Kate A'Vard, 35, needs to get her finances back in shape, after ploughing all her spare cash into a new business venture.
She set up Alkaline by Design (alkalinebydesign. co.uk) two years ago, after training as a blood microscopist in California. "This involves taking a pinprick of blood from the finger and having a look at it under the microscope to see how dietary and lifestyle choices affect us at cellular level," she explains.
But leaving her job as an IT systems analyst to switch careers put a strain on her finances. "I put a hefty sum into setting the business up," she says. "The costs amounted to over £20,000 after training and buying the products I needed."
As well as using her own savings, she took out £20,000 in personal loan and credit card debt in February 2005, when she started the business. She is now back in the black.
"I continued to work in IT on and off in order to make ends meet, and never ate out or bought new clothes," she says. "Now everything I spend I have to have in a bank first."
Kate, who is originally from Melbourne, Australia, is keen to rebuild her savings and plan for her tax bills. This year, she estimates that her salary will be about £30,000.
She lives in Hatton Garden, central London, paying £600 a month to rent a room in a two-bed flat, as well as paying rent for her clinic in the same area. She charges around £40 for a consultation.
Recently, she held a two-week microscopy training event, which made a profit of £10,000. That is now sitting in a business bank account with Barclays. "This is in addition to my salary, and I want to work out how much of this sum I should reinvest in the business and how much I can use for myself," she says.
She has no pension or protection policies. "I have looked at income protection policies, but don't know how much I should be paying for one."
Kate has done well to wipe out a sizeable debt so quickly, agree our panel of independent financial advisers (IFAs). "Any debt would be harder to finance in the current environment, and hinder plans to expand the business," says Anna Sofat from IFA Addidi.
Kate can now focus on ensuring her business has every chance of success.
She should be able to slot away about three months' worth of salary for a rainy day, says Ms Sofat – something that is particularly important for a self-employed small business owner. "This could be achieved by saving about half of the £10,000 made from the recent training event in a high-interest savings account."
There are some good rates around to choose from, as savings providers are keen to attract funds in the current turbulent economic climate. And a cash individual savings account (ISA) will produce tax-free returns – Alliance & Leicester offers an instant access ISA paying a healthy 6.3 per cent. This rate is more than 1.25 percentage points above Bank of England base rate.
To fine-tune Kate's business plan for the future, there is an array of help available for start-ups, says Danny Cox from IFA Hargreaves Lansdown. For example, she could try consulting Business Link (businesslink.gov.uk) and the Federation of Small Businesses (fsb.org.uk).
As a self-employed trader, Kate's personal and business finances are inseparable. "So staying out of the red is very wise," says Mr Cox. "Kick-starting the business by taking out a loan is fine, but she should now aim to live within her means as far as possible."
It is essential that Kate takes tax advice to avoid falling foul of HM Revenue & Customs. While she may face a big tax bill, as a small business owner there will be numerous methods she can use to mitigate this.
"She can offset the cost of hiring the clinic, as well as transport costs and a proportion of her energy bills, for example, if she does any work at home," says Chas Roy-Chowdhury from the Association of Chartered Certified Accountants. "Speaking to an accountant will help clarify this, and should be well worth the cost."
She may also be affected by the "non-domicile" legislation that came into force on 6 April. This relates to individuals who are born outside the UK. There are specific rules for such people wanting to mitigate their tax liabilities, so she should talk to her accountant about this.
With the exception of a basic state pension, funded through national insurance contributions, Kate has made no provision for her financial security in retirement, either in Australia or in the UK.
"But if she saved just £100 a month, increasing this to keep pace with inflation every year, she could accumulate a fund in the region of £85,000 by the time she reaches 60 or £125,000 at the age of 65," says Mr Cox. "This could provide a pension in the region of about £5,000 a year at age 60 or £8,000 at 65."
If she plans on returning to Australia at some stage, she should take advice on the best way to invest for this. She may be able to save into a self-invested personal pension (or Sipp) and transfer the fund value to an overseas pension at a later date, says Donna Bradshaw of the IFA firm IFG Financial Planning.
Once Kate has a cash reserve in place, she can address her insurance needs. She is right to think that income protection cover is the most suitable way to do this. It will provide a replacement salary if she is unable to work owing to long-term illness.
With her annual income of £30,000, she could expect to pay premiums of around £40 a month for cover of up to two-thirds of her earnings until she reaches 60. However, this cost will depend on her age, and on whether the benefit increases annually or not, and whether premiums are guaranteed or reviewable – in other words, whether they stay the same or can be raised by the insurer when it sees fit.
With substantial cash savings in place, Kate can opt for a policy that pays out after six months of unemployment, to help keep the premiums down.
"Self-insuring for the first six months by having a decent cash reserve will give her significant savings on the cost of this protection," says Ms Bradshaw.