There are a lot of numbers about your freelance business you can probably tell me right now. You can definitely tell me your hourly rate. You can also probably tell me a rate somewhat below that hourly rate that’s the lowest you can afford to work for and still pay your bills. But you may not be able to tell me much about the numbers that businesses run on. And make no mistake, freelancing is the same exact thing as running a business — knowing these numbers make it a lot easier to grow your freelance business.
In particular, you need to have a few numbers easily to hand so that you can make decisions about how hard you need to be working on bringing in new clients and whether there’s some fat you could trim. Having the right variables on hand means that you can recognize problems or opportunities as they appear.
The 5 Numbers You Need
- Your accounts receivable coming due: One of the most important numbers, at least in a service-based business, is the amount of money you expect to come in during the next month. At the very least, you need to know if you’ve got enough coming in to cover your bills.
- Your accounts receivable past due: There will always be clients who fail to get payments to you on time. But the actual amount is where problems can creep in. If this number gets too high, you need to sit down and start making some noise with the people who owe you money.
- Your accounts payable for the next month: Just as you need to know how much you’ve got coming in, you also need to be aware of how much will be going out. Your accounts payable is probably a lot lower than a company that needs to maintain inventory, but you need to keep it in balance with everything else.
- Your average monthly expenses: While you might have a good idea of the expenses immediately coming up by taking a look at your accounts payable, you need to know what that number is supposed to be every month, so that you can tell if you’re having a lot of unexpected expenses.
- Your yearly income to date: With your yearly income to date close to hand, you can calculate a lot of other numbers. While it’s not the nicest example to think about, you can estimate how much you’ll owe in taxes and ensure you’re saving enough.
Getting Your Numbers in Order
Any good bookkeeping software will be able to spit out these numbers in regular reports, with the possible exception of average monthly expenses. I use Outright, a web-based app for keeping my books. I’ve made the habit of going in and generating reports that include these numbers on a monthly basis, so that I can compare the numbers from month to month.
Knowing your numbers off the top of your head does mean that you need to have your books up to date.
Even just spot-checking these numbers can give you a much better grasp on how your freelance business is doing financially.
Knowing your numbers off the top of your head does mean that you need to have your books up to date. Every freelancer I’ve known, myself included, has struggled to get around to putting numbers into a spreadsheet or software package. The only part of bookkeeping most of us are great at is invoicing — and that’s only because we won’t get paid otherwise.
If bookkeeping is something you struggle with, look for automated solutions. You aren’t going to wake up one morning excited about going through all of your receipts. But you may find an app that can pull down all of your bank and PayPal transactions so that you just need to confirm that the numbers are correct. That’s one of the reasons I use Outright and, to ensure that all my numbers make it into the software, I insist on using the same credit card for all business expenses.
Using Your Numbers Effectively
You may find that just checking your numbers on a regular basis can be an effective incentive to improve them. After all, if you have to keep looking at numbers, you want them to look as good as possible.
But there are steps you can take beyond just using your numbers to motivate you to chase more clients:
- You can identify potential problems by looking for big changes from one month to the next.
- You can reduce the impact of times when you won’t be able to work, provided you know what you’ll need to come up with to cover sick leave or vacation.
- You can set better goals and determine the strategies that you’ll need to make a specific amount more each month.
You can go a lot further with your freelancing if you keep track of your business variables.