A Field Guide to Freelancer Finances

16 Jun 2016
  • posted by Veerle Pieters

When I started freelancing back in the nineties there was no Internet to search for valuable resources. You either had someone that took the same jump into the deep end and advices you with his/her experience or you had to figure things out along the way. That’s essentially how I did it. A risky path with mistakes along the way. How times have changed… I finally had time to read a little book that I received from FreeAgent some time ago.

Practical tips from designers, developers

That little book is called ‘A Field Guide to Freelancer Finances’ and is published by FreeAgent, an accountancy software provider from the UK. This little book has tips, reports, real life stories and more, so let’s have have a look at what you’ll find inside.

Setting off

The book starts with the most difficult part of freelancing, pricing your work. It’s a subject where everybody struggles I think because it’s never easy.

Using the break-even point to price

This section offers practical advice to help you in finding your approach to pricing. The first part is figuring out how much costs you will have. Anna Debenham offers some really good tips here.

Beyond break-even: planning your price

This part deals with knowing what to charge, one of the hardest things to figure out. Cole Henry breaks things down based on his own experiences when he started freelancing in 2011. There’s also an indication that includes examples of what other freelancers charge in UK. This differs of course from country to country because some are more expensive to live in than others.

How I take the uncertainty out of fixed-price projects

I mostly worked with fixed pricing as well and it’s true I have been burned by undercharging because of all sorts of variables and unknowns. Daniel Howells offers some really valuable info here in how you can break things down. Especially the info about giving out detailed estimates.

My biggest pricing mistake

These are quotes from designers and developers with their biggest mistakes.

My best pricing tip

Same as above but in this instance it’s about pricing tips.

Building shelter

In this chapter you’ll learn from other freelancers about their techniques for getting paid and also practical tips for handling worst-case scenarios. It’s indeed not so easy as money is rolling in and sit back and relax. One of the things that many people hate is the uncertainty of being a freelancer. You never know what next month will bring. Will work come in? Will all invoices be paid on time etc.

Creating a stormproof invoicing process

A practicle hand on approach explained by Anna Debenham. It deals with payment terms, like due in 30 days and what other essential information that needs to be on the invoice. Some parts are very UK oriented but overall it arms you with ‘need-to-know’ knowledge.

My invoicing terms

This little section contains a few tips from freelancers. I have my own rules. For example I never work for the government because they are lousy payers with terms ranging from 60 to 90 days and more. Most of the time they also require Spec work before they decide if they will hire you. I’ve seen requests for proposals that went as far as demanding revision work on the free design. Imagine that! All my payment terms are 50% before the project commences and the other 50% upon completion. Smaller jobs for longtime clients are payable within 30 days.

How do other freelancers invoice?

Small piece of information on fellow freelancers’ invoicing terms, whether or not they’re using contracts and what unit of time they charge for.

Credit control for freelancers

As a freelancer, your time is your credit. Each time you complete work for a client without being paid upfront, you are extending credit to that client. This section has some tips on how to minimise the risks and a few links to do a basic credit check on a potential client. Not sure if those will work outside the UK though. One of the better tips in here is to invoice regularly and not between work gaps, or weeks after the work has been done. I’ve fallen in this trap too and now try to stick to a regular invoicing schedule so cash keeps coming in.

Late payments in the web industry

Small survey piece of what’s getting paid looks like for any UK web designer and developer.

How I chase late payments

Absolute the worst part of being a freelancer. Even when you have a reliable invoicing process you still will get the occasional client who pays late, or worse -refuses to pay. There are a few quotes in here with some tips and a few email templates on how to formulate it.

Keeping warm

This chapter of the book focuses on planning, cash flow, and helping you identify what really matters in your business finances.

Overcoming a fear of finances

This part starts with an article by Paul Boag. I know Paul from my work for his Digital Adaptation book published by Smashing Magazine. Paul always explains things with clarity and that’s the case here too. He tells his personal story of leaving the agency he had been running with 2 co-founders and why it took so long before he decided to strike out on his own. Paul explains the five numbers that helped him to stay in control of his business finances. Those numbers are:

  • Retained profit
  • Aged Debtors report
  • Pipeline and forecast
  • Cash flow
  • Projected tax bill

He also mentions some of the tools he’s using that are helpful in running a business.

