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.
Photo credit: Some rights reserved by Subbotina.
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I freelancing is going to be an even better industry in the future. The most important thing or factor that is really important is ‘Knowledge’. The first few days are going to be tough when you eventually start looking ofr a job, But here persistence is the key.
I thought that there will be some more creative information here. Yeah, but I’m not starting this year, that’s true..;)
I would suggest using Expensify to keep track of your receipts and use Freshbooks for invoicing and time tracking. Great online tools that will save you grief during the year and at tax time.
Great starting out. Of you are still working full time and want to free lance, get the book Quitter by Jon Acuff. Great for that. I, unfortunately, jumped in without much choice, but it worked out!
And book keeping, it is best to schedule a time each week to update books and them over them, this is a good way to determine if you need to increase your marketing activities (and you need to increase when sales are low, don’t wait to make money before marketing).
Good luck all!
Tom
Murhost Success
Few of my points:
1. start out when you’re already employed. I didn’t have the chance, since i was fired and had to freelance then with no money and no chance to ‘test’ the waters.
2. SAVE money. Save for yourself, save for your business. It’s great to have 6 months at least ‘covered’. Makes it more pleasant to freelance, as opposed to someone like me who was in debt and didn’t have anything saved. I made it, but the first 4 months were horrible.
3. don’t spend money on stuff you don’t need. Don’t buy office furniture, don’t buy gadgets, don’t pay for stuff you get free. I use free management tools (collabtive – web based and conqu – a free program) so that I don’t pay for basecamp and other stuff. My financial tools are also free. I try NOT to spend money on stuff I can get for free.
4. Put up a great portfolio. Update it often, redesign.
5. set prices that might be smaller at first, to get cash flowing and new clients, then steadily increase. Of course, if you are covered for the next 6 months you can ask premium prices from the get go, but if you need money NOW everything works.
6. get ready to work like you’ve never worked in your life
These are some great ideas and tips! Thanks for sharing them.
FYI, I featured this article in my latest freelancing weekly: http://freelancingweekly.com/issue-11
Definitely test the water first if you can. IF you have the chance to commit to a year doing freelance while working full time, you get the opportunity to build up a few loyal clients, get good word-of-mouth referrals and sort out your bookkeeping. This was the hardest part for me as I like the technical work, hate the bookkeeping.
I joined Freshbooks and that’s made things much easier. I use the detailed estimates both as quotes for clients, and as instructions for myself for the job. Enter expenses, send invoices etc. Highly recommend!
Good luck all
Freelance is really hard to get but once you get in, there’s no such type of business. Most fruitful, I’m telling you but one should know his cards.