CEO. CFO. Employee.
When you’re self-employed, you’re all of the above.
Keeping your ship afloat requires a lot of work. If you’re bootstrapping it, then you’re doing most of that work yourself. In addition to making your clients happy, you’re also in charge of tracking your time, income, and expenses.
Sound boring? It used to sound boring to me, too. Then, I actually started doing it. Now, the bookkeeping is one aspect of the freelance life I love the best. (Well, aside from working in my own space.) I love updating my spreadsheets. The numbers tell the ongoing story of my business, which was only a dream a year ago. They also give me unique insights that I use to gauge my business’s health and make better decisions.
But, to glean all those goodies, you first have to do your homework. Let’s start with the more obvious metric you should be measuring: Your money.
Tracking your finances
Financial tracking is more than simply recording what you spend and what you earn. A good tracking system will align with your business’s financial goals, and it will keep you constantly appraised on how close you are to achieving them.
Why do you need financial goals? Because your enterprise is a rudderless boat without them. Goals give you a direction. Even if you don’t reach them, they’re still a powerful tool for keeping you moving forward. I didn’t come close to reaching my income goals in my first six months of freelancing. Still, the fact that I had goals reinforced that I was serious about being successful. That helped me pull through the lean times.
Now that I’ve gotten off the ground, my spreadsheets are an indispensable tool. For example, take the spreadsheet I use to track my earnings from VIPKID. Each month has a separate worksheet. This is where I track the classes I’ve taught and my earnings for each one.
At the top of each sheet, I track my gross and net earnings. (I hide the gross earning figure from myself, actually. This way, I’m only thinking about my net income.) A simple formula allows me to calculate my monthly deductions: 20 percent for taxes and 8 percent for future business investments. These include purchasing new equipment and attending professional development events.
Another cell shows me the difference between my current gross income and my income goal for that month. I’ve enabled conditional formatting, so the cell automatically turns green when I meet or exceed my goal. A quick glance at the cell tells me if I’ve met my monthly goal. Here’s what last month’s sheet looks like:
It’s a lot of information to track. But each piece of data tells me something about how I’m doing and where I’m headed. If my bookings decrease, I can notice it immediately and take action.
A key truth I’ve learned about freelancing: You have to convince everyone that you’re going to be a smashing success, even if you don’t feel like one just yet. And, the first person you have to convince is yourself. Committing to financial goals and tracking your progress toward them is one way of showing the world — and yourself — that you mean business.
Tracking your time
An advantage of being a freelancer: You work from the comfort of your own home.
A disadvantage of being a freelancer: You work from the comfort of your own home.
We’ve all been there. Doing that load of laundry seems like so much more fun than researching the article that’s due tomorrow. Resist the temptation. Wasted time is the kiss of death for your freelance business.
Tracking your time is a powerful way to kick the procrastination habit. Think of it as clocking in. You, as the boss, expect you, the employee, to show up to work. Tracking your time is one way to keep yourself accountable.
When aligned with your per-project earnings, time tracking is also a great way to see exactly how much your time is worth. Again, I return to my trusty spreadsheet for an example.
Consider this: In February, I accepted some content marketing work that paid $28 per piece. I accepted the gig thinking that the blog posts would be fairly quick to put together. I soon learned this wasn’t the case. The topics were dense and unfamiliar to me, so it took me about 3 hours to write each post.
Little of my work was paid by the hour, yet I knew the exact hourly rate for each of my projects. My time tracking spreadsheet automatically divided the time spent on a project by the project’s payment amount. For most assignments, I was earning about $20 or more an hour. For these blog posts, I was only making about $6 an hour. Yikes.
After doing a few of these assignments, I gracefully told the client (a content generation site) that I wasn’t the best fit for their needs.
Tracking my time and comparing it to my income not only alerted me that I was working well below my target income. It also gave me the backbone to turn the work down. This is important. When you’re a freelancer, there’s a huge temptation to take any work that pays money. But this, I quickly learned, is the path to ruin. You have to have the courage to walk away from any opportunity that doesn’t pay you what your worth.
The bottom line
If you’re a freelancer, you’re automatically a businessperson. You need to track the same metrics that a company would use to measure its success.
There are probably a host of other metrics I could — and should — be tracking, but tracking my time and finances were the ones that really got me off the ground.
For me, self-employment is all about self-empowerment. Gathering and analyzing data puts me in the driver’s seat. I have all the crucial information I need to make decisions about my business. That’s true freedom, folks, and it’s definitely worth the work.
What tools and processes do you use to track your finances and time? What other metrics do you track? Leave your thoughts in the comments.
Photo credit: Gratisography