Susie Jackson

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How to Set a Budget for Your Freelance Business

A step-by-step process to create a freelance budget you’ll actually stick to

Many freelancers spend a lot of money on business expenses without first considering whether we can afford to. Part of the problem is not having a freelance budget in place to guide spending decisions. I’m sure we’ve all been guilty of spending without thinking at some point, especially when it comes to professional development (just one more webinar, I promise — this one looks so useful…).

Overcoming this issue of overspending is all about having a strategy for how much you can afford to spend on different types of expenses. A little planning upfront can help ensure you have enough money to cover everything you need without eating too much into your earnings.

Get in the right mindset

Some people say they don’t like budgeting because it restricts them or they’re never able to stick to the budget they set.

If you go into it thinking you won’t be able to stick to it, then you probably won’t. You’re effectively giving yourself permission to fail. There’s a quote I love by Henry Ford: “Whether you think you can or think you can’t, you’re right”.

Think of it like this: having a budget for your freelance business can actually help you to make spending decisions. When your freelance budget has an allocation for software or marketing, for example, you can decide to spend money on those things without any guilt.

And remember, if you don’t rein in your spending, it’s less money for you to take home each month.

The key is to set a freelance budget that doesn’t feel restrictive. The best way to do that? Base it on real numbers from your business.

Data is your best friend

Start by going through your bank statements, Excel spreadsheets, or accounting software (whatever you use to manage your business finances) for the last year. Note down all the expenses you come across.

First, exclude (cross out) amounts you’ve subcontracted to colleagues or subscriptions that you’ve since cancelled.

Next, it’s important to distinguish between fixed expenses and variable expenses. Fixed expenses are those that will remain the same regardless of the amount of paid work you undertake (i.e. insurance), whereas variable expenses are those that are incurred based on the paid projects you take on (i.e. travel or project-specific training).

Variable expenses should be passed on to the client directly in the rate you charge them, so we’ll discount them here (cross them off the list). Fixed expenses are what we’re interested in for the purposes of setting a budget.

Classify your fixed expenses as one of the following:

  • Absolutely essential to your business

    You’re not going to do anything with these for now. Just leave them on the list.

  • Necessary but perhaps you don’t need to spend so much

    If you think there might be a cheaper alternative, do some research. Could you find a cheaper competitor offering a similar service or product? What are you getting for the extra money, and is it worth it to you?

  • Unnecessary but nice to have

    Look at how much of what you spent was actually valuable. Cross out any entries that did not represent a good return on investment for you.

  • Unnecessary and you didn’t get value from it

    If they were one-time transactions, cross them off the list. If they’re subscriptions, go ahead and cancel them straightaway, then cross them off the list.

Take a long, hard look at the numbers

Once you’ve narrowed down your list to just those things that you really need or find valuable, take a look at the total amount they come to. Compare that figure to the total amount you actually earned over the same 12 months. What percentage of your income do your expenses represent? Are you happy with that percentage? If not, you have two options:

  1. Find a way to earn more;

  2. Go back to the previous stage and cut more expenses from the list.

Be careful with option two, though. Cutting too much may not be realistic, meaning you end up finding your budget too restrictive and abandoning it altogether.

Categorise for clarity

Take the remaining expenses on your list and sort them into categories. These might include, but are not limited to:

  • advertising

  • bank/transaction fees

  • equipment

  • gifts for clients

  • insurance

  • IT/software

  • marketing

  • memberships

  • networking

  • office furniture/supplies

  • training/professional development

  • travel

For ease, round the total amount for each category up to a whole number. Now add a category for unexpected expenses. Imagine if your computer were to break or some other emergency situation were to occur. How much would you need to have put aside to cover any additional costs?

The icky maths bit

Now take the total amount you’ll need to set aside for your (planned and emergency) expenses over the course of the year and divide it by 12. This tells you how much you’ll have to put aside each month towards your freelance budget.

Of course, you might have months when your expenses seem to cluster together and other months without any. But the aim is to put the same amount aside every month so that you have a constant pot of money for expenses when they arise.

Once you’re clear on how much you need to earn to cover your expenses, you can use that as a starting point for setting your rates. Other things to take into account include your personal expenses (if you don’t already have a personal budget, repeat this process for your non-business expenses), tax and other mandatory contributions you’ll have to pay, and payments you want to make into a pension.


Think you’ll struggle to stay disciplined in setting money aside for expenses and not going over-budget?

Try having separate accounts within your business banking for different pots of money. Many banks will let you open savings accounts for free.

Whenever a payment comes into your main account, divide it up into percentages for different purposes and transfer those funds into the appropriate accounts.

You could have an account with your allocation for expenses, an account with money set aside for tax and other contributions, an account for your own salary, and even an account for profit (from which you pay yourself a bonus periodically).

When the time comes to make a spending decision, you just check your expenses account to see whether you can afford what you want to buy.


Regular check-ins

There’s no point having a freelance budget if you don’t check on your business spending on a regular basis. Decide how frequently you’re going to do this (once per month is a good starting point) and add it to your calendar as a non-negotiable. When the time comes, look at:

  • your earnings since the last check-in

  • how much you’ve spent on business expenses

  • the amount left in the budget for each category

  • what expenses you know you’ve got coming up before your next check-in

Are you on track, or has your spending got a bit out of hand this month? The more you pay attention to your finances, the easier it becomes to regulate your spending.

Update your freelance budget annually

You should go through this full budget-setting process (at least) once per year. Things change when you’re a freelancer, so it’s important to ensure you’re setting enough money aside to cover what you need for your business.

If you’ve got money left over in the budget when you do your yearly review, you have a few options to choose from or combine:

  • allocate that leftover money directly to your emergency fund for the coming year;

  • put the money towards a big-ticket item you might have had your eye on for your freelance business but didn’t feel you had the budget for;

  • pay yourself an end-of-year bonus;

  • reduce your freelance budget (and therefore your required monthly allocation) for the year ahead.

If you’re ready to create an annual budget for your business, I’m sharing my Business Budgeting Spreadsheet with you free of charge.

It comes complete with written and video instructions to guide you through the process from beginning to end, and even allows you to stay on top of your finances by tracking your expenses on a monthly basis.



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