Self‑employed people juggle cash flow, taxes and retirement. A financial advisor can help you save money and keep your business and personal finances aligned
Written By : Molly Grace. Edited By Lauren Nowacki. Reviewed By Reina Marszalek
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Key takeaways
- Common financial struggles for self-employed individuals and small-business owners include unpredictable cash flow, hefty tax burdens and planning for retirement.
- A financial advisor can help owners manage unpredictable income, reduce taxes and plan for the future.
- The right advisor can also ensure your business and personal financial goals are aligned.
Self-employed people are often DIY-ers. They run their own businesses, set their own hours and single-handedly juggle endless tasks because they value the freedom of being their own bosses. But when it comes to their finances, it could be worth enlisting the help of a financial advisor who works with self-employed individuals to address their unique needs.
What unique financial challenges do self‑employed people face?
Lumpy income
Many of the financial challenges that self-employed individuals have to deal with stem from irregular or “lumpy” cash flow, says Paul Brahim, CFP and senior vice president at Wealth Enhancement Group.
W-2 employees have a steady and predictable source of income. They know how much they’ll be paid each month and their taxes, insurance and retirement contributions are automatically deducted from each paycheck. This makes financial planning easier.
Self-employed people or small-business owners, on the other hand, might have earnings that vary from month to month. With this unpredictable income, they have to manage both their personal and business finances while also planning for the future.
Choosing a business structure
Choosing the right business structure is one of the most important decisions you’ll make as a self-employed person, since it determines the taxes you pay, whether your personal assets are protected in a lawsuit and how your company is controlled and managed.
Common business structures that self-employed individuals use include:
- Sole proprietorship: This is the default structure if you don’t register as another type of business, making it an easy option if you’re just starting out. However, because your personal and business finances aren’t kept separate, you are personally liable for all your business debts and obligations.
- Partnership: If you own your business with one or more partners, setting up a partnership might make sense. The way liability works in a partnership varies depending on how it’s set up. Options include a general partnership, where each partner has unlimited personal liability; a limited partnership, where one partner has unlimited liability and other partners have limited liability; or a limited liability partnership, where all partners have limited liability.
- Limited liability company (LLC): An LLC can be formed by one or more owners and keeps your personal and business assets separate, so you won’t be personally liable for your business debts and obligations.
- Corporation: This structure creates a separate entity for your business that provides more flexibility compared to other structures and shields you from personal liability. But it comes with higher costs and more paperwork. Two common types of corporations include C corporations and S corporations. C corporations are subject to double taxation because both the corporation’s profits as well as dividends paid to shareholders are taxed. S corporations avoid this pitfall by passing the company’s profits directly to the owner, which are then taxed at the owner’s personal tax rate.
Small-business tax planning
Taxes eat up a large portion of small-business owners’ revenue. Self-employed individuals have to pay the self-employment tax, which covers both employer and employee Social Security and Medicare taxes. They also need to plan ahead for taxes by setting aside a portion of their income and making quarterly estimated tax payments if they expect to pay more than $1,000 in federal taxes that year.
Note: There are also tax breaks available for self-employed individuals, such as the qualified business income deduction or the home office deduction. Because tax laws are so nuanced and complex, many of the decisions you make for your business can influence how much you pay in taxes.
Retirement planning
When you work for yourself, you won’t have the benefit of saving in an employer-sponsored 401(k) with a company match. Self-employed individuals have a few options for their retirement savings vehicles, each with its own pros, cons and tax implications.
Retirement savings vehicles available to self-employed individuals include solo 401(k)s and a few different individual retirement account (IRA) options, including a traditional or Roth IRA, a Simplified Employee Pension IRA (SEP IRA) or a Savings Incentive Match Plan for Employees (Simple IRA).
Crafting an exit plan
Early planning helps ensure you have more control when you’re ready to step away. Brahim, who is also a certified exit planning advisor (CEPA), says owners often assume they’ll be able to sell when they’re ready to leave, but many aren’t able to.
Proper planning can make it more likely that you’re able to sell your business and reduce taxes that cut into your proceeds.
Additionally, owners need to plan for what will happen to their businesses if they have to exit involuntarily due to death, disability, conflict between co-owners, financial troubles or other unforeseen circumstances, Brahim says.
Cash flow management strategies
If you struggle with managing your cash flow, a financial advisor can help you develop strategies to ensure you aren’t left scrambling for cash when a customer makes a late payment or an unexpected expense pops up. Brahim says this might include implementing a recurring revenue model so you have a predictable cash flow.
An advisor can also help you identify where your cash flow problems lie; it might not necessarily be that you aren’t selling enough products or services, but that you aren’t being timely with your invoices or clearly communicating your payment policies.
