Freelance Writing: Budgeting the Easy Way
Posted by Maya Smart on Fri, May 07, 2010 @ 10:00 AM
Every freelance writer needs a plan for saving, spending and cash management, but too few take the time to craft a formal budget. Sometimes it's because they don't recognize a budget's power to express priorities, offer a reality check or guide business decisions. In other instances, they know its worth but are so busy trying to make ends meet that they never get around to it.
That's too bad. A little spending discipline can go a long way toward improving the profits and enjoyment they get from writing. Don't miss your chance to take your business to a new level! Here's an easy, step-by-step guide to crafting a budget, plus a template to help you get started.
1. Gather information.
This process is all about operating in reality and seeing exactly how much it costs to conduct business. The first step is to collect all of your financial documents for the past 12 months. Bank, credit card and PayPal statements will provide insight into exactly how much you've spent and received, while invoices and bills will give you an indication of future costs and expenses. I recommend gathering a year's worth of information so that you can see seasonal variations in spending and receipts.
If you've been at this for a while and have already synthesized this raw information into income statements (also known as a profit and loss statements), refer to that instead of the individual monthly statements.
If you're new to freelancing, put your reporting skills to work by conducting online price research and interviewing other freelancers about their start-up costs, from office supplies and business cards to websites and conference attendance. The more realistic your budget is, the better off you'll be.
2. Project sales.
Now that you have your financial data handy, add up your sales. This may be as simple as totaling all of the deposits and credits on your last 12 bank statements or logging into your online banking system and pulling a deposit/credit report. Be careful to observe the different sources of money, such as sales, interest income and transfers from savings.
When budgeting, it's important to start with sales projections, rather than cost estimates, because that shows you the constraints you must work within. A common mistake freelancers make is saying, "I need this amount in order to market myself. I need to do a website, buy business cards, and do X, Y and Z." That may true, but you can do those at different levels depending upon your financial reality. Don't psyche yourself out of going into business by exaggerating its costs. In other words, you could do a $10,000 website, a $1,000 website, or a $100 website, depending on what your cash flow dictates. You don't want to set yourself up for failure by overspending or relying too heavily on credit card or other debt.
But your work isn't over when you've tallied previous revenue. You can't just assume that you'll make the same amount of money from those clients going forward. You have to temper your estimates with your understanding of new circumstances. Have any of those clients gone out of business? Have you noticed that their page counts are shrinking because they've lost advertisers? Has the editor that you worked with left the business (or gone to another publication)? Are there any other indications that you may not make as much money from a particular client in the future as you did in the past?
On the flipside, you want to look for opportunities. Do you have cause to believe you'll make more from certain clients for some reason? Again, because budgets are reality-driven documents, you want to weigh more heavily things that are certain or close to it. If you've signed a contract that says you're going to be getting $2,000 a month from a custom publication for writing a feature an issue and you don't have plans to breach it, then go ahead and factor that into your anticipated income.
Don't base income projections on wishful thinking. Force yourself to justify every number with reference to past experience or pertinent research. Your budget needs to be conservative in order to help you weather the inevitable storms of the freelance life. Sometimes, reality will tell you that your income isn't where it needs to be, and that can motivate you to do some additional marketing or offer new services.
3. Estimate expenses.
After you've projected your monthly revenue, it's time to tally monthly expenditures, which include the direct costs of producing your goods and services, which vary given production levels, and the fixed and variable overhead expenses that go along with conducting business. Beyond the basics of office supplies and Internet access, there's a whole range of other expenditures — taxes, health insurance, emergency fund — that you should budget for as a responsible business owner who aims to be doing this long-term.
It's the variable expenditures that you look to first when it's time to adjust your spending to come in below your sales. For example, if I anticipate a dip in revenue in June because I'm firing a difficult client, then I need to adjust variable expenses, such as office supplies or marketing outreach, that month to stay on track. Fixed expenses like the rent for my office can't be adjusted as easily because I've signed a 12-month lease that doesn't end until October.
After you've estimated all of the different revenue sources and listed the various business expenses you're likely to incur, you'll want to plug these figures into an Excel spreadsheet or a Google Documents budget template. Here's a sample.