Get a Handle on Your Finances
Start a Freelance Business A-Z
1. Start a Freelance Business A-Z
Estimated time: 12:26 minutes
(Completed) (Completed) (Completed) (Completed)2. Identify Your Niche and Target Audience
Estimated time: 12:03 minutes
(Completed) (Completed) (Completed) (Completed)3. Get a Handle on Your Finances
Estimated time: 12:25 minutes
(Completed) (Completed) (Completed) (Completed) (Completed) (Completed)4. Set Up Operations and Administration
Estimated time: 16:39 minutes
(Completed) (Completed) (Completed)5. Develop Your Freelance Brand
Estimated time: 15:05 minutes
(Completed) (Completed) (Completed) (Completed) (Completed)6. Market Your Freelance Business
Estimated time: 12:44 minutes
(Completed) (Completed) (Completed) (Completed) (Completed) (Completed) (Completed)7. Find and Convert Clients
Estimated time: 17:16 minutes
(Completed) (Completed) (Completed) (Completed)8. Maintain Client Relationships
Estimated time: 11:40 minutes
Module 2 - Get a Handle on Your Finances
Once you know your niche and target, it is time to get a clear picture of your expenses, income, and cash flow.
⦁ Lesson 1: Consider Expenses and Establish Your Rate
⦁ Lesson 2: Set Up Your Accounting System
⦁ Lesson 3: Set Specific Measurable Targets
Lesson 1: Estimate Expenses and Establish Your Rate
Take a look at all the items that you will need to establish and operate your business. You'll need to separate out your expenses and have a good idea of your costs. First, fill out a spreadsheet of start-up costs, then fill out one for your monthly expenses. Try to get a total that is as accurate as possible, but understand that as you start to operate your business, you'll become aware of expenses you hadn't anticipated. To be safe, you might consider adding at least 10% to your estimated monthly expenses.
Expense Categories
Some of the expense categories you will need to consider:
⦁ Software/Applications and service subscriptions
⦁ Office or meeting space (rental, coworking costs etc.)
⦁ Utilities (electricity, internet connection, mobile data etc.)
⦁ Website (domain registration, site hosting, web design)
⦁ Travel (gas/mileage, transportation, parking)
⦁ Advertising and marketing
⦁ Accounting fees
⦁ Education
Establish Your Rate
Once you understand what it will cost to establish and run your business, you will then need to set your hourly rate. Even if you decide not to bill per hour, you need an hourly rate for your own reference to set 'per-project' rates or retainer fees (sometimes clients will pay a flat rate per month to retain your services for a set number of hours). Your calculations and expectations need to be realistic.
Do the Math
First, refer to your monthly expenses total and multiply that number by 12. Then, estimate the number of billable hours in a year. This isn't based on the total number of business hours in a week, but the hours you can actually bill clients for. The billable hours will probably be around 20 hours/week when you first start out. Don't forget to subtract holidays and vacation time.
Plug the above numbers into the following formula:
[Yearly expenses] ÷ [Billable hours in a year] = Minimum Hourly rate
Of course, this formula is oversimplified, and you are not expected to strictly adhere to this estimate. It does, however, serve to give you a general idea of what you will have to bill per hour to cover your expenses. You also have to factor in your work experiences, expertise, education, demand for your service, and niche when calculating your rate. But this formula will keep you realistic and focused on your goals.
There are also online resources that allow you to compare average freelance rates for the type of service you offer. Look at these rates, not to undercut the competition or follow to the letter, but instead, use them to get a general ballpark figure. Some valuable resources include Clockify's annual round up of average hourly rates.
Key Takeaway:
⦁ Before you can determine your rate, you need to get an understanding of your expenses – your start-up costs and your monthly expenses.
⦁ It is essential that you set an hourly rate. Even if you decide not to bill per hour, you need an hourly rate for your own reference to set 'per-project' rates or retainer fees.
⦁ As you start to operate your business, you'll become aware of expenses you hadn't thought of. To be safe, add 10% to your estimated total monthly expenses.
Action Steps:
⦁ Using the Finances Spreadsheet, record your start-up costs and monthly expenses.
⦁ Estimate monthly expenses based on what you know now (these expenses may change as you learn more about how your business operates).
⦁ Record your billable hours per week and estimated vacation/ holiday time. This will calculate the minimum hourly rate necessary to cover your monthly expenses.
⦁ Your hourly rate also needs to take into account the value that you bring to the table. In your Action Guide, list relevant experience and education related to your freelance business that show the value you bring.
