Money isn’t everything when it comes to running a business. But it’s pretty important.
I like numbers so I was never too worried about the financial side, but I didn’t realise quite what it involved. And I know a lot of people who hate that side of things.
I’m conscious a lot of my posts aren’t very practical, so I thought I’d share my experience of the financial bits and bobs when setting up and running my one-person business.
Do your homework
I remember the week after I made the decision to go freelance, we went away for a few days. My wife had a crime novel with her, like normal people. I got stuck into this snappy title on business finance (free on KindleUnlimited).
It wasn’t a thriller, but it was one of the best things I did for my business.
I got my head around what it takes to set up and run a business. I never wanted to understand it all in huge detail. But it helped me to answer some of my bigger questions.
- Limited company or sole trader
- How to actually set it all up
- What to consider in your pricing
- HMRC and tax returns
- All the other fun stuff
Do you need an accountant?
It was never a question for me. I decided to set up as a Limited Company and knew I needed an accountant. Plus, I was happy to take the hit to remove that worry and focus on actually running my business.
I suppose you’ve got to weigh up cost and time. In the time you spend on your accounts, could someone do that for less money than you could earn in the same time?
Equally, there’s often a stress factor. What would stress you out more, the thought of dealing with the returns on your own or knowing you’ve got to cover the costs involved in paying someone else?
There’s also a side point here for us freelancers. When I was looking for an accountant, I didn’t go with the cheapest one.
I went with someone who I thought got what I needed in this first year. A small firm that works with small businesses.
It felt like a good fit. He was responsive, open and honest. He explained why they weren’t the cheapest because he knew there’d be things I’d need support with. And because he acknowledged that, I now don’t feel silly when I ask him what are probably silly questions. Like, is the Being Freelance NEOTW mug a justifiable business expense?
I love accounting software
I like data so anything that puts my money and business performance into graphs and charts was always going to be a winner. But aside from that, it’s really handy for other stuff.
I use Freeagent and not only is it synced up to my bank accounts, it’s linked to my HMRC account too. It tells me when my tax returns are due and as long as I keep it updated it’ll generate the return as well. Invoicing and bookkeeping are a doddle. It’s so good.
I believe there are free options out there too, such as Wave. And there’s nothing wrong with a spreadsheet either. Whatever works for you.
If you haven’t tried software though, I’d recommend it. Often accountants will throw them in with their fee (like mine) and the last time I checked you could get Freeagent with a Natwest business account.
A business credit card is handy for cashflow
I set up my business on a bit of a whim. I didn’t really have any savings so I soon realised early cashflow would be my biggest challenge.
Getting a business credit card helped with that. I didn’t go mad with it, but it meant I could pay for some of my start up costs and early contractor bills within their payment terms, before some of my own invoices were paid.
You can also get decent cashback so I try to put any big costs on my credit card. Every little helps.
Check out start up grants
My local council offer a small match funded grant for the costs of starting up a business. There’s a good chance yours does too.
I needed to scrape together some money of my own to access it (see previous point about a credit card). It’s really helped me invest in some software and training to deliver the kind of service I set out to offer.
I’d say it’s worth looking at what your own council offers. Some are pretty flexible around how they define a start up too, so if you’ve set up a business fairly recently you might still be eligible. Or if you’re a sole trader looking to set up as a limited company, you might be eligible. And there are usually other bigger grants available if you have plans for growth or scaling up.
The value of a business plan is in the planning, not the plan
Part of the grant application involved working with a business consultant to prepare a business plan. I found the process really helpful.
I’ll be honest, I’ve not looked at the plan since the application was approved.
But it really made me think about some of the practical aspects of running a business. Looking back, my initial cashflow projections were laughable. I’d assumed you do the work, send the invoice and are instantly paid. Wouldn’t that be great!
It also made me believe that my business might actually have some legs. I suppose it’s like one of those GCSE maths tests where you have to show your workings out.
What to charge?
Charge what you want. Seriously.
I’ve read a lot about what to charge. Should I have set rates? Am I too cheap? Am I too expensive? Should I increase my rates? Some people are quite outspoken about it.
It’s your business. You can do what you want.
For what it’s worth, a fixed rate doesn’t work for me. In the main I deliver project work and I’m quite happy to be inconsistent. Fair, but inconsistent.
A fixed rate might work if all jobs and circumstances are the same. But they’re not.
If I have to go through a big tender to be in with a chance of getting the work, my rate will be higher to account for that time.
If someone comes to me at the last minute, my rate will be higher to compensate for losing that weekend off I was looking forward to.
If I really want to work with someone or think it’s something that would be good for my portfolio, I might lower my rate to get it over the line.
So yeah, I say charge what you feel comfortable with.
I’m certainly not the best person to advise on this. I’ve delivered the odd bit of work without a contract. There’s usually a reason for this, I go into it knowing the risks and still put things in place to protect myself.
I would heartily recommend checking out what Dave Smyth shares on payment terms, contracts and so much more. He knows his stuff.
Keep an eye out for Work Notes which he’s due to launch in the New Year.
If you missed yesterday’s blog, I reflected on 4 things I’d tell myself about going freelance.
Tomorrow’s offering will be the things I couldn’t do without, and the things I probably could.