Video Sharing Site List

- 1 comments
This summary is not available. Please click here to view the post.
[Continue reading...]

Cash Flow Is King!

- 1 comments
Let’s look at the first concept we met at the very start  of this  chapter in more  detail: operational cash  flow.  You may  feel great sending out all those invoices; however, those sheets of paper won’t help pay your  expenses. The proof  is in the pay­ ments—and it’s when they  actually arrive in your  bank  account that  matters. As we’ll discuss, not all businesses are keen  to abide by your  terms of payment.

When funds are tight,  it’s imperative that you do what you can to balance the income and  outgoings so that  you’ll always have  money available in the bank. It’s a good practice to adopt from the very start,  and  continue into  the future.

You should concentrate your  efforts  on:

reducing the average  collection period
This  is the time  that  lapses between the invoice going out,  and  the payment being  received.

reducing the risk of bad debtors
Nobody likes  the idea  that  some  clients may  never pay!

budgeting  for future expenses
It’s probably not necessary to buy that shiny new gizmo right now. Create a cash flow plan, and  determine the best time  to make  a purchase.



timing  your outgoing  payments
Ensure that  you have  a credit period with purchases, and  that  you use this wisely.

It isn’t just when you’re beginning your  freelance career that  cash  flow is such a crucial element. Ask any business owner, and  they’ll agree that  controlling cash flow is an ongoing challenge—the failure of which can  cripple any organization, whatever the size.


Three Types of Cash Flow

There are three types of cash  flow in business. Operational cash flow is cash  re­ ceived or spent for a core  business activity. This  is the type  of cash  flow most applicable to freelancers.

Financing cash flow is cash received or expended as a result of financial activities, such as interests or dividends. Investment cash flow is cash  received or spent on investments, acquisitions, and  capital expenditure. The latter two are typically not so relevant to freelancers.

Encouraging Prompt Payment

One of the biggest  issues that  many freelancers face is being  paid on time. The consequences of waiting months for a large bill to be settled—especially when it’s payment for a job that took up all your resources for a significant period of time and prevented you from taking on smaller fry to keep  you going—can be severe. You need to be prepared for such eventualities as best you can, with enough savings and cash  flow to tide  you over.

It’s often  the case that  the larger  the organization, the quicker their clients pay,  due to the fact that  larger  organizations employ people to chase down their debtors. Unfortunately, these larger organizations are also typically the ones that are slowest at paying their own  bills.

You can  encourage prompt payment from clients by using a number of strategies. Ensure that  you invoice as frequently and  as quickly as possible. You can  arrange milestone payments at the start,  during the project, and at the end. Smaller invoices are normally far more  palatable than larger  ones,  so invoice early  and  often.



Ensure you cover every detail on your actual invoice, so that you minimize queries. These details should not only  cover  all of your  legal and  contact information, but also explain the charges and  provide a brief description of the work,  as well  as the date  incurred, if it’s maintenance or support. Most importantly, ensure that  your payment terms are clearly stated and  are obvious to the recipient. Consider making them big and  bold. For a sample freelance invoice, see this  book’s web site  for a
downloadable example.2

Find out the name of the person in the accounts department, and address the invoice accordingly. This way, there should be no excuses about the paperwork going astray or not being  addressed to the person with the right  authority. If you don’t have  any luck  with the accounts people, politely mention it to the person or people you’re dealing with on the project, if it’s ongoing. They  may  be able to get the wheels in motion to ensure your  willing continuation with the project, and  to keep  the rela­ tionship sweet.

Communicate frequently, and  with consistency. If the invoice was due  yesterday, email or call the client today and  politely ask when payment will  be received. Take a note  of their response, and  set a reminder to call again  close  to the date  they nominated. Clients will  quickly learn that  if the account is still  outstanding on the due  date, they  can  expect a call from you.

Avoid setting unrealistic payment terms. Many  companies will  simply ignore pay­
ment terms if they  are less than 14 days.  Similarly, they  will  sit back and  wait  for
a statement or follow-up if you give 90-day terms. Find a nice  window (I typically use 30 days)  which most  clients will  stick  to, and  avoid changing your  payment terms for difficult clients, without a very good reason (or additional loading!).