⦁ Visit websites like Clockify that provide
⦁ average hourly rates for freelancers in your industry. These sites will often list different rates based on the freelancer's experience. When selecting your 'expertise level', consider past experience gained through your education and work and volunteer experience (so even if you are just starting out as a freelancer, you may not necessarily be a 'beginner').
⦁ Using the information gathered from the above steps, set your hourly rate and record it in the Finances Spreadsheet.
Lesson 2: Set Up Your Accounting System
An important part of running a successful freelance business is keeping accurate accounting records. Consider cloud-based accounting software like QuickBooks to track income and expenses, generate invoices, and share numbers with your accountant in real time. If you are running a freelance business, enlisting the services of an accountant to file your tax return is recommended. They will know what you can write off (for example, what percentage of your utility bill you can write off if you work from home) and can prevent you from making costly errors.
And if it is in your budget, work with an accountant throughout the year. Waiting until the end of the year doesn't give you enough time to make improvements or adjustments. It is difficult for an accountant to reduce your taxes at the end of the year, after the fact. If you consult with an accountant mid-year, they may be able to make recommendations about contributions or adopt strategies that will pay off by the end of the tax year.
It is also a good idea to do a quarterly estimate of your taxes and set aside some money. When you work full time, your employer automatically deducts taxes from your paycheck. If you are working for yourself, you don't have this built-in savings plan.
Key Takeaways:
⦁ An important part of running a successful freelance business is keeping accurate accounting records.
⦁ Consider cloud-based accounting software to track income and expenses, generate invoices, and share numbers with your accountant in real time.
⦁ Enlisting the help of an accountant, not only for tax season, but throughout the year, is recommended as it will save you time and money in the long run.
Action Steps:
⦁ If you have friends, relatives, or associates that freelance, ask them if they have an accountant they recommend. Also, research accountants in your area who specialize in tax returns for freelancers. Choose an accounting option for your business.
⦁ Research cloud-based accounting software and consider making a purchase.
Lesson 3: Set Specific Measurable Targets
Based what you have learned about your freelance business in this module, set specific objectives and targets so that you can measure your success and make any necessary adjustments (for example, increase your marketing, raise your hourly rate, reduce your expenses etc.) You can set targets related to income, a timeline for transitioning to full-time freelancing, number of clients etc. Some examples include:
⦁ I want to earn $xxxxx to put towards my child's education, a renovation, or a year of travel
⦁ Once I earn xx% of my 'day job' salary, I will transition to full-time freelancing
⦁ I will have xx number of clients by yy date
⦁ I want to make an income of $xxxxx in my first year
Key Takeaway:
⦁ It is important to set specific objectives and targets related to your freelance business.
Action Step:
⦁ Set your targets for your first year of freelancing. Consider the relevant targets in your Action Guide and add some of your own.
Once you know your niche and target, it is time to get a clear picture of your expenses, income, and cash flow.
⦁ Lesson 1: Consider Expenses and Establish Your Rate
⦁ Lesson 2: Set Up Your Accounting System
⦁ Lesson 3: Set Specific Measurable Targets
Lesson 1: Estimate Expenses and Establish Your Rate
Take a look at all the items that you will need to establish and operate your business. You'll need to separate out your expenses and have a good idea of your costs. First, fill out a spreadsheet of start-up costs, then fill out one for your monthly expenses. Try to get a total that is as accurate as possible, but understand that as you start to operate your business, you'll become aware of expenses you hadn't anticipated. To be safe, you might consider adding at least 10% to your estimated monthly expenses.
Expense Categories
Some of the expense categories you will need to consider:
⦁ Software/Applications and service subscriptions
⦁ Office or meeting space (rental, coworking costs etc.)
⦁ Utilities (electricity, internet connection, mobile data etc.)
⦁ Website (domain registration, site hosting, web design)
⦁ Travel (gas/mileage, transportation, parking)
⦁ Advertising and marketing
⦁ Accounting fees
⦁ Education
Establish Your Rate
Once you understand what it will cost to establish and run your business, you will then need to set your hourly rate. Even if you decide not to bill per hour, you need an hourly rate for your own reference to set 'per-project' rates or retainer fees (sometimes clients will pay a flat rate per month to retain your services for a set number of hours). Your calculations and expectations need to be realistic.
Do the Math
First, refer to your monthly expenses total and multiply that number by 12. Then, estimate the number of billable hours in a year. This isn't based on the total number of business hours in a week, but the hours you can actually bill clients for. The billable hours will probably be around 20 hours/week when you first start out. Don't forget to subtract holidays and vacation time.
