Professional Services: Are You Budgeting Your Expenses Properly? | Business

Running a business is one thing, but there are a serious of financial obstacles to face when working for yourself. In this episode of Economy 101, mortgage banker José “Peter” Torres outlines the essential things to do when it comes to budgeting your expenses when being a provider of professional services.

What are professional services? How challenging is it?

Professional services are when someone is their own boss and they generate their own income from selling of goods or services. When it comes to expenses, it not only goes forth with personal ones but also professional ones.

“Many times when people who provide professional services, they try to protect themselves from paying income taxes. If you have a good gross income but you have a lot of expenses”

“If you have a good gross income but add a lot of operating expenses, the hardest part is that they’ll use your net income. The difficulty you may have when purchasing a property or applying for prequalification or whatever is that they’ll use that net income after operating expenses to qualify you. If you’ve covered yourself well enough to avoid paying a lot of taxes, you’ll have a low income, and qualifying will likely be difficult,” Torres said.

According to Torres, some of the mistakes that are made are usually the separation of business costs from personal costs.

“Any cost that you have with someone in the long run has to be considered as part of the debts to qualify. The most important thing is running an operation with the least amount of costs possible.”

What can be done?

Torres says that the best thing any professional service provider can do is to have a reserve account for emergencies.

“If you have your own business and you have personal operational costs, you always need to have a minimal reserve of six months or more for emergencies. If the power goes out and you don’t have a generator, how will you have money? That reserve is to recuperate the losses.”, Torres explained.

Torres also advises that of every dollar that professional service providers receive, they should save 10% for emergencies.

“That will be self impost so that you can face these extraordinary events that you know can affect your operation to generate income.”, he said.

Differences between bank statements of employees and professional service providers

According to Torres, the main difference in the professional service providers is that professional service providers need to provide the payroll of the last two years, depending on the month of the year that the loan is being done. Banks can also ask for updated financial records.

“It is important to have all those documents at hand to have your own service.”, he explained.

The rise in professional services

Torres explains that professional services come largely from social media and motivational speakers inspiring younger generations to go their own way in the working world.

“We still have to be careful but it feeds the minds of young people who say that they don’t want to be an employee, they wasn’t to be a professional service. That is where we need to be careful because you don’t have something sturdy but something seasonal, depending on what type of product you offer,” Torres added.

“The most important thing about professional services is that you have all your things in order. Your bank account, your reserve account and comply with good advice to comply with the treasury and if you have future leans in mind, that you can qualify with the documents you present.”