Guides — A new freelancer’s guide to feeling confident about money
Making the leap to freelance can be a big and exciting decision. With the newly found freedom, however, comes financial responsibility, and with that – admin! But if that all sounds nerve-wracking, the best way to stay on top of things is to calculate what you need to get by, understand rates and get a system in place. Here, CEO Albert Azis-Clauson, and CCO Jack Williams of freelance platform UnderPinned, share some brilliant tips and pointers to keep your money matters in check, as you enter freelance life.
Finding freelance success when there is uncertainty in the industry can be difficult, but the best chances come with the best plans. Whether you’re flush with cash or struggling to make ends meet, having a system for planning your income as a freelancer is essential.
It can be easy to focus on the work itself and leave your finances to one side – particularly when you know it’s a mess! But good money can be made once you understand your own money needs, and work based on them. We’re here to help you put a system in place to make handling your finances easier. Here are my top tips to help you feel more secure with your incomings and outgoings.
1. Work out your ‘bottom line’
Your ‘bottom line’ is the minimum amount you need to earn in order to get by, which includes your bills and all your daily necessities. This isn’t very difficult to work out: If you know you need to earn £1,000 to cover all your minimum costs, then that is your target. At the beginning of each month, set yourself a target based on this calculation.
Next, you need to break that target down into chunks of work. For example, if you offer £100 illustrations, then you need to sell 10 of them. Or you could think about package deals for £250, and sell four of those in a month. The numbers might vary massively, but by starting with what you need, you can build a plan to help you achieve it.
2. Price your work based on what you need
Someone said to me recently; “If you’re charging what you think you can get, you’re almost definitely undercharging.” I was struck by how true this is. When times are tough (or you’re just getting started) there is a real temptation to charge whatever you think you can get. But doing this means you’ll drive your prices down, undervalue your work, waste valuable time on ‘free’ or cheap work, and leave yourself feeling bitter – all while earning less than you need to be for the month.
It can feel daunting setting prices, and it can be even more daunting to reject low-paying opportunities, because sometimes it feels better than nothing. However, if you’re worried about not making ends meet, then undercharging will often undermine this. At the very least, you need to charge what you need to earn in order to survive.
3. Make a list of potential clients
Once you know what you need and how to package it, make a hit-list of potential clients who could pay for it. You can find and search for contacts on LinkedIn, Instagram, Google, and using your own network. You’d be surprised at how easy it is to make a list of people who might be interested in your services and can help you reach your target.
Once you have a list, don’t be afraid to reach out to potential clients who aren’t advertising for work, as long as you’re friendly – see here for more advice on this. You may also be surprised how many people in your network already might be relevant.
4. Get set up for paying taxes
If you previously worked in-house as an employee, be prepared to lose the convenience of PAYE and start taking responsibility for your own taxes! As soon as you earn more than £6,475 as a self-employed person, you will have to file a tax return in January for the previous year of work.
Set up as a sole trader or limited company
You will also have to establish if you’re a sole trader or a limited company, qualify and separate your expenses, and then pay through the HMRC system. Yeah, it sounds terrible, but actually, once you have a system for it, it becomes a lot less of a chore.
Start your return in April
Also, rather than waiting till January to create a last-minute self-assessment (which is missing half your expenses and therefore leads to a way bigger bill!), do it on April 6. You’ll save money, time, and a lot of stress. You’ll also be able to clearly track your bill throughout the year so that you can save way more effectively.
A note on VAT
VAT, or Value-Added Tax, is a tax charged on the majority of goods and services in the UK. It was famously reduced recently for the Eat Out to Help Out Scheme. So, why would a freelancer need it? Well, if you have a turnover over a certain amount (usually £85,000 per year) and most of your clients are big corporations with VAT, most accountants recommend you include a VAT charge on your work in order to reclaim VAT on business expenses and so your clients can claim back on the expense of working with you.
A common misconception of VAT is that you need to keep your receipts. The truth is, you only need to keep receipts to track VAT, so if you aren’t VAT registered, then you don’t have to keep your receipts. Apps like these also give you the option to attach a receipt, so if you are VAT registered it’s just a few extra seconds per payment.
5. Track your spending and earning
The easiest way to stress yourself out as a freelancer is to get to January and rush your tax return, only to realise that you’ve got to start doing some serious saving to pay that bill. Tracking your expenses is the best way to save money on your tax return.
Pick an app or system to follow
There are plenty of apps that let you easily tag income and expenses as you go, like banking apps Monzo or Starling, or apps which use Open Banking (a system that means your information is shareable with authorised providers of budgeting apps), credit score checkers, other banks, or accounting apps like Finmo or Coconut, (as long as you agree to share your information, of course). Pick one and stick with it for the financial year.
6. Set up an invoicing system
Keeping track of the money going into your bank is important, but it’s also important to keep track of where this money is coming from and what it is for. Decide on an invoicing system that works for you, and make sure all your invoices are in one place.
An ideal invoicing system will:
• Remember your details for easy input
• Track when payment has been completed
• Be easily branded with your own logo
• Remind you if the invoice has not been paid within a certain date
• Be tied to a contract for auto completion of payment and client details
• Be easily organised so you can find recall a certain invoice at a moments notice
This will let you easily flick through old income months later if there’s ever any confusion. It will also help you see what works and what doesn’t.
7. Use this checklist to protect yourself
It’s one thing winning some work, but making sure you actually get paid is another consideration. This is why you need to make sure that your income is secured against all kinds of potential problems. One of the most common issues with payment is not being clear with the client from the get-go. So be sure to communicate clearly about payment security and requests. Being professional will also help you charge more.
For this, follow these rules on how to protect yourself:
1. Use a contract. Make one digitally to make sure everyone is clear on the terms!
2. Take a deposit (if it’s relevant to your industry).
3. Have a cancellation fee (or kill fee) stated in your contract.
4. If the project scope changes, (for example, if the project requires more work or deliverables), make a new contract!
5. Make sure your invoice is clear and outlines late payment fees as per government guidelines.
6. Have a follow-up plan upon lapse of payment which can include involving the Small Business Commissioner.
7. Don’t ever take a bad client personally. Just make your needs to that client clear by having a contract, updating consistently, and then pushing for payment within 30 days.
8. Check in with yourself regularly
Don’t leave it until the end of the month to realise you don’t have enough money. Make sure you check in with yourself every few days to assess:
• How many conversations you’re having
• How many new people you’ve reached out to
• How much progress you’ve made
And if you feel your answers to the above just aren’t working, adjust your plan to try something new.
9. Look for support if you need it
If nothing is working, have a fall-back plan. The most important piece of advice I can give to anyone getting started who is struggling is to actively seek support. Don’t think you’re alone in this!
Spending a few hours researching what is available is a lot more powerful than you might think, and you can see a great list here to get you started. From government support, to mentoring groups, to grants and newsletters, there is so much support available, as well as opportunities to access monetary support – and taking the time to look could change your career forever.