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.
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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