Cash Flow Is King!

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.

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Loans and Savings

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.

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Calculating Your Rates

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!

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Determining Your Costs

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.

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Hiring Professionals

If I only  had  room  for three words in this  entire chapter, they  would be hire a pro­
fessional.

An accountant or bookkeeper will  bring  your  accounts under control much faster than you ever  could, and  they’re very likely to save you money as well.  Let’s face it: we might be fantastic at with crafting standards-compliant XHTML, or designing very usable and  nicely designed interfaces, but we aren’t on this  planet to be ac­ countants or lawyers. This is exactly the reason that most accountants or legal experts don’t design or build their own  web sites—it’s not in their range  of competencies or interests.

When I first started out on my own,  I was very conscious about not spending any more money than I absolutely needed to. This would mean that I would often wrestle with my own  bookkeeping well  into  the night and  on weekends, in order to keep the accounts up-to-date. I took the same  approach with every  other element of my newly created job; I didn’t particularly like most  of these extra  chores, to be honest, and  I wasn’t great at some  of them. I would either complete these tasks  far slower than others would, or worse still,  not do them at all.

One day,  a wise  friend asked me how  long it took me to do my monthly accounts. When I explained that  I spent most  of every  weekend on them, it was quickly pointed out that it was costing me hundreds of dollars in lost income, not to mention priceless and  necessary downtime, to do the books  badly. When we weighed up the billable rate per hour that I lost as a result of working on non-billable stuff instead of money-making projects, and  then compared that  to having a bookkeeper do in a couple of hours a task that  took me all weekend, I quickly decided to loosen the purse strings the smart way.

Let’s use a simplified example. Say you charge yourself out at $100 per hour, and it takes  you an entire day to manage your  books  per month, then the actual cost to you is around $750, assuming you could bill yourself out for seven-and-a-half hours that  day.

Now,  you go to a local  accountant or bookkeeper and  ask them to do your  monthly books  at $50 per hour, and  they  take four hours. Not only  have  you saved yourself the headache of doing the work,  you are over $500 better off, assuming you can fill that  day with billable work.

If you’re really lucky, you may find a professional nearby in the need of your services;
both  parties win  if you can  barter work  with them!

It’s worth having some  awareness of your  own  finances, of course. However, the opportunity lost when you spend an entire day every  fortnight on your  accounts when you could be earning hundreds with billable work,  should make sense straight away. If this  isn’t enough to convince you,  consider your  knowledge of account- ing—do you feel satisfied that you know every single tax deduction and tax strategy to save you from paying more  tax than you need to? Are you confident that  you know a Profit  and  Loss statement in intimate detail?

If you have answered in the negative to either of these questions, do yourself a huge favor, and  find  a great accountant (ask for referrals from other freelancers, ask your bank  manager or insurance broker, or ask industry and  social contacts for referrals) who  understand freelancers and  can  give you great advice.

If you are reasonably confident in your  own  abilities, perhaps you could ask for a quarterly or annual review. Regardless of the frequency, I urge you to seek profes­ sional financial opinion—regularly.


Managing Your Money … with a Little Help

One of the biggest  reasons freelancers fail in their first year  or two stems from their lack of financial planning and  control. It can often  feel overwhelming to manage your  accounts, but without good management, the money could dry up.

Don’t be hesitant to ask others for advice. There are plenty of online forums and web sites  discussing money matters, and  professional help from your  accountant can make  a world of difference.

You are not alone in facing  these hurdles, so embrace opportunities for assistance from others who  know accounting inside and  out—it may  save you from having to ditch freelance life and  seek employment.



Making More Money … with a Little Help

This  may sound ridiculously obvious, yet we all suffer  from letting ourselves be­ come  wrapped up in the detail. This  trap  means that  we forget about the most important detail of all, which is to find  out what makes us profitable so that  we can repeat it.

We all have  projects or tasks  that  we need to do regularly, but upon analyzing them in more  detail, it’s often  clear  that  many of them waste time  and  make  no profit. Or, even  worse, end  up making a loss.  Stop  doing them—hand them over to a professional!

