Are You A Broke And Busy Creative Freelancer? Read This Now
It’s one thing being busy, but what if you’re still broke? Plenty of creative freelancers are, we tell you why and how you can fix it.
Some will be wondering how it’s possible to be busy, working long days, weekends, taking no vacations, and still be broke. When I speak with other freelance friends I ask them two questions when enquiring about their business; are you busy? The answer is thankfully often yes. Then I ask them a second question, are you money busy? It’s entirely possible to be working all the hours you have and still not be making any money, some call it being a busy fool. How does this happen? There are two reasons, not working out your profitability, and second, not making an adjustment to manage your customer flow and income.
Profit
The ‘real’ defnition of profit is the money that’s left over when all the bills are paid, if you are self employed that’s your take home pay. I’ve seen too many people blow thousands on unnecessary expenses for their business while their families are barely scraping by. That’s insanity!
The best piece of money advice I was given about running a business was to start with how much money I needed for my family to live on and then work backwards from that. A financial plan for your business based upon your own personal wealth focuses the mind. Don’t run a business hoping to make enough to survive, plan your finances based on one to thrive on.
I’d like to suggest you sit down and do these sums. These are examples based on living in the UK, depending on where you live the numbers could be better or worse.
First write down how much you want to earn a year.
Next you need to add 30% to that number to cover tax.
If you live in a country where medical cover isn’t free then you need to add a percentage for that.
Let’s do some simple maths. Let’s imagine the first number is £50,000, plus the tax pot, that’s £15,000. If you need to cover medical then let’s call that another £5,000. We now have a total of £70,000.
So your business needs to generate at least £70,000 in PROFITS not turnover to cover your personal expenses.
It is at this point you can figure out how much the business needs to turnover. In the case above, if you assume you take 4 weeks vacation, then you have 48 weeks to make at least £70,000. With rounding up, your business needs to turnover £6000 per month, or £1500 a week. If you charge £500 a day then you need to work at least 3 days per week, every week to make that.
So far we’ve not taken a single expense into account.
Let’s assume banking, accountants and general costs like phones etc. are £10,000 a year. Now you need to generate an additional £700 a month to cover that.
You decide you want a new Mac Pro, a few mics, a new interface and some plugins. It’s around £25,000. Now you need to make nearly £9000 a month to still take home what you need.
BUT what if all that new gear doesn’t add any more income to the company? What if you could do the same work without it?
You may be concerned that there is work you may miss by not having certain things, for example; a studio to record drums, or a certain tool. But what if you only use these a couple of times a year, that makes them a costly expense. It would be better to hire the studio to record the drums, even better you get to choose which one. Or to hire the tool you need for rare jobs - that’s how builders and other trades do it and it’s smart. They only hire a tool when they need it, in many cases this is costed into the job.
Look around your business and make a mental note of all the equipment you have that isn’t used 80 and 90% of the time. Some of that equipment could have cost thousands of pounds and that could have been either a couple of months home mortgage or two weeks you didn’t have to work. Don’t you want to have that kind of freedom?
You may not have the latest computer, the coolest car or an office in the best part of town, but your family will be taken care of and you’ll not need to worry about your personal finances. I can’t underline how important all this stuff is. I’ve seen too many business go bust and far too many families facing crippling debt because a business owner didn’t do their sums.
Sit down, do the maths and make sure you are making enough profit to fund the lifestyle you have.
Still Too Busy?
But what if you’ve done the sums and still find yourself too busy and possibly broke?
The first thing to remember is that you may have set your prices for your services a few years ago. You may have set them pre-pandemic, pre-cost of living crisis, pre-kids, pre-staff, pre-new studio. We often do this, remember your business income needs to be connected to your personal income. I remember looking at my finances and wondering why I was always working and not making what I needed. As I explored the cost of my services I realised my day rate had been set in 2011, it was now 2018! It’s easy to do, I lost two years of my life in the pandemic alone - time flies and suddenly you realise half a decade has past, but you are still charging the same rates.
I recall sitting down with my late father and telling him how busy and broke I was. “I have too many customers Dad, but I’m still not making enough money.” I’ll never forget his answer; “Put your prices up!”
How could I have missed such a mind blowingly simple solution to two problems?
Putting up your prices has two effects. The first one, is that you make more money, or the same amount of money for less effort. The second, it may mean you lose some customers. Is that good news? Sometimes it is, especially if those customers aren’t making you enough money.
A word of warning. As professionals we normally have relationships with our clients, at least we should have. So make sure you communicate that you are putting your rates up. One person put their rates up to me, significantly, and didn’t give me any notice at all, in fact it was mid-project - I felt strong armed and it left a nasty taste. When I spoke to them about it they told me they had been advised to put their prices up, so they just went ahead and did it. There was no conversation, no notice period, nothing - it made me feel like ‘take it or leave it.’
When I did put my rates up, I contacted each one of my customers and explained that I needed to do it, and that I hadn’t done so in over 5 years. They all understood and in most cases all of them stayed with me.
Let’s just add numbers to this narrative, as an illustration.
If you currently charge £300 a day then that means you make £1500 a week.
If you increase that to £400 a day then that means you make £2000 a week, or you make more than you used to make £1500 a week, in four days, £1600.
When I increased my rates they went from £350 to £500 per day, which means I either make more money or work less hard. Yes I might lose some clients (it’s less than you think by the way) but I don’t need as many to achieve the same income.
Summary
If you are working every hour you have and still are not making enough money, then sit down, do the maths and see if you’re charging enough. When I did, I realised I wasn’t, I was being a busy fool!
Don’t confuse turnover with income, many of us do and then wonder why we end up broke, tired and wondering why we do this.