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Financial and Legal Advice for Freelancers
2021.10.25 11:53:51
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Financial and Legal Advice for Freelancers by Ben Taylor

 

1. Track your numbers

It’s easy to get caught up in your day to day work as a freelancer. However, it is really important to maintain an overall view of how well you’re performing.

 

Even a basic Excel spreadsheet of what you’ve billed each month to each client will help you to spot seasonal trends and notice if certain customer’s workloads are falling. (If you need Excel, you can find Office 365 here).

You wouldn’t expect a company not to track its income and profit – and it’s no different if your business is just you and a few clients.

 

2. Take deposits!

Over time, you gain a sense of how much you can trust people. There are plenty of clients who I will happily allow to build up four-figure invoices before I worry about them paying me.

 

But the same doesn’t apply to everyone. Always make sure you protect yourself and your valuable time. If this means negotiating that a client pays some money up-front, please be sure to do it.

 

Professional clients rarely have a problem with deposits and appreciate that you need to share the risk. If clients are unwilling to pay a deposit, that may act as enough of a warning sign to walk away.

 

3. Always keep in mind the total cost of delivering your services

Whether you charge per project, by the hour, or by the day, the headline rate you charge never ends up in your pocket in full.

 

You need to think about how much tax you pay, how much time you lose to related admin tasks, and how many other costs you have to think about – which could include anything from insurance cover to software tools.

Impressive hourly rates often go down by 50% or more by the time you’ve allowed for all of those things – so make sure you price accordingly. (There’s a useful article on how to price your freelance services here).

 

4. Don’t make assumptions about your ongoing income

Of all the tips for freelancers I include here, this one’s rather personal to me.

 

I’m an optimist most of the time, and a trap I’ve fallen into again and again is to look at the income I’ve averaged over the past few months, times it by 12, and assume that’s what I’m likely to earn in a year.

 

Freelancing just doesn’t work like that. Hopefully you’ll end up earning more than that projection, but there’s always a chance a stream of work will dry up and you’ll earn less. By all means be positive, but be realistic too.

 

5. Keep in regular contact with your accountant

Accountants aren’t psychic. And in many small business situations, you only have meaningful contact with your accountant once each year when they do your annual accounts.

 

While I don’t suggest you become a pest to your accountant, it does make sense to always keep them abreast of any changes to your business or new things you’re doing.

 

There may be initiatives you could sign up to, more favourable ways to handle your tax situation, or upcoming changes that could cost you dearly if you’re unaware of them. As such, it makes sense to check in with your accountant more regularly than once each year.

 

6. Don’t over discount

It took me years of freelancing before I stopped offering discounts to guarantee business. It makes even less sense to do it just so the clients “like you.” I’ve been guilty of that one too!

Offering discounts for big batches of work, guaranteed long-term commitments, or even up-front or early payment can be worthwhile things to do.

 

But offering discounts as a matter of course or because you’re desperate to get work in isn’t so wise. It’s usually better to hold out for the clients who are willing to pay what you’re worth.

 

7. Don’t overcharge

On the flipside of the same coin is avoiding any temptation to overcharge your clients. Business culture is cut-throat and modern life is expensive, but one guaranteed way to turn customers off is to charge excessively based on what you think you can get away with.

 

8. Be strict with your credit control

Late payments have been described as an “epidemic” for small businesses. Clients paying late are a huge problem, and cashflow struggles make life far harder than it needs to be for entrepreneurs.

 

You probably won’t manage to side-step late payment all together, but you can at least be consistently strict with it. Make sure your clients know you’re not a pushover. Chase payments the second they become overdue, ideally by phone, which is far harder to ignore than email.

 

And if clients push it too far, don’t hesitate to send out late payment letters or perhaps even think about withdrawing your services.

 

Yes, sometimes putting up with late payment is part and parcel of dealing with bigger companies, but on other occasions it’s simply not worth sticking with clients who are unreliable.

 

9. Have an emergency fund – or borrowing facility

I could hardly produce a tips for freelancers article without saying something about a financial emergency fund. However, I like to be more realistic than those people who say you need six months of income tucked away in the bank somewhere.

 

Of course, if you’re fortunate enough to be in that position then all power to you. But back in the real world, 70% of freelancers have no long term savings.

 

So I’m not going to say you need many months’ worth of savings. If that was a prerequisite, many people wouldn’t be able to start freelancing at all. However, it IS good to know how you’ll survive if a client doesn’t pay on time, or if your computer dies and you need to rush out and buy one to keep working.

 

If this can mean savings, that’s great. If not, it may mean you need an overdraft facility. Don’t worry about the need for one – if this kind of finance is good enough for governments and corporates, it’s good enough for freelancers! Just don’t go breaching any limits, or it all gets very messy, very fast.

 

10. Stay politically aware

Even if you run a mile from all things political, you really needs to stay abreast of what’s going on in the the corridors of power if you’re a freelancer.

 

National budgets are particularly important. Changes to taxation and new government initiatives can have a major impact on how much money actually ends up in your pocket.

You can rarely do anything to fight the system, but you can at least be as forewarned as possible when changes are coming.

 

11. Don’t take shortcuts with compliance

One of the downsides of being a freelancer is that tasks periodically crop up that take a bunch of time but earn you absolutely zero money.

 

Tasks like this that I particularly detest include dealing with annual insurance renewals, producing VAT returns, and setting up new computers. (I did IT support for a living for far too long to enjoy THAT any more!)

One time drain that you never get paid for is compliance – and few freelance businesses are so small that compliance isn’t an issue. Own a website? You need to think about GDPR and privacy policies. Make cakes for a living? You’ll need food hygiene certificates.

 

It’s not fun, but you still have to do it.

 

12. Make sure you’re insured

I can tell you one thing that’s a LOT less fun that doing the work to make sure your freelance business complies with the law: Getting sued.

 

Things CAN go wrong. Furthermore, plenty of insurances are legally mandatory for all kinds of freelance businesses. Insurance isn’t always expensive, and Hiscox is worth a look for small businesses and freelancers.

We also have a detailed article on insurance here, covering everything from health to professional liability.

 

13. Regularly review the services and subscriptions you pay for

I use all kinds of services and subscriptions to run my various business ventures, and there are many that I’d never want to be without.

 

However, there’s something that happens to me annoyingly often: I get an email saying something like “we’ve successfully processed your renewal payment for xxxx.” And it’s frequently for something I signed up for, stopped using, and completely forgot about.

 

As such, it makes sense to periodically check all of your standing orders, App Store subscriptions and PayPal recurring payments.

 

The screenshot below is just a small fraction of my payments on just one of my PayPal accounts. Even though I regularly go through these, they quickly build back up again. It doesn’t help that it always seems far more difficult than necessary to find these in your PayPal account!

 

If your freelance business saves $100, that’s just as good as earning another $100 – it’s arguably easier – so keep an eye on those recurring payments!

 

14. Stay in control of your sundry costs

Sometimes the work you’re doing for clients costs your more time and money than it first appears.

 

A classic example of this is when I first started doing freelance IT consultancy. While my hourly rate (£75/$100) sounded quite impressive, it was a lot less impressive when it was taking me an hour of travel across London to get to the client…and an hour back….and the price of the train fare…and the overpriced sandwich I had no option but to grab…….and the network cable I gave the client out of my bag.

 

I imagine you get the picture. While you likely can’t charge for every little bit of travel time and every tiny expense you occur, it’s important to draw a line somewhere sensible. You lose enough from your bottom line in taxation – so don’t allow other sundry costs to eat into it even further.

 

Source: https://www.homeworkingclub.com/tips-for-freelancers

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