It’s hard as a freelancer to learn to say no, but if you don’t, you can easily become caught in spending your  time  on less profitable activities. Get in the habit of reg­ ularly reviewing your  time  sheets and  your  income—discover where your  real profit lies,  and  concentrate on that.

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Accounting Basics

The following concepts may seem like common sense, but they’re often overlooked in the excitement of pushing your  freelance business off the ground. And  we all know what will  happen if you don’t keep  an eye on the finances—don’t we?

cash flow
The ideal incarnation of cash  flow is an amount of cash  coming in that’s greater than the cash  going out; to put  it bluntly, this  is what will  allow you to keep freelancing. It’s obvious that  when the cash  coming in is less than the cash  you are spending, something has to change. However, there’s actually more  to it than money in, money out—timing can  also play  a crucial role.

salary
In terms of paying yourself a realistic salary, you should not only  pay yourself what you would be likely to earn  if you were  employed, but also factor  in those hidden extras, such as pension or superannuation plans, dental and  health be­ nefits, and  the like—and to allocate and  deposit funds accordingly. This  isn’t the time  to give yourself a grand raise,  though—it is still  vitally important that there is money in that  business account.

profit
You may  think as long as you’re earning a decent salary, then that’s all you need. Not true—having even a small layer of profit on top of all of your expenses, including your  own  salary, is a very important tool to weather months where the finances dry up or some  other disaster occurs.

insurance
You cannot afford  to go without insurance, even  if you think you can  avoid it. There are a plethora of insurance options, and  your  financial advisor can  help you with these. You should consider such insurance as professional indemnity, business liability, and income protection. Should something unexpected occur, these plans could really save you a whole world of trouble.

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Engaging Assistance

Early on in starting out on your  own,  you’ll want to make  alliances and  choose suppliers for those services or products that  you don’t offer yourself.

A word from the wise: be very careful when choosing a supplier. Using a third-party product or service for a client project is akin  to offering a raving endorsement about them, so it’s important to consider your  options before  making your  decision.

As your  freelance business grows,  you will  find  yourself using a multitude of sup­ pliers. You’ll find  that  whole areas  of your  business rely on them, and  they  in turn will  benefit from the business that  you bring  them.

You’ll need a domain name registrar, a hosting company, an office stationery sup­ plier, a printer for business cards or other printed matter, and possibly an accountant or lawyer—or both. There will no doubt be other suppliers along the way. And then, of course, there’s the large question of outsourcing—as we’ll see, it’s a false economy to spend time struggling to fulfil the complex requirements of thorough bookkeeping, to use a common example. There are experts to do it quickly and  easily while you devote your  time  to the work  at which you excel  and  that  makes you money.

Spend any amount of time  on web-based forums frequented by freelancers and you’ll inevitably find discussion threads regarding freelance tales of woe—freelancers losing all of their data  as a result of using the cheapest hosting company they  could find,  or having suppliers directly contact all of their clients, offering to undercut their best deals.

Lessons Learned
Don’t leave  backups to your  hosting provider. Regularly back up client sites, just in case—this may  save you in the future!
If you’re going to resell third-party services or products, ensure that  you have  a written contract stating what is acceptable and what isn’t. The last thing you want is for your  hosting company to go directly to your  client base and  offer them a great deal  to cut you out of the picture.

Do some  online research, and  read  up on the experiences other freelancers have had  with the suppliers you have under consideration. Forums such as Web Hosting Talk5 (see the Reseller Forum) and  the SitePoint Forums6 (see the Web Hosting Forums) have  plenty of posts pertaining to which hosting companies treat  their re- sellers well,  and  which don’t.

The same approach applies to most suppliers you’ll require—there are domain name registrar reviews, printing company reviews, and  plenty of other sites  and  forums to be found.

Once  you have  chosen a supplier, I encourage you to build a real  rapport with them—a great relationship with a supplier can be worth a fortune in a time of crisis, or when you need something done absolutely drop-everything now.



Asking for Advice

One of the disadvantages of a freelance life is working in isolation. You won’t have a team  around you,  and  at times you may  feel as though you’re the last  person on earth.


