Why Every Freelance Writer Needs a Budget
Posted by Maya Smart on Fri, Apr 23, 2010 @ 10:00 AM
by Maya Payne Smart
Many freelance writers work without a formal budget. They run extremely lean operations, spending money on little more than office supplies, phone calls, and Internet access and considering the leftover money as profit. Keeping overhead low is their lone strategy for staying in the black, and they see no need to complicate a checkbook-and-calculator operation with spreadsheets and income and expense projections. But by operating without a budget, they're missing an important opportunity to evaluate their performance, examine their priorities, and identify new opportunities.
Freelance writer Julie Sturgeon says that having a strong grasp of her historical income motivates her to pursue premium clients and keep her spending in check. "I know what my expenses are on a monthly basis, and I've been in this long enough to build a pattern of extra expenses," she explains.
For instance, Sturgeon doles out $700 for tax preparation every February, $250 for business insurance in September, and $1,000 for a conference each June or July. "This builds a framework of what my cash flow needs to look like. Roughly, I need $4,000 a month for utilities, supplies, services, insurance, 401k contributions, advertising, payroll (it's just me, but still, I have to pay my salary!) and taxes, plus those extra expenses. Everything above that I label ‘profit,' that extra income to pay for the wants in my life, not the needs."
Keeping tabs on expenditures — such as her own research, writing and editing labor, plus support services like transcription and scheduling — helped her set her ideal hourly rate ($75). Now she categorizes her clients as "premium," "steady" or "gap filler" based on where they fall with respect to that rate. She always says "yes" when premium clients call, even if it means all-nighters and weekend work, she accepts work from steady clients if it doesn't cut into her personal time, and she turns to gap fillers when the pipeline runs thin.
"Budgets strike most of us as limiting, the killjoy that keeps us from doing what we want to do," she says. "In my experience, it's been just the opposite. I've said 'yes' to some fun projects that fell into the gap-filler category because I knew I could afford it. And I've survived a few nightmare projects because every time I sat down at my desk, the [premium client] folders reminded me that this would take care of July's budget needs, making the other folders my profit money that month."
But the budget only works if you do. Sturgeon revisits her financial action plan monthly to see where she stands. "As I pay my bills, I run reports with Quicken to make sure my monthly estimates are on track, and not trending upward," she says. "Utility costs rise, the price of goods goes up, and you need to stay on top of that."
Budgets also put your priorities on display. For instance, comparing your expenditure on marketing vs. research or on outsourcing vs. your own salary gives an indication of the kind of business you're building. Heavy reliance on independent contractors suggests that you're building a virtual team vs. in-house capacity.
In my case, I'm spending more on technology, graphic design and freelancers than I'm paying myself during the first half of the year because my business is in growth mode. It requires more sales, marketing and accounting support than it did when I was just selling articles to a dozen magazines and websites. Now that I'm marketing and selling information directly to hundreds of individual consumers, I need a larger team to meet the demand. I'm betting that investing in people now will help me earn more down the line.
A budget's real strength is underscoring opportunities for improvement. If your selling, general and administrative costs are high relative to your sales, you may need to control costs better. If your sales are continually exceeding expectations, maybe it's time to fund a new project, up your 401k contributions or give yourself a raise. The bottom line is: Following the money is the price of admission for business owners.
Do you have a formal budget for your business? What have you learned about your work or yourself as a result?