Flying by the seat of your pants when it comes to your business finances? This year, protect yourself from getting burned by clients, vow to charge what your skills are worth and find ways to cut business expenses so you can keep your budget in line.
Always get written agreements before you start a project
It doesn’t matter if you’re doing freelance work for a Fortune 500 company or tackling a job for your custom-cabinet-making neighbor—you need a written agreement before you start any job. The terms you set will vary from client to client and even project to project, but always include the following details:
- Scope of work
- Payment terms, including when payment is due and late fees
Be assertive yet flexible. If you’re working with a new client, it’s smart to require a percentage of the payment up front; if you’ve decided to take on a task for a long-term client who regularly pays late (but always eventually pays), consider adding a late fee to encourage prompt compensation. But leave some room for negotiation. If a company has a policy of paying the remaining balance 90 days after completion, but you prefer a net-30 payment schedule, negotiate for a net-45 payment. If a client baulks at the addition of a late fee, offer a very small percentage off of the bill if the client decides to pay early to sweeten the deal.
Don’t sell yourself short
When you first start out, it’s easy to try to get experience and expand your list of clients by offering lower rates than your peers. But selling yourself short isn’t sustainable in the long run. Quality clients are more than happy to pay for quality work, and those are the type of people you want showing up in your inbox with regular projects.
The method for setting rates, and the ultimate number you come up with, is incredibly personal. But the following formula is a good starting point:
- Determine how much you want to make yearly
- Figure out your business, tax and health care expenses
- Add those two numbers together to find what you need to bring in every year
Now, figure out your hourly rate:
- Decide how many hours you want to work
- Add in time off for sick days and vacation time to find your total yearly hours
- Divide your total annual income by the total number of hours
There’s your hourly rate. Whether you opt to charge clients hourly or decide to use this number to develop a flat rate for each project based on the estimated time it will take to complete, you now have a solid starting point.
Take advantage of free tools and apps
New business tools and apps pop up frequently, but if you focus on using the latest and greatest you can easily rack up several hundred dollars per month in unnecessary bills. There are several amazing low-cost apps out there, but the following three are completely free.
Wave offers its software at no charge on their website, and has free invoicing and receipt-tracking apps available in the Google Play and Apple stores. With this platform, you can track sales and expenses, scan receipts, generate financial reports, manage your invoices, track customer payments and more. Although you do have to pay to accept credit card payments and bank transfers, those are based on a percentage of the transaction, not charged as a separate monthly fee.
TopTracker is a 100% free desktop app that tracks your hours to streamline invoicing, improve productivity and make managing projects a breeze. This efficient timekeeping tool gives you complete control over what you’re tracking and what information you’re giving to clients, if any. You can attach webcam shots and screenshots of work, and also blur out any pictures as desired to avoid giving clients the option to micromanage your day.
Customer relationship management
HubSpot’s customer relationship management suite is one of the few free CRM products that actually gives you functional, usable tools that make a difference in how you interact with your prospects and customers. The interface is intuitive and easy to use, offering the ability to move each contact through different lifecycle stages while tracking all of your communications. The HubSpot Sales feature in the suite is an unbelievable bargain, allowing you to track when and how often someone opens your emails. If you stick to the single-use version, it’s completely free as well.
Be strict with your budget, and track those expenses
Now that you have some protection from getting taken advantage of by clients, a strategic and reasonable rate strategy in place and plenty of zero-cost tools at your disposal, make sure that you’re keeping your business’s finances healthy. Create a solid, realistic business budget and be meticulous about recording every single expense (this is where that Wave app comes in handy). Tracking expenses is not only essential at tax time—you can write off things like website hosting fees, the antivirus program running on your computer and any software subscription costs you have—it also helps you fine-tune your budget so it’s even more realistic.
If you spend just a few hours over the next couple of days to implement all of these practices, your business, and your money, will be more secure and primed for growth over the next 12 months.