This  is even  more  obvious when you realize you probably don’t have  someone to give advice. Sure,  your  partner or family can help to a degree, but they  can’t answer questions about your  chosen profession in any great detail, unless web expertise runs in the family.

Look through your  contacts, and  see if you know someone who  would be able or willing to play an informal mentoring role. You may be surprised as you look through your  contacts on social networking sites  or in your  address book as to who  could give you a hand; it’s often even more surprising how willing people are to be helpful.


Look for freelance or web industry groups that have meet-ups. There are groups like Refresh,7 Port80,8 BarCamp,9 web design meetups,10 and  more,  where you can mingle with like-minded freelancers to share stories and  ask for advice.

If there are no obvious candidates among your  contacts and  no local  groups, make contacts through discussion forums and  your  extended networks, or even  consider starting your  own  group. A buddy system between other freelancers, or with a mentor who’s been  doing the freelance or small business gig for a couple of years, can  provide an invaluable sounding board and  information source.

Remember to Have Fun!
There may  be times ahead that  will  make  you feel overwhelmed by the mission that  you’ve chosen to undertake—juggling money, being  a salesperson, working late at night, and  seemingly never stopping or being free of responsibility for your business.
However, make  sure  you take time  to look at your  achievements, the hurdles you’ve crossed, and the exciting road still in front of you. Freelancing is a reward­ ing career choice, and  allows a level  of flexibility that  you’ve no doubt dreamed of.
Take time  to have  fun, pat yourself on the back regularly, and  know that  the start­ up phase is the hardest part—it will  become easier and  more  enjoyable as you travel along  this  path.

The Pick-me-up List
Keep a list of recent goals you’ve achieved on a sheet of paper stuck up near  your desk.  On those dark  days  when you feel like nothing is working, read  the list and reaffirm your  progress so far.


1 http://www.webhostingtalk.com/
2 http://www.sitepoint.com/forums/
3 http://refreshingcities.org/
4 http://www.port-80.net/
5 http://barcamp.org/
6  http://webdesign.meetup.com/

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Considering Your Business Structure

When setting yourself up as a business, you should consider the implications of different business structures. If you intend to take on staff within the first few years, you may  wish to set up a corporation. If you plan to remain a solo worker, having everything set up as a sole proprietorship may  be the best solution.

Having said  this, consider speaking to an accountant and  possibly a lawyer to seek advice about your particular scenario. You could also speak to local business bureau (such as SCORE4) or associations. They’ll take into  account your  current personal and financial situation, as well as your legal jurisdiction. Requirements for different business and  company registrations will  vary depending upon your  location.

Each different structure can  have  a considerable impact on your  taxation benefits, your  licensing and  governmental costs,  and  your  ability to grow the business in the future.

The main differences between a limited liability company (an LLC) and  a sole proprietor arrangement reside in the varying levels of possible taxation benefits, legal protection, ability to obtain finance, and  your  legal requirements.
Setting up an LLC structure has both advantages and disadvantages. The advantages include:

 

greater legal protection : If a client sues the company, only company assets can be seized to pay any judgement, not your own car or house.

greater ability  to obtain credit : Many  financial institutions and  lenders have  a preference for a company, rather than an individu­ al, for business finance.

tax benefits  :  In some  states and  locations, a company receives more  taxation benefits than a person.

This  option isn’t entirely free of disadvantages, of course. An LLC costs  money to set up,  and  there are ongoing company-related fees. Also,  financial reporting is usually more  involved than for an individual.

Being in a sole proprietor structure has its fair share of benefits, mostly to do with cost. When compared with an LLC, there’s less financial reporting for most situations, fewer  start-up administration costs,  and  not as many licensing or business costs.

There are disadvantages though, which are easily recognizable as the other side  of the LLC advantages:

zero legal protection  :  If a client should sue you,  the court can  order that your  assets be taken to pay any legal judgment.

less access to credit : Business loans are likely to be harder to get for a sole proprietor than for an LLC.

tax burdens : You may  be taxed more  than if you were  a company.