How the right financial advisor can optimize tax planning
Because so many of the decisions you make for your business have significant tax implications, the best financial advisors can pay for themselves many times over by reducing your tax burden.
A financial advisor can conduct proactive tax planning that considers the tax implications of your business decisions before you make them, rather than waiting until tax season to find ways to save money.
“Tax planning has to be something that we engage in on a regular basis for the current year and on a long-term outlook,” Brahim says.
Tax minimization strategies
Deva Panambur, CFP and founder of financial advisor firm Sarsi, LLC, says that one of the benefits of being self-employed is that you have flexibility in managing your revenue and expenses to avoid paying more in taxes than you need to.
A financial advisor can help you look for these opportunities. This could include, for example, maximizing your retirement contributions or delaying invoices until the new year to lower your taxable income in a given year. Additionally, if you need to make business-related purchases soon, an advisor might recommend making those before the end of the year so they can be deducted when you file your taxes.
Weighing business structures
A financial advisor might also be able to help you navigate choosing a legal structure for your business.
Panambur says he helps self-employed clients understand which structure might be better for them based on their income and tax situation. For example, he says an S corporation is a popular choice because it can help you lower your self-employment tax burden—but it’s not always the most tax-efficient choice and might depend on the state you’re in.
Retirement and savings strategies for the self‑employed
With the various retirement plan options available to self-employed individuals, it might be worth consulting with a financial advisor who has experience with these plans to understand which one is right for your needs.
Panambur says solo 401(k)s are often a good choice for the self-employed because you can contribute money both as an employee and employer, allowing you to potentially contribute a higher amount overall compared to other options. In 2026, a self-employed person can contribute up to $24,500 as an employee and up to 25% of their compensation as an employer in a solo 401(k)—up to a total of $72,000 for all contributions (plus additional catch-up contributions if you’re age 50 or older). SEP IRAs have a contribution limit of 25% of compensation, up to $72,000 in 2026. The limit on Simple IRAs is $17,000 for employee contributions (with additional catch-up contributions allowed for those age 50 and older) plus a fixed 2% contribution or a 3% match as an employer.
Managing business vs. personal finances
Depending on your advisor’s expertise and qualifications, there might be a limit to how much they can help you with your business’s finances. But they can help ensure that your business goals are aligned with your personal financial goals, including your retirement goals.
Brahim says that small-business owners often have a large amount of their net worth tied up in their businesses, which can be risky. Many owners think that they’ll focus on their business now, and worry about their own finances later on.
“‘Later’ comes way faster than they expected, and now their only choice is to sell [the business] or to live in it until they die,” Brahim says.
Advisors also speak the language of financial management, and they can help coordinate with your business team to make sure everyone is aligned on your goals.
“Financial planners can do a lot to help a business owner get that alignment, create the right plan, manage that process and coordinate their extended team so that everybody’s on the same page, so that everybody’s talking to one another,” Brahim says.
Keep in mind: An advisor can help with the emotional challenges of financial planning. Panambur says working with a financial advisor is like having a behavioral coach who can help you make the right decisions because they aren’t as close to your finances as you are. “Having somebody else make these determinations in a systematic way helps them overcome behavioral biases and inertia,” Panambur says.
FAQ
What questions should a self‑employed person ask a financial advisor?
If you’re choosing a financial advisor as a self-employed person, Panambur advises asking if they work with clients like you. He also recommends working with a fee-only advisor rather than a commission-based advisor, meaning they aren’t compensated for selling financial products.
Can a financial advisor help with quarterly estimated taxes?
A financial advisor can help you plan for your quarterly estimated tax payments and ensure you’re setting aside enough money to cover your tax liability.
How do advisors tailor retirement plans for business owners?
An advisor can review your financial situation and help you pick a retirement savings vehicle that best suits your needs, whether that’s a solo 401(k), a SEP IRA or another retirement plan. If they’re licensed to give investment advice, an advisor can also make recommendations for the types of securities you should choose for your retirement savings and how to allocate your assets.
Are financial advisors worth the cost for self‑employed individuals?
The right financial advisor can help a self-employed individual reduce their taxes and save sufficiently for retirement. While it’s possible to manage your finances on your own, paying a professional can help you ultimately save money while also taking a significant task off your plate.
What credentials should I look for in an advisor for my self‑employment needs?
Certified financial planners (CFPs) are trained to advise on every aspect of a client’s financial life, though they aren’t specifically taught to help self-employed individuals or small-business owners. CEPAs are trained specifically to work with business owners and can advise on strategies for maximizing your company’s value as part of the exit planning process. You might also find it helpful to consult with a tax expert, such as a certified public accountant or enrolled agent.
Molly Grace is a staff money writer at Buy Side covering banking, home equity, investing, mortgages, retirement savings, taxes and budgeting.