Self employed.

[readytobuy]

What I am concerned about is that I am self employed and I have very irregular income… Some months the money that comes in is less than the money that goes out… So for example … Lets say that I have a starting balance of 20,000 and i put in 30,000 in deposits, but I spend 40,000. So my business income is 30,000 my business expenses are 40,000 and my monthly income is negative 10,000. My ending balance is then 10,000. So my account decreases that month. Is this going to be a problem. This is just the way it goes for self employed.

[wenmac24]

Hi Self employed,

I am also self employed and am at the bank app phase now after our initial take in appointment on apr 26. As you may already know being self employed presents with having to provide tons more paperwork. To try an answer your question the way the self employment incomeand expense worksheets are done is intially you provide 12 months or more worth of bank statements and you calculate your income and exoenditure fior each month. Whatever the average works out to be, then that is your income. For eg. If between September 2011 to August 2012 your total income was $84, 000 and expense was $25,000, then your income would be averaged at (84,000-25000 = $59000÷12 = $4917). If you do however have negative entries in some months they will require an explanation. It happened to mebecause i had 2 business accounts, one for mostly expenses and one for mostly income, I had to eventually do worksheets showing the two accounts combined so they could have a more precise picture of my finances.

Hope this answer is helpful.

[readytobuy]

wenmac24,

Thanks so much for responding quickly. It is nice to talk to other people in similar situations. I do have another self employed question. As I have been reading within these forums, I have found that there is a requirement for all accounts to increase every month.

My business account changes each month. So, I am not sure that this is possible. Using the numbers I have above, let’s say that:

Starting balance = 20,000
Deposits = 30,000
Expenses = 40,000
Ending balance = 10,000

As you can see my account balance would have decreased in this example by 10,000 that month. Is this okay?

Another month could go something like this:

Starting balance = 20,000
Deposits = 30,000
Expenses = 20,000
Ending balance = 30,000

The second example would be an increase of 10,000 dollars for that month.

The whole point of the worksheet that you explained above was to get an average of the monthly income. My income averages to be pretty good income, definitely within my debt to income ratio limits.

Please help me understand.

Thanks!

[wenmac24]

Hey “readytobuy”;
In my experience the fluctuations are nothing to worry about it would quite suspucious if you had s business that generated the exact same income and expenditure each month! 🙂 I think as long as your yearly average doesn’t look extremely variant then you are fine. Somes businesses also do well seasonallly so for instance if you have a lanscaping business your income in the winter months is going to be diffrent than the spring, summer and fall. As business owners we typically know our slow periods and have contingency plans in place to carry us through the slow months. Again, just keep doing what you’re doing, pray and know that this NACA program is really great for the self employed!

[readytobuy]

Thanks for the advise! I am just waiting for that approval letter and want to avoid anything that could get in the way of that path. I am sure that is how all of feel!

[tonyurso]

I am also self employed, question about the weight of tax documents compared to bank statement.
My tax documents show a less Adjusted Gross Income after deductions, capital investments and so on.
Can someone explain what is used to determine a proper income for self employed?

[wenmac24]

Tonyurso,

In my case, they asked a few questions about my taxes., but to determine income they evaluated 12 months of bank statements. While NACA does request tax returns they don’t use that as the only income evaluator.

Hope this helps.

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