Ideally, whatever structure you create now  will  mean that  you aren’t paying more than you need to in fees and  costs,  yet allow you to be flexible enough to accommo­ date  change as your  business and  your  direction evolve.

It’s also a very good idea, regardless of your  structure, to open a bank  account for your  freelance business that  is separate from you as an individual. This  way,  you can pay yourself as if you were  an employee, and  allow a small nest  egg to grow in the business account for those quieter months.

This  account will  also be used to pay all of your  running costs,  making the book­

keeping side  of your  new  venture easier to manage.

Speak to as many other freelancers and small business owners as well, and ask them how  they  set up their own  structure—people will  soon  tell you the pros  and  cons of their decisions, and  this  can  save you a fortune in reorganization in the future.

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Creating Your Brand: the Preliminaries

We’ll talk  more  about branding yourself in Chapter 5; however, it’s very important that  you carefully consider the business name you plan to use,  when first kicking off your freelance career. There are two typical approaches: use your personal name, or create an entirely new  trading name.

Let’s look at these options in more  detail.

Using Your Own Name

Using your own name is a fantastic way to build a personal brand. Taking this option depends on what your  vision of the future looks  like—if  you plan to hire  staff at a later  date, you may  want to avoid using your  own  full  name, but there are still  op­ tions available even  if you do; for example, Burke  Design  & Development; Miles Burke  & Co. On the other hand, if you have  every  intention of remaining a one- person show, giving  yourself a name like  “XYZ Corporation” can  be considered misleading, as it won’t take long for your clients to realize that you’re a solo worker.

Anything’s Possible!

Many  people start  off never expecting to take on staff. Don’t rule  this  out,  unless you feel strongly against it. I once  couldn’t picture myself hiring employees ... and  at the time  of writing I have  16!


This  theory assumes your  name is unique enough to be memorable, and  that  it’s easy for your  clients to pronounce. If your  name is Bob Smith, you may  find  that it’s too common for business registration and  other registrations, such as domain names or intellectual property.

To recap, the advantages of using your  personal name include:

■   it builds a reputation around you
■   it’s normally easier to recall, since clients already know your  name
■   it can  avoid misleading clients if you plan to stay solo
■   it looks  far more  personal and  (depending on the uniqueness of your  name) can make  you easier to find  on the Web

Disadvantages of using your  own  name include:

■   it limits you in terms of hiring staff and  possibly even  selling the business, if you reach that  point someday
■   it can  make  it harder to rank  on search engines if your  name is very common
■   it may  be hard to pronounce if your  name is very uncommon

Using a Fictitious Name

Irrespective of the business structure, having a business name unrelated to your personal name has a number of considerations that  need taking into  account.

A business name which when read  phonetically is still  pronounced correctly is perfect. Pfizer  could be a challenge; Sigma  is fairly  unambiguous. Don’t get too clever with creating crazy  business names—most people would regret  having to answer the phone with the greeting “Smelly Shoe  Design” before  long.

Having your  main service as part  of the name makes sense as well,  although be warned against making it too specific. For example, perhaps you’re a designer whose short-term plans are to design web sites  only.  You’ll need to consider whether you plan to expand into  other forms  of design in the future. Having a name like  “XYZ Web Design” when you’re pitching for a logo design project may not help you beat your  competition, so beware of suggesting that  you’re only  capable of providing one service.

A good name should be easy to recall, evocative, pronouncable, and  unique. You’ll want to register the domain name, so run  a WHOIS on your  shortlist to rule  out those already registered. Don’t just consider your  own  country extension—register as many extensions (including the top-level domains, .com  and  .net)  as possible.


Unexpected Domain Names
Take a step  back and  look at your  domain name carefully! There’s been more  than one business that  has come  up with a great trade name and  bought the (in)appro­ priate domain name to match:
■   Experts Exchange: expertsexchange.com
■   Therapist Finder: therapistfinder.com
■   Powergen Italia:  powergenitalia.com


The advantages of creating a new  name for your  business are:

■   It keeps your  personal and  business lives  further separated.
■   It allows infinite choice of business name.
■   It allows you to tailor the name according to domain name availability.
■   It’s easier to sell  your  business or client base in the future. Disadvantages of using a custom name include:
■   You’ll need to exert  some  energy to get a new  name to stick.
■   You could have  issues finding one that  you feel comfortable with and  fits you well.
■   It’s not an easy process to change the name later  on.