2 http://www.sitepoint.com/books/freelancer1/




Discounting to Save Headaches

Some  businesses and  freelancers offer a small discount if the invoice is paid by a certain date, or is prepaid. I’m not a big fan of this  approach, but many other freelancers report considerable success this  way.  My main concern with offering this  carrot is that  you could open yourself to arguments when a client pays  after the due date, but still insists upon receiving the discount that they now look upon as your  expected, standard rate.

Dealing with Debtors

When faced  with a debtor who  just isn’t paying up,  there’s always a temptation to inflame the situation by pulling out that jousting equipment beloved of our freelance forebears. Don’t! Approaching the situation with discourtesy, aggression, or threats simply won’t work;  it will  only  escalate the issue into  a personal grudge and  bring any negotiations to a standstill.

The best approach is to be firm about your expectations and agreements, and ensure that  you present this  message in a written form. Inquire about the delay in payment with the person you’ve been  dealing with, ask about whether there are any issues, and  see what you can  do to resolve them.

If absolutely necessary, agree on a payment plan—even though this won’t help your short-term money needs, it’s better to at least  have  a trickle of the money coming in than no money at all. And you’ll often find that the mere insinuation that a client can’t pay their bills  will  lead  to them paying up in order to save ego.

If there’s still  no resolution, consider engaging a debt  collection agency—typically, they  will  take a percentage fee from the overall invoice, if they’re successful in collecting the sum  owed to you. In my opinion, it’s better to salvage 80–90% of the total  cost than none at all.




When You Need to Get Tough

An important consideration is that debts become harder to recoup the longer they exist,  so it’s vital  to act quickly with recalcitrant clients. If all negotiations fail, look at options such as locking troublesome clients out of their CMS, delaying any remaining work  until they  have  paid you in full for your  work  to date, or as an absolute last resort, turning off their web site hosting.

Recurring Revenue

Regardless of whether you’re charging by the project or by the hour, an income stream that  shouldn’t be overlooked is that  of recurring  revenue, also known as “passive income.”

Let’s consider a quick example. Say we bought hosting accounts for $12 per month, and  we could sell them to our clients for $20 per month. But, you might say, that’s a whole $8. It’s not going to change my  life!

Well,  what about an average of two clients a month signing up for your  hosting? This  means that  after two years, you will  have  48 sites  hosted on your  reseller hosting account. This  works out to a rather nice  $384 per month—for doing very little.

Now,  let’s add  domain names, secure certificates, and  other add-on items into  this equation, and  I’m sure  you’ll really start  to see value in the proposition.

Can you build a web application? An important opportunity for those who  create products, such as content management systems or web apps, is to reduce any upfront costs  of the installation—which therefore makes it more  affordable and  attract- ive—and build in an annual, recurring licensing fee. This is an example of the power in numbers—ten clients paying $200 a year  for CMS licensing means an extra  two thousand dollars per year  in passive income.

This  principle isn’t just for hosting, domain names, and  applications, of course. There’s a multitude of items from which you can create products, and  sell over and over again.  Consider such items as membership sites, advertisement-funded sites



(a successful blog is a good example), or sales  of photographs and  illustrations on stock  design sites  such as iStockPhoto3 and  BigStockPhoto.4

Then there’s writing an ebook  for sale,  designing T-shirts and  other designer items and  selling them through sites  such as RedBubble5 and  Spreadshirt,6 developing web-based applications, or even  creating web site  design templates for sale.
[Continue reading...]

Loans and Savings

- 0 comments
At the very least,  you should have  a bank  account created solely for your  business use.  Don’t blur  the line  between your  money and  your  business’s money, as it can allow you to fall into  the trap  of spending everything that  you make.

Organize a main business bank  account, and  then draw on that  account for your own  wages—a weekly or fortnightly transfer to another personal account does  the trick.

Then, ensure that  a percentage of the income being  deposited into  this  business account is never touched. This  will  allow a small amount to grow into  something that  can  be used for larger  capital expenses down the track,  such as a new  laptop or color  laser  printer.

