Starting a Business Is Cashflow Expensive!

I am going to be an entrepreneur! Not that I’m aiming to create a large enterprise, but I will be self-employed. And it seems that will be expensive in the first month.

Things to Do When Starting A Business

There are quite a few things you have to do in order to start a business.

To start, you have to register your business at the chamber of commerce. This is quite easy for sole proprietorships like mine, but still. You make the appointment, go there, and you’re done. Wait, you have to pay. But it’s only 50 euros so that’s okay.

This registration is about the only thing you have to do. On top of it, you’ll find some expenses that are completely up to you, such as getting a domain name and web hosting contract, printing business cards, buying Office 365.

I have done all of the above, to set things up right. My website is now operational, I have email and other office apps through my business O365 plan, and my business cards are ready. Maybe these cards aren’t the most important things in 2019, but anyway, they’re there now.

Then I had some one-off expenses that I view as regular business expenses, not initial setup costs. Among these are buying a printer (cheap home office style one) and a book that I will use while working on some of my services.

In total, I think I’m out 400 euros, but as I said, you can do with just the 50 euros for your registration and be done with it.

Taxes and Cashflow Implications

As a business owner, there will be two taxes I’ll have to pay. First, there is the VAT. For the services I provide, I will have to bill 21% VAT. That means that every invoice of 1,000 euros will actually be 1,210 euros.

The second tax is the income tax. I expect to pay a net 35-40% tax on my yearly profit. However, for 2019 I expect to pay 50% on the profit I make in December (since I have had a full-time income in the other 12 months, and can’t use self-employment deductions).

The VAT has to be paid quarterly, and the income tax yearly. Both are based on the invoice date, meaning every invoice sent in the respective period counts. From a cashflow perspective this is bad when starting out in December.

I don’t expect to turn a 10,000 euro profit in December (although I’m shooting for that number for next year), but lets use it because of the easier math.

Say I invoice for a total profit of 10,000 euros. That means that I actually invoice 12,100 euros including VAT. At the end of the quarter, I have to pay the 2,100 euros to the tax authority. I think the payment for Q4 is due in early January.

Then the income tax. Since I will not have self-employment deductions, I’ll think I have to pay for about 5,000 euros in income tax over this profit. This payment is due somewhere in April or May next year.

The problem is, these invoices will almost certainly be paid in January, not December. So from a cashflow perspective, I will have to prepay a lot of taxes, before being able to take out any distributions myself.

Anyway, that’s why you save a lot of money into your FU-pool, right?

Have you ever started a business?

5 thoughts on “Starting a Business Is Cashflow Expensive!”

  1. The payment for your VAT for Q4 is due in January. As long as it happens before January 31st, you should be good. Doesn’t have to be in early January.

    It’s smart to keep these costs in mind. I think a lot of people who earn a lot of money in their first month with their business will use it to invest it back into their business and forget about taxes because they are due in another month.

    Good luck with your business! Looking forward to reading about your progress.

    • Hi Naina, thanks for replying! Indeed, I’m aware the deadline is the last day of the following month. Cashflow-wise that should make things easier. However, I fully plan to reserve money just to be sure.

  2. Don’t forget to deduct VAT paid on some of the investments you made! I think you can deduct VAT paid on invoices for the business cards, KvK and business O386 account from your VAT statement in the same quarter. :-)

    I wish you all the best. This first year is the hardest. Keep pushing!

    • I know, I know. Actually in my accounting software the VAT is handled automatically. I just have to categorise and it’ll be posted to the ledger just right. From my job I know enough about accounting principles that I can get by.
      Thanks for stopping by!