If you do decide to use a created name, start  by creating a shortlist of options, and then create a spreadsheet. Populate the first column by doing a WHOIS search and finding which domain names are still  available (both  geographic and  top-level).



Table . Business domain name matrix

Name    .com    .net    .us
XYZ Design Factory    available    available    available
XYZ    taken    taken    available
XYZ Web Works    available    available    available

Then, fire up your favorite search engine and search for those business names. What are the results? You wouldn’t be the first start-up to make  it this  far, only  to find another product or business using the same  name. It’s better to do this  research now, rather than when the business cards have  been  printed ... Try predictable misspellings of the words, too—often a business name may be only one letter differ­ ent from another, so make  sure  you check first!

Thirdly, consult your  local  trademark database and  see if there are any trademarks of which you need to be aware. Even very similar words may  be worth avoiding.

You should also speak to some  friends and  colleagues. Ask them what they  think of each  name in your  refined shortlist, and  narrow this  list down even  further. It’s better to do this  face to face to observe an immediate reaction, rather than by email or phone, where they  may  have  a longer time  to consider it—you want their gut response.

Finally, go with your  instinct. After all, it’s your  creation, and  you have  to like  it. If, after hours and  hours of soul-searching, you just aren’t happy with your  choice, try again  or consider using your  own  name.


Example . Bam Creative

When considering my own  business name, I had  a multitude of options. I liked the idea of incorporating my name in the business identity; however, I did want to leave my options open in case  I ever  hired staff.
Although my name (Miles Burke) is fairly unusual, the domain name milesburke.com was taken at the time, and  I didn’t want to tie it in so closely to me in any case.
My initials are MB or MAB in full,  and  I didn’t believe these really stood out. However, when you reverse them, you end  up with BAM, which I felt suggested impact. I knew that  Bam  was a very popular word, though, so I assumed there was no chance of getting those domains using it by itself.
Although most  of my work  at the time  was web site design and  development, I was occasionally brought in on corporate identity design or consulting projects. I’d already decided that  I planned to stick  to creative work,  so I ended up choosing the business name Bam Creative.

This  allows my business to work  on anything from web sites  to logos and  anything else that can be broadly considered creative, and still be true to the name. The word Bam  is generic enough for most  people never to make  the connection that  it’s someone’s initials, and  certainly not the reverse  of someone’s initials!
Funnily enough, I did  manage to register the domain bam.com.au, but I had  no chance of getting any top-level domains (.com,  .net  or .org). Luckily, I got the full bamcreative business name versions of these.

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Taking Time to Plan

“Failures don’t plan to fail, they  fail to plan,” says best-selling author and  business motivational speaker, Harvey MacKay.

If you are planning to start  freelancing part-time, you should have  the time  to put together all of the plans and  start  saving for the just-in-case rainy-day money. On the other hand, if you plan to move  straight into  full-time freelancing, remember that  you’ll have  those looming deadlines as soon  as you take on projects. Even so, it doesn’t mean that  you should ignore planning or preparation.

For most  people, the concept of business planning is likely to provoke a jaw-dislo­ cating yawn. However, it’s much more  productive to welcome this  as an exciting time, where you start to understand where you really want to travel on this freelance path. The world really is your  oyster—you’ve made the emotional commitment, perhaps you already have  some  prospective clients lined up,  and  you may  have already done much of this  planning work  in the back of your  mind. It’s invaluable to take a little time to write these thoughts and plans down, for future reference and as a way to refine and  catalogue your  thoughts.

Many  freelancers and  small businesses fail in their first few years, and  it’s widely agreed by experts that  the number-one reason for such failure is because those business had  little or no form of planning. This  planning document doesn’t need to be a huge  tome  of numbers and  words; it really is the summation of what you have  been  thinking, committed to paper.