It’s also wise  to consider having yet another account for items that  need to be paid regularly but infrequently, such as taxes  and  superannuation—this way,  when tax time  comes, you won’t need to struggle to find  the money. Work out what income tax rate  you’ll most  likely need to pay,  and  consider automatic transferral of that percentage from any income into  this  account.

Don’t be shy about applying for a loan  to help sort out your  start-up costs.  Many people find  it very hard to fund the costs  of starting up from the meager income they  make  in those first few months. It’s a shame for lack of funds to hold you back, if you have  to turn down projects because you don’t have  the right  software or hardware, and it’s probably avoidable if you have a decent credit history. It’s crucial, of course, to make  sure  that  you can  meet  the repayments.


3 http://www.istockphoto.com/
4 http://www.bigstockphoto.com/
5 http://www.redbubble.com/
6 http://www.spreadshirt.com/



If you do get a loan  at any stage,  make  sure  that  the loan  is serviced from your business account, and  treat  it as a company expense. Blurring the line  between personal and business money will cause headaches at tax time, and adds unnecessary complexity to your  bookkeeping.
[Continue reading...]

Calculating Your Rates

- 0 comments
There are basically two ways  in which most  freelancers charge for projects. The traditional method of a “per project” fee is often referred to as a fixed price contract, while charging by the hour is often  referred to as time and materials.

In either scenario, it is very important to work  out what your  minimum hourly rate should be. This  way,  you can track  your  progress against this  minimum rate in the case  of a project fee, or know what to charge as an hourly rate.


Cover Yourself with Ad Hoc Loading

Project rates  should be based on a minimum of your  hourly rate multiplied by an estimation of hours involved, plus a loading to cover  any ad hoc issues (which, depending on your  previous experience with the client, you could anticipate to be large or small). This additional loading means that  you will stay within budget more  frequently, allows you to be more  flexible with the occasional micro task or small scope creep, and  helps avoid any issues at project completion.


Now,  there are five steps to determine your  hourly rate.  You do this  by looking at what it actually costs  you to work  per hour. There’s a bit more  to it than you might think …



Step One: Determine Your Overheads

Using  the spreadsheet you have  created, you can  now  determine the annual costs per year, which we’ll use in this calculation. It’s prudent to add a further ten percent to this  total, just to cover  any unforeseen costs.

Step Two: Allocate Your Salary

There are a number of ways to calculate this figure, and you need to take into account your own particular expectations and lifestyle. However, a good yardstick is to look at what you could expect to be paid for doing the same  work  for an employer.

Perhaps you’re already under employment, or have  only  recently left your  job; if so, consider what your salary expectation would be in twelve months’ time, including all taxes  and  employer contributions.

If you don’t have this point of reference, look around a few employment-listing web sites  and  resources, or ask your  peers in the business what they  would consider to be a desirable salary for the work  that  you do.

Weigh  up whether you wish to add  a little more,  to acknowledge that  you’re taking a risk in opting to work  for yourself. This  way,  you really can  create a desirable figure.


Raise Your Rates!

As you would receive salary rises  from time  to time, you need to assess your  bil­ lable  rates  in the same  way—don’t overlook the fact that  as the years  go by, your expertise grows,  and  therefore is worth more  to the client.

Step Three: Decide on a Profit Margin

In all businesses, large and  small, the aim  of the game is profit. Being a freelancer should really be no exception. You’ll want this  margin for those times when cash flow is tight;  moreover, by allowing for this  profit now, you’ll have  some  money saved for hiring staff or expanding the office when your  business grows.



Step Four: Work Out Your Realistic Hours

Let’s imagine for a moment that you could work 40 hours per week, just as a starting point. Theoretically, this  means you have  52 weeks multiplied by 40, which comes to 2,080  hours per year.

Now,  if you were  an employee, you’d likely have  a number of federal or public holidays (roughly 11 in United States, 10 in Australia, and 9 in the United Kingdom). Let’s make  this  10 days  per year  for the sake of the exercise.

Now,  none of us likes  the idea  of being  ill, but it’s an inescapable fact of life; we’ll allow a week off for sickness per year as well.  And of course you realize and respect the importance of achieving work–life balance when freelancing, so you’ll want to allow at least  three weeks of vacation leave  on top of it all.

