The Pitfalls of Early Contracting: What I Learned About Financial Management the Hard Way

Starting out as a contractor, I was prepared for the technical challenges. I had experience, confidence in my skillset, and the motivation to prove myself outside the safety net of permanent employment. What I wasn't prepared for was the financial side of running a limited company. That’s where the real lessons began.

When I accepted my first contract at Activus, I was excited. The work was interesting, and the opportunity to operate independently felt liberating. I quickly set up my limited company and handed over the financial reins to a well-known accountancy firm, QDOS, trusting them to manage everything from VAT to corporation tax. I assumed that’s what they were there for.

Unfortunately, that assumption cost me.

Like many first-time contractors, I had no real understanding of how VAT or corporation tax worked beyond the basics. I relied heavily on QDOS to reserve funds and provide accurate guidance. But what I didn’t realise at the time was that their default processes didn’t include proactive management. No one flagged that my VAT reserve was falling short. No one warned me that corporation tax was creeping up. I was drawing money based on what I saw in the account, blissfully unaware that a significant chunk of it was already owed.

The moment of reckoning came hard. A surprise tax bill hit, and I didn’t have the funds set aside to cover it. I had walked straight into a debt cycle. What should have been a financially rewarding move into contracting suddenly felt like a financial trap.

Eventually, I moved to Nasa Accountancy. They took the time to clean up my books, explain what had gone wrong, and implement proper forecasting and account management. It was a turning point, but the damage had been done. That early mismanagement left a shadow I had to work through for years.

These weren’t just financial errors. They were gaps in mindset. As a contractor, you’re not just a developer or an architect - you’re a business. That means thinking in terms of cash flow, liabilities, and reserves. It means questioning assumptions and ensuring you understand where every pound is going.

If I could offer advice to anyone starting their contracting journey, it would be this: don't outsource your awareness. By all means, use an accountant—but understand your accounts. Don’t assume that income equals profit. Don’t assume someone else is handling the risks for you. Ask questions, demand clarity, and treat your business like a business.

Contracting gave me freedom and opportunity. But the financial mistakes I made early on could have derailed it all. They didn’t, but only because I adapted quickly enough to survive them.

Now, I treat financial awareness as part of the job. It’s not just about writing code - it’s about ensuring I can keep writing code tomorrow. That mindset has been just as important as any technical skill I’ve picked up along the way.