Plug the above numbers into the following formula:
[Yearly expenses] ÷ [Billable hours in a year] = Minimum Hourly rate
Of course, this formula is oversimplified, and you are not expected to strictly adhere to this estimate. It does, however, serve to give you a general idea of what you will have to bill per hour to cover your expenses. You also have to factor in your work experiences, expertise, education, demand for your service, and niche when calculating your rate. But this formula will keep you realistic and focused on your goals.
There are also online resources that allow you to compare average freelance rates for the type of service you offer. Look at these rates, not to undercut the competition or follow to the letter, but instead, use them to get a general ballpark figure. Some valuable resources include Clockify's annual round up of average hourly rates.
Key Takeaway:
⦁ Before you can determine your rate, you need to get an understanding of your expenses – your start-up costs and your monthly expenses.
⦁ It is essential that you set an hourly rate. Even if you decide not to bill per hour, you need an hourly rate for your own reference to set 'per-project' rates or retainer fees.
⦁ As you start to operate your business, you'll become aware of expenses you hadn't thought of. To be safe, add 10% to your estimated total monthly expenses.
Action Steps:
⦁ Using the Finances Spreadsheet, record your start-up costs and monthly expenses.
⦁ Estimate monthly expenses based on what you know now (these expenses may change as you learn more about how your business operates).
⦁ Record your billable hours per week and estimated vacation/ holiday time. This will calculate the minimum hourly rate necessary to cover your monthly expenses.
⦁ Your hourly rate also needs to take into account the value that you bring to the table. In your Action Guide, list relevant experience and education related to your freelance business that show the value you bring.
⦁ Visit websites like Clockify that provide
⦁ average hourly rates for freelancers in your industry. These sites will often list different rates based on the freelancer's experience. When selecting your 'expertise level', consider past experience gained through your education and work and volunteer experience (so even if you are just starting out as a freelancer, you may not necessarily be a 'beginner').
⦁ Using the information gathered from the above steps, set your hourly rate and record it in the Finances Spreadsheet.
Lesson 2: Set Up Your Accounting System
An important part of running a successful freelance business is keeping accurate accounting records. Consider cloud-based accounting software like QuickBooks to track income and expenses, generate invoices, and share numbers with your accountant in real time. If you are running a freelance business, enlisting the services of an accountant to file your tax return is recommended. They will know what you can write off (for example, what percentage of your utility bill you can write off if you work from home) and can prevent you from making costly errors.
And if it is in your budget, work with an accountant throughout the year. Waiting until the end of the year doesn't give you enough time to make improvements or adjustments. It is difficult for an accountant to reduce your taxes at the end of the year, after the fact. If you consult with an accountant mid-year, they may be able to make recommendations about contributions or adopt strategies that will pay off by the end of the tax year.
It is also a good idea to do a quarterly estimate of your taxes and set aside some money. When you work full time, your employer automatically deducts taxes from your paycheck. If you are working for yourself, you don't have this built-in savings plan.
Key Takeaways:
⦁ An important part of running a successful freelance business is keeping accurate accounting records.
⦁ Consider cloud-based accounting software to track income and expenses, generate invoices, and share numbers with your accountant in real time.
⦁ Enlisting the help of an accountant, not only for tax season, but throughout the year, is recommended as it will save you time and money in the long run.
Action Steps:
⦁ If you have friends, relatives, or associates that freelance, ask them if they have an accountant they recommend. Also, research accountants in your area who specialize in tax returns for freelancers. Choose an accounting option for your business.
⦁ Research cloud-based accounting software and consider making a purchase.
Lesson 3: Set Specific Measurable Targets
Based what you have learned about your freelance business in this module, set specific objectives and targets so that you can measure your success and make any necessary adjustments (for example, increase your marketing, raise your hourly rate, reduce your expenses etc.) You can set targets related to income, a timeline for transitioning to full-time freelancing, number of clients etc. Some examples include:
⦁ I want to earn $xxxxx to put towards my child's education, a renovation, or a year of travel
⦁ Once I earn xx% of my 'day job' salary, I will transition to full-time freelancing
⦁ I will have xx number of clients by yy date
⦁ I want to make an income of $xxxxx in my first year
Key Takeaway:
⦁ It is important to set specific objectives and targets related to your freelance business.
Action Step:
⦁ Set your targets for your first year of freelancing. Consider the relevant targets in your Action Guide and add some of your own.