So we have 52 weeks, minus two weeks for public holidays, one week for sick leave, and  three weeks for holidays. This  calculates to 46 weeks of actual work,  or 1,840 hours if we work  40 hours per week.

It is unrealistic to imagine that  you are able to charge out all 40 hours in a week, if that’s the sum  total  of the time  you spend working. There are a number of un­ chargeable tasks,  such as administration, sales, meetings, travel, lunches, and other duties that  will  crop  up in the best-run business.

A conservative estimate for these duties might reduce your billable hours by a further
25%,  leaving you with 1,380  hours of billable work  per year.

Step Five: Calculate Your Hourly Rate

Armed with the information from the four points before, we can  now  apply the following formula to create your  hourly rate:

Pre-tax hourly rate =
(Annual Overheads + Expected Salary + Profit) / Billable Hours


For example, let’s say we calculated $20,000 in overheads plus $40,000 salary, and we’d like  a 10%  profit margin; we divide $66,000 by 1,380  hours, which equates to $47.83 per hour.



Now that isn’t the end of the equation. We may have a (fairly) scientifically calculated figure,  but what we need to do now  is to compare this  against the range  of rates  in your  local  industry, and  determine whether it is competitive.

For some  people, keeping an hourly rate within a so-called industry standard may not be a concern—perhaps you’re very specialized, or serve  a niche market—but for most  freelancers, it can  make  all the difference to landing those prospects who are shopping around. We all know that  that  deciding on hourly rate alone is a false economy on the part  of the prospect, given  that  the amount of hours one person takes  to complete a task could be five times greater than someone else,  but we also know that  most  clients don’t see it that  way,  especially if they’re unfamiliar with using services such as yours.


Selling Ahead

Consider selling prepaid maintenance (perhaps in five-hour blocks), which is a nice  means of immediate payment, and  is a great way to cover  incidental support requests.


Do some  research into similar freelancers in your  area in order to nail down a range of rates.  Find out from colleagues what they  charge, ask people who  have  used freelancers before, or ask a friend to obtain quotes from your  competitors. Where does  your  rate  fit in?

Is it cheap?
This  is a good situation to be in. You now  have  an opportunity to raise  your hourly rate, and  earn  more income. You don’t want your  hourly rate to be signi­ ficantly less than others, as it may make prospective clients start to wonder why you are so cheap, and  doubt your  abilities.


Don’t Be Cheap

Don’t, whatever you do, try to win work by being the cheapest. This devalues your  work,  does  your  wider industry no favors, and  means you’ll have  a tougher time  convincing clients of your  value when you start  raising your rates.

Many  freelancers undercharge when they  start,  due  to a lack of confidence or because they  haven’t considered all of their outgoings. You are taking this leap because you’re worth it, so don’t cave into that inner demon of self-doubt!


Is it middle of the range?
Well done! This  is the sweet spot—there are freelancers who  charge more  than you,  yet you aren’t in the bargain basement, either. This  is the price area that most  freelancers should really aim  for in their first few years.

Is it higher  than average?
If your  rate  is higher than most,  you need to look at what the factors are. You don’t want to be the cheapest; however, being  the most  expensive may  make life a little tougher, if you’re finding clients resistant to the idea.

Review all of your  figures from above.  Did you exaggerate any overheads too far? Have you added a very large profit percentage? If so, perhaps you need to consider tuning down slightly, to make  your  rate  more  realistic and  attractive.

Many freelancers complain that people new to freelancing attempt to attract clients by offering considerably cheaper rates.  This  practice ends up representing a danger to these newbies rather than the freelancers whom they  undercut, as they’ve very likely failed to consider their overheads sufficiently. The bright side  for seasoned and  reasonably priced freelancers is that  their fresh-faced competitors may  not be freelancing for very long! The unfortunate aspect, however, is that  this  situation can cause other freelancers to panic and  reduce their pricing, thereby creating a spiral towards low costs  and  a resultant reduction in quality.

Don’t get caught up in the same  game—it’s far better to stick  to your  guns  and maintain that  you need to be reasonable in your  charges, so that  you can  assure clients you’ll still  be freelancing in a year  to come.

