My first of year of freelancing could have made my career as a solopreneur. Instead, I squandered a golden opportunity that's cost me dearly in the years since. Here's what I did, and how you can avoid making the same mistake.
Wide Eyes, No Vision
Freelancing came too easy to me. Weeks before declaring my intent to go solo, a former client approached me asking if I could do some work for him on the side. I'd earn some income while positioning myself for more freelance work, creating just the cushion I'd need to land softly in a gig where I'd be 100% responsible for my earnings.
Having that cornerstone client gave me confidence and comfort.
A second client showed up soon after, a holdover from my wife's days as a freelancer. Less than three months into freelancing I was making more than I had while employed ... except I wasn't.
In my enthusiasm to be independent, I got stuck on the number that counts least when you're a solopreneur: sales.
Gross revenue is a fiction for a business owner. Only after subtracting crucial expenses such as utilities (e.g., telephone, internet, rent) and benefits (e.g., healthcare) and setting aside half for taxes do you get close to your take-home total. And that's assuming you don't also set aside some portion of earnings as savings for emergencies or retirement.
As you might guess from the headline, I did exactly none of these things in my early days as a business owner.
Instead, thrilled by my earnings, I spent. And spent, and spent and spent, taking on unnecessary levels of debt in the process. The ensuing interest has taken a bite of my earnings every year since.
What can you do to avoid getting yourself stuck in the position I found myself in early on in my freelance career? Here are three strategies I wish I'd adopted from the start.
1. Track hours over projects
Having a good project management tool can help to keep you on task. Tracking hours helps you go further and better understand whether you're spending time on the right projects. The idea is simple: use a timer to track every burst of activity on every project on which you spend time during the day. Be as accurate as you can, and you don't have spend money for a timer. Entering "start stopwatch" in the Google search box brings up a free timer you can use as often as you'd like. Write down the results of all your activity—or keep it in a spreadsheet—and then check to see how much you're making, per hour, for the work you're doing. Spending hours on the projects you can complete most efficiently, with the highest rate of return, will help you reduce overhead and grow profits over time.
2. Develop a savings plan
A savings plan is crucial if your aim is to build a sustainable freelance business. You're operating with a variable income, after all, and your