This  document is where you start  to list known and  unknown areas  of your  plans, so you can  elaborate on them over time. A good business plan is an evolving one, so don’t consider it a chore to be completed in an hour and  then stuck in a desk drawer and  forgotten about.

There are a myriad of web sites dedicated to sharing templates and ideas about what they consider a great business plan. Perhaps the most important element of a business plan is that  you remain actively involved with it. Review it frequently, adjusting and  editing it where required—especially during those first few months.

Your plan could be just a few pages, or it could be dozens, but unless you have grand plans to circulate it for investors or financial institutions to read,  avoid using buzzwords and  reams of useless blue-sky figures. The plan is for your  eyes only,  so keep  it succinct and  to the point, and  an honest appraisal of the “who, what, when, and  how” of your  plans.

There are many elaborate methods for writing a solid business plan, but let’s start by creating a text document, and  answering what questions we can from the list in Example 2.1. For those questions to which you don’t know the answer yet, just write the question, reminding yourself to add  that  material as you go.

Remember, plans change, so at this  stage your  efforts  are likely to be more  crystal- ball  gazing  than actual fact. You’ll expand on the plan, filling it out in more  detail as you work  your  way through this  book and  progress over the first weeks and months of freelancing. And it’s fine to add other notes besides the questions included here—even if they’re rough dot points, the more  notes the better!

Creating a SWOT
The planning term  SWOT first appeared in the 1960s.  A SWOT analysis is really just a simple strategic planning method that helps evaluate projects and businesses. It’s based around a four-square grid,  shown in Figure 2.1, which covers Strengths, Weaknesses, Opportunities, and  Threats. I’ve used it a number of times to help me make  decisions around new  products or service offerings under consideration, and it works just as well  for business models.

summary market
■   What  is the initial concept?
■   What  is your  current situation?
■   What  will  your  key success factors be?
■   What  are your  longer-term vision and  goals?

 analysis competitive
■   What  does  the current market look like?
■   What  is your  target  market?
■   What  are the characteristics of your  perfect client?
■   What  do your  target  clients require?

 overview
■   What  does  your  industry look like?
■   Are there many competitors?
■   Who are your  five closest competitors?
■   What  products or services do they  offer?
■   What opportunities do you have to be unique? (Can you fill a niche or be different from your competitors in some  way?)
■   What  are the risks  and  threats?

 sales  and marketing
■   How will  you attract clients?
■   How can  potential clients find  you?
■   What  marketing activities would you consider?

plan of action
■   What  do you need to do in order to kick things off?
■   What  should you do in the medium term?
■   What  are some  longer-term plans?


To start,  list all of your  strengths and  weaknesses—these can  be thought of as the internal elements, over which which you have some  degree of control. Continue by identifying all of the opportunities and  threats that  you can—these are generally external forces,  such as competitors and  the industry at large.  Then, look for ways to use your  strengths, improve on your  weaknesses, exploit the opportunities available to you,  and  fend  off the threats.

 Establishing Goals and Milestones

All this  talk  of business-planning documents and  SWOT analyses may  be making your  head spin, and  you’re forgiven if you find  yourself glossing over them in your rush to make  a tangible start on your own business. However, I strongly suggest that you take a moment to write down some  simple goals and  then define some  mile­ stones.

Goal-setting helps filter  all of the thousands of thoughts and  ideas you have  into  a list that’s far more manageable. High achievers in every field from sports to business consistently suggest that  goal-setting is an invaluable part  of the process. Goals can help you define your  objectives, help you to understand what’s important to you, motivate you towards achievement, and  build your  self-confidence.

I find  goal-setting is most  helpful in distinguishing what’s important and  what’s irrelevant. This  helps me concentrate on what really is crucial to me, and  gives me the freedom to spend less time  on the rest.

Many  people use the acronym SMART when creating goals,  as well  as for other project management methods. SMART stands for:

■   Specific: is the description of the goal precise?
■   Measurable: do you explain how  you will  measure results?
■   Attainable: is it possible to achieve, with some  effort?
■   Realistic: do you have  the power to control the results?
■   Timely: do you have  a deadline for the goal?