Also remember that  not all new  clients shop around. In some  situations, it may  be common to find  that  a prospect has had  no other quotes than your  own,  before  they make  a decision in your  favor.  This  will  often  become evident during the sales
process.

Bartering  Your Skills

To increase your  billable hours, consider outsourcing your  low-paying, repetitive tasks  to allow you to focus  more  time  on the more  specialized work  you excel  at. Smarter still,  find  a freelancer with better skills in server administration, and  ar­ range to swap services, such as your legendary proficiency in graphics preparation. They’ll be quicker at their area of expertise, and  vice versa, so both  parties win!
[Continue reading...]

Determining Your Costs

- 0 comments
You’ll no doubt have  heard the old phrase “it costs  money to make  money,” and  as cliched as this  may sound, it is overwhelmingly accurate when applied to freelan­ cing. No matter how  tight  a rein  you keep on your  expenses, you’ll find  unexpected bills  are a fact of business life. By providing your  budgeted amounts with generous margins, you’ll be better prepared to cope  with an unexpected cost.

Perhaps you’ve already considered obvious items such as hardware or software, but have  you thought about their cost of replacement, or their upgrade or replacement cycle? Say you have a $2,500 computer, which you plan to replace every three years. That’s $834 per year  to put  aside, and  don’t forget to record the depreciation!

Then let’s say you have  an operating system, a creative design software suite, an accounting package, and  an office application package. Maybe  you’ll upgrade to the latest version for just the design and  office suite every  year—you’ll be putting aside around $1,100 per year  just to do that!

Then you have  a printer, with those expensive ink replacements, a scanner, a broadband router, and  a few wireless network parts.

And  it goes without saying that  you should attempt to calculate costs  that  you may not need right  now, but may  crop  up in the near  future. For example, it’s far better to allow for your  tax return costs  as you go, rather than scrambling for funds when tax time  comes around.

Costs Checklist

First,  create a spreadsheet with three columns: Cost Category, Monthly Cost, and Annual Cost. Then enter the applicable headings from the following example list to the Cost Category, and  estimate your  costs,  being  either monthly or annual. You can also download an example spreadsheet from this  book’s web site.1 Feel free to add any other expenses that don’t appear on this list , if you consider them relevant to your  business.


1 http://www.sitepoint.com/books/freelancer1/


Office Costs
■   rent  (if you work  from home, determine your  percentage of home use and—with advice from your  accountant—make this  a percentage of rent  or mortgage)
■   furniture (desk,  chair, bookshelves, and  the like)
■   signage (if any)
■   electricity
■   water
■   cleaning

Equipment  Costs
■   hardware: desktop computer
■   hardware: laptop computer
■   hardware: printer
■   hardware: phone handsets, answering machine, fax machine
■   hardware: other (wireless routers, thumb drives, and  so on)
■   software: office package
■   software: design and  development suites
■   software: accounting package
■   software: other

Communication Costs
■   mobile phone costs
■   fixed  telephone costs
■   Internet access

Travel Costs
■   vehicle maintenance
■   fuel (speak to your  accountant about keeping a log book)
■   taxis
■   airfares
■   accommodation
■   conference fees
■   meals and  entertaining

Consumable Costs
■   printer ink
■   stationery
■   postage and  couriers
■   paper
■   pens, pencils, staples …

Marketing  and Advertising Costs
■   your  own  web site  hosting
■   press advertising
■   phone book advertising
■   other advertising: trade magazines, business cards and stationery, conference flyers

Miscellaneous Costs
■   legal fees (these are normally incurred at the start,  so spread them over two or three years)
■   accounting fees (spread any start-up fees over two or three years, and  then
add  ongoing fees)
■   professional memberships
■   subscriptions (magazines, online publications)

Insurance Costs
■   health insurance
■   professional insurance
■   income insurance
■  business insurance
■  office insurance

Then, multiply the monthly costs  by 12 to calculate your  annual cost.  We’ll use these annual cost figures later  in this  chapter.

This  spreadsheet can  be updated throughout the year,  to reflect the real  costs.  You can compare budget versus actual to see how  close  these figures came  at the end  of
the first year  of freelancing.