Accounting reports and what they will tell you

Accounting reports help you find out how your business is doing financially. In this little section there’s an introduction to the reports that are likely useful as a freelancer.

How to plan your cash flow for holidays and long breaks

A section by Paddy Donnelly where he talks about his three-month trip around South America. He explains how he planned everything for such a long break so he would be able to enjoy the amazing experience. Paddy guides you through the various steps you should consider if you are planning a long break. It’s an interesting read.

Top five finance mistakes I see from freelancers.

Sarah Solo highlights five things in this section. Each one is explained in more detail. They are:

  • Not keeping on top of bookkeeping records
  • Not having a personal tax plan in place
  • Not making the distinction between your personal account and business account
  • Mixing up out-of-pocket expenses and costs
  • Not keeping a check on dividend withdrawals

Sarah ends with a top tip for freelancers. My personal tip would be to get an accountant to help you because it is impossible to grasp all the need-to-know info on tax and other government related financials. When you keep your bookkeeping things organised and well prepared the accountant will need less time and will be cheaper. Sounds logical but I’ve heard stories about dropping off a shoebox filled with paper and an accountant that has to match everything. A recipe for a huge bill. Better to be methodological as it will not only save money but time as well.

Surviving the elements

The last big chapter has guides to help you spot the taxes you know about before they blow in, as well as tips and techniques to help you make the most -or at least- of your tax payments.

Taxes and charges for freelancers

This chapter outlines the taxes and other charges that freelance web designers and developers should look out for.

Freelancers and the VAT Flat Rate Scheme

This section is only interesting if you are living in the UK.

The tax that caught me out

We all pay taxes and it’s often hard to predict what is coming. That’s why it’s so interesting to have an accountant to help you with this. He or she calculates exactly what you will owe and he or she can advice on what’s the best approach to pay as little as possible. They also know exactly how everything works internationally. That can become complicated believe me, especially with VAT. This section contains a few cautionary tales from freelancers who have been caught out in the past.

Costs, expenses, and claiming tax relief

When you’re talking about “expenses”, “costs” and “claiming” them, sometimes things can get confusing. This is a quick guide that explain the differences. Here it is important to know that rules for this differ from country to country.

A-Z of claiming expenses

An interesting breakdown of the common business costs and expenses. However be aware that this is also very UK oriented. There are many similarities as far as I noticed but the differences will be in the amount or precentage you can deduct. For example a car is not 100% deductible in Belgium.

How to calculate tax relief for home working expenses

The last section deals with working from home and discusses the most popular methods of dividing things up as recommended by accountants. This section is also very UK oriented but you get an idea of how it works. You just have to remember that these differ from country to country.

Available as a free e-book

This finance guide for designers and developers is available for free as an e-book if you supply your email address. I personally think it is worth it as it contains valuable information.

I’m not a FreeAgent user as I’m currently using Billings Pro to do all my time-tracking and invoicing. I just set up a 30 day demo but it didn’t started very well with the difference between Belgium and the UK. We use €20.100,70 to differentiate the numbers and they use €20,100.70 and there’s no option under the ‘settings’ and ‘country options’ to change this. Something very basic that should be right from the beginning when you select your country imho.

Another concern is the invoice templates. I’m very picky on how things look and I don’t see something in there that would be suitable and match what I’m using now. On the back of invoices I also have the terms of sale.

There aren’t many options to design your own except by using CSS. For me that’s a deal breaker as I want to use my own design and I don’t want to spend hours trying to re-create it as a CSS design with unpredictable outcome. Even if I would, the PDF renderer doesn’t support CSS3 properties. I’m also using my own custom font ‘Brandon Grotesque’ and that font isn’t on their servers when you want to generate a PDF. Here’s the guide for creating customs invoices. But hey that’s just me and that doesn’t mean you shouldn’t check it out as many of its features look very useful and handy to help run your freelance business. There’s a 30-day trial without the need for a credit card.

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