The reasoning behind SMART holds that  a vague  goal is an almost useless goal. As an example, say I needed to win  more  projects; I could define a goal as, “Get more web site  projects.” Sure,  this  is better than nothing, but how  much more  inspiring would it be if I changed it to say, “Win  five more  web site  projects this  quarter.”

See the difference? I’ve been  specific (I want to win  more  projects); I’ve been measurable (I want five more  in the next  three months); my goal is attainable (who couldn’t win five projects in three months?); my goal is realistic (I know I can deliver five projects within that  time);  and  it’s timely (it has a three-month deadline).

Setting a great goal should challenge and  stimulate you.  If I downsized my goal to winning one project in the next  two months, I’d be more  likely to slack  off. It also needs to be realistic, though, so some  impossible expectation of getting ten projects in three months would set up almost certain failure. It’s a good idea to limit yourself to just a handful of short-term and  medium-term goals—writing an exhaustive list of everything you would like to complete prior to your  death is a sure way to demo­ tivate yourself.


Goal-setting Help
You may  have  heard of the popular Web 2.0 application, 43 Things.2 This  site presents a great example of goal-setting at work—try listing your  goals on 43
Things, or simply use a text  file or whiteboard, and  see how  you go!

Now,  when we think of milestones, we normally recall a large web project we’ve been  involved in. Think of a milestone as a landmark towards your  longer-term goals.

A typical milestone is to realize a situation where you’re earning more  than your current salary within a year  of going solo.  There are some  smaller milestones you can  place along  the way to see how  you’re shaping up.

The first milestone would be having the ability to pay yourself enough to survive on. Let’s say that’s about half of what you earn  today. Set a milestone based upon how  long you believe it should take to reach this  point—it may be a month, or per­ haps three months, depending on your  situation.

Now,  let’s consider your  return on investment, which is initially to reclaim all of those start-up costs  involved in your  transition to freelance life. These vary,  of course, from person to person, but you should have  an idea  of how  long this  would take.

The third milestone is that  of bringing home the same  salary as you currently earn. Will  this  take six months, or nine months, or even  longer?

Write  down your  milestones and  refer to them over the coming months—you’ll be surprised how quickly you reach them, exceed them, and find yourself setting more goals for future success!

Planning the Start-up Shopping List

An important element of this big planning phase you’ll need to do before (or while!) you’re making your  move  to freelance is to start  preparing yourself for some  of the expenses you’ll be faced  with over the first few months.

Now,  I’d like  to say there won’t be any costs,  but that’s simply not true. However,
I can say that  shopping around for the best deals, looking for opportunities to swap services with suppliers, and  staggering your  expenses will  certainly alleviate the sting  of spending money when all you want to do at this  stage is earn  a little.

There are immediate costs,  depending on your  current situation, and  then there are costs  that  you can delay for a while. The best method of allowing for these costs  is to create a list,  prioritize what you need in which order (based on your  current



situation), and  then expect the higher end  of the price range.  That  way, when those costs  work  out to be cheaper than anticipated, it’s a bonus for your  bottom line.

“Must have” costs  include:

■   business card  printing
■   domain name registration
■   web site  hosting
■   telephone costs
■   hardware
■   software licensing
■   legal or licensing costs

“Should have” costs  include:

■   insurance for office contents
■   income insurance or business continuity insurance (if you’re able to be covered)
■   office equipment (desk,  chair, light,  filing  cabinets, printer, and  so on)

Ideally, you would cover  these costs  at the same  time  as the must-haves, but the reality is most  people won’t be able to take such a budget hit in their first month of freelancing, so they  can  be slightly delayed.


Thrifty Bargain Hunting!

Don’t forget how  much cheaper it is to seek out second-hand office furniture and equipment—you can find  bargains through the likes  of eBay, your  local  trading post,  or used furniture stores. You can set yourself up with perfectly functional trappings at a fraction of the cost of all-new, shiny furniture.


“Nice  to have” costs  include items such as:

■   new  hardware
■   dedicated servers
■   magazine subscriptions
■   industry association memberships


These would be great if you have  the capital, but they  can  easily be delayed if cir­
cumstances dictate.