The Cost of Software

Software licensing is an often-overlooked expense when freelancers first set up. Consider all the different packages you may need, and  allow for these costs  from the start.  Don’t forget to look at open source, freeware, and  shareware software as another option where you can,  as many of these are just as functional as their commercial counterparts.


Considering Insurance

Nobody ever plans to fall ill, or expects a client to take legal action, but these unfor­ tunate situations do occur. Insurance is the only  way to ensure that  you minimize the impact of such unexpected trials.

Ask an insurance broker what types of insurance you may  need to allow for, and ensure that  you shop around. Some  premiums can  be as much as double the price of competing products that  offer exactly the same  cover.

Make sure  that  you understand what can and  cannot be claimed, and  that  you have a complete understanding of your  chosen insurance policy before  you hand over your  hard-earned cash. There’s nothing worse than enduring an extended illness, only  to find  that  your  insurance provider won’t cover  your  loss of income because of some  small issue detailed in the fine print.

You will find that most insurance is 100% tax deductible as well,  which makes this solution even  more  attractive to freelancers.

Obtaining Accounting Software

We’ll discuss giving your accounting and bookkeeping to a professional in a moment, but you will want to be familiar with your own finances to some degree. We’ll discuss the basic  options of controlling your  own  finances here  before  deciding how  much you should control and  how  much you hand over.



There are seemingly as many accounting software choices available as there are freelancers. You should speak to colleagues to find  what they  use,  and  search out reviews and  tutorials for these packages online before  making a commitment.

The feature sets and  costs  vary widely between all of the options on the market, and there’s no easy decision in this area. Any basic accounting package should allow you to track  items such as:

■   Accounts Receivable
■   Accounts Payable
■   General Ledger
■   Billing
■   Stock  or Inventory
■   Purchase Orders
■   Sales  Orders

Most systems allow you to send an invoice or receipt as a PDF by email, as well  as the old fashioned “print out and  mail” method. Some  of the newer versions also feature handy functions, such as time  sheets (so you can input your  hours directly into  the system), mail  merge  (so you can use as a basic  mailing list), and  automated debt  collections or reminders.

Here’s just a handful of the different options available to you:

System  Software

Quicken (http://www.quicken.com/)
Quicken has at least five versions of its product, ranging from the ultra-light starter edition to the premier edition, which integrates with banks, tracks investments, and  more.

M.Y.O.B (http://www.myob.com/)
Within its four products, FirstEdge through to Premier, M.Y.O.B software includes payroll, time billing, inventory, and even a simple contact database.

Quickbooks (http://www.quickbooks.com/)
With  15 different suites, Quickbooks has everything from home finance tracking through to Retail,  Accountant, and  Payroll editions.



Web-based  Software

Saasu  (http://www.saasu.com/)
The most  mature of the web-based finance offerings, Saasu rolls  out new features regularly, and  has tight  integration with social networks, search engines, and  CRM systems, as well  as including all the regular software features.

Less Accounting (http://lessaccounting.com/)
The folks at Less Accounting make a point of saying they aren’t some bloated accounting package provider; they tout themselves as “simple small business accounting software.”

Freshbooks (http://www.freshbooks.com/)
The Freshbooks system is both an invoicing and  time tracking system, with widgets available for desktop integration, sophisticated reports and integra­ tion  with the big-name payment gateways.

Irrespective of which accounting package you choose, it’s very important that  you ask your  accountant or bookkeeper for advice prior to purchasing software, and  for support in setting up your  initial accounts. This  can  avoid more  complex and  ex­ pensive situations from occurring later on, when these professionals need to export files  for lodgment, or work  on the accounts themselves.

Most packages allow fairly  easy exporting of data, so you can  email your  files  to your accountant for review or lodgment. Don’t think that choosing the most feature- packed software is best either; this  can  easily bewilder you and  cause more  issues than simpler software.

Most up-to-date accounting packages can  also reconcile directly to your  bank  ac­
count. Such features can  save you countless hours and  many headaches.
[Continue reading...]
 
Copyright © . 4 Earning 2 - Posts · Comments
Theme Template by BTDesigner · Powered by Blogger