Starting a Freelance Business in 2012: Planning Ahead
Was your New Year’s resolution to start your own freelancing business? We’re five weeks in—how is it going? I found this article on Freelance: UK that got me thinking about financial issues to consider before taking the big freelance leap. Here are some of their suggestions as well as some of mine.
Look Before You Leap
If you are leaving a job where you get paid a set amount of money on a regular basis, it’s important you have a solid plan in place. Starting a freelance career isn’t cheap. Freelance: UK suggests testing the water by starting your freelance business part-time while keeping your full-time job, and I have to agree.
If money isn’t an issue, you don’t really have a problem. Bust most of us need some sort of an income to pay our mortgage, put gas in our cars, and buy groceries. And as a new freelancer, steady income probably isn’t going to happen right away. Build up your savings with enough money to keep you afloat for at least 6 to 8 months.
Set goals for yourself before you take the leap. Where do you want to be in a year, two years, five years, and what are you going to do to make sure you get yourself there? I would suggest taking the time to put together a thorough business plan. It’s a great exercise in charting exactly what you want to accomplish and will help you answer some tough questions, like how much you will charge your clients and how much money you need to make to break even.
Get Your Books In Order
As a freelancer, you are going to be responsible for all of your bookkeeping—unless you hire someone else to do it. Make sure you are using the right tools. You are going to need to keep records of all the money you have spent and earned throughout the year for your taxes. You may as well do it right from the beginning.
Meet with an accountant and find out what you need to do and ask for suggestions on the best way to do it. There is a lot of software out there to help you keep organized—you will have to do a little research and find the ones you prefer to use.
Don’t throw all of your receipts into a shoebox and present the box to your accountant at the end of the year. It’s not the 1950s anymore. Get yourself one of those handy receipt scanners that will categorize all of your expenditures on your computer. Your accountant will thank you for it.
And while you’re at it, update your books on a regular basis. I know it’s not fun and can be time consuming, but it’s better than the alternative. Do it every week and you won’t feel overwhelmed. It’s a good way for you to look back and see where you stand money-wise. Are you spending too much money? You wont know unless you update your books on a regular basis.
Forecast Your Cash
If you are not making enough money, you wont be able to pay your bills. If your clients don’t pay you on time, you won’t be able to pay your bills, either. Decide your payment terms for your clients right away—and stick to them.
If you expect payment 14 days after you mail an invoice, make sure your clients know it. And if your clients are late, consider adding a penalty. Heck, if you’re late on your payments to the credit card companies, they charge you a penalty. They make money on your lateness!
For some of your clients, you may have to work around their terms of payment. I know that when I do work for a local university, I will not get paid for 90 days. That’s their rule and there is nothing I can do about it if I want to still work for them. I am sure to keep track of my payments so that I know when to expect a check to arrive in the mail. If payment does not arrive when I expect it, I make a phone call.
You also want to have a plan on how you will chase down the clients who don’t pay you in a timely manner. What is your policy going to be? I highly recommend deciding on these things beforehand, and making them clear to your clients. That way, there is no misunderstanding. If you have a client who you have to consistently chase down, perhaps you will decide that it’s not worth your time working for them anymore—but you’ll never know unless you pay attention.