Through good planning and  careful attention to your  cash  flow,  these costs  won’t have  as much impact as they  may  seem  to have  now. We’ll go through finances in more  detail in the next  chapter.


Leasing versus Buying

When it comes to any high-investment equipment you might need, leasing is a well-known method of improving your  cash  flow by paying a far smaller amount per month over the life of the lease.
Although the end result is that you pay more for the equipment than if you bought it outright, the benefits of having more cash on hand can be an excellent comprom­ ise. You’ll often  be surprised at the small difference in final  figures, and  realize the benefit of being  able to hand the equipment back or upgrade it at the end  of the lease  term.

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Deciding How Far to Jump

Now that you’ve made the decision to become a freelancer, we’ve reached the point of short-, medium-, and  long-term preparation. If you’re anything like  me, you’ll want to jump in running as fast as you can.  However, it’s been  proven time  and again  that  to ensure the best chance of success, you should expend plenty of effort in planning and  preparation. This  raises the question of which work  mode to begin your  freelance life with: full-time or part-time.

If you’re a student nearing the end  of your  studies, you’ve got a distinct time  to work  towards. (That  said,  I recommend that  unless you have  run  a business previ­ ously, don’t go freelance straight after graduating—spend some time in employment in your  chosen field  first,  to get those skills polished.) This  also applies if your current work  is coming to a close—you may  be on a fixed-term contract, or the company you’ve been  working for is winding up.  However, for many people, the entry to freelancing is a case of juggling full-time employment with preparations to exit  the rat race.

There are advantages and disadvantages to both situations, and you’ll need to weigh these up carefully. Let’s take a moment to look at some  of them.

Freelancing on the Side

There’s a lot to be said  for freelancing “on the side,” at least  in the beginning:

■   This  is a great way to test  the waters without making that  big jump.

■   You can spend as much after-hours time as you need on planning your business.

■   You can save just-in-case money for as long as it takes for you to feel comfortable before  venturing into  the unknown.

■   You’re able to be choosier with the work  you take on, as your  salary is still coming in to help with costs.

■   If you don’t have  any good recent work  to show, part-time freelancing allows you to build a great portfolio before  you move  to full-time.

■   The clients you groom  now  are likely to be with you once  you make  that  leap, helping with immediate cash  flow.

■   It allows you to take your  time  to fit out the home office,  without blowing your starting budget.

■   Freelancing part-time after hours, as well  as holding down a full-time position, gives you the authentic taste  of a busy  week  as a freelancer. This  can  help you determine your  ability to cope  with that  amount of work  at any given  time.

There are a few disadvantages to this  practice, though:

■   Depending on your employment contract, you may be restricted from doing work that  directly competes with services offered by your  employer. It’s best to ap­ proach your  boss to discuss this.

■   Most clients will  want to contact you during their workday hours, which tend to be when you’re busy  at your  full-time gig.

■   You lose out on the all-important downtime hours of evenings and  weekends.
If you attract lots of work,  you may  end  up exhausting yourself trying to work two jobs.

■   You’ll be cautious of growing too fast, given  you have  restricted hours in which to work.  It can become tricky trying to keep  everyone happy, and  you may have to turn down new  work  in order not to fail existing clients.

Freelancing Full-time

There are some  compelling advantages to jumping in with both  feet:

■   You’ll have  the freedom to set up your  freelance life, instead of juggling it with a full-time job.

■   Full-time start-up mode means that you have plenty of time in which to network, make  important contacts, and  meet  prospects.

■   There are no issues with your  employer being  aggrieved about you working freelance on the side,  and  you’ll have  no hesitation in taking on as many new clients and  projects as you can  handle.

There are, however, some  disadvantages to full-time freelancing straight away:

■   Nothing feeds  self-doubt more  than work  failing to come  in during those first few weeks.

■   The cash  drain while you rush around making contacts and  courting business can  really hurt your  back pocket.

■   The all-important planning tends to be the first casualty when those projects come  in—understandably, you’ll be more  interested in taking an opportunity to earn some much-needed money than mapping out your legal business structure.

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