasing invoices taking up a lot of your time? Are you struggling to find new clients?

Good news – there will be a way to either streamline, automate, or use AI to take that task off your plate.

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 like Xero, that automatically chases clients who are late paying their invoices (politely, of course).

Automating 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 are entitled to

Claiming business expenses correctly can save you thousands of dollars each year. If you are not claiming everything you are entitled to, that’s essentially savings left on the table. Less than half of all sole traders in New Zealand say they claim all the tax deductions they are eligible for.

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.

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 tradesperson won’t be able to claim everything a contractor can.

So, how do you know that you’re claiming everything you should claim?

Read here on the IRD website for a good starting point for learning about expenses. For more tailored advice, please contact us.

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 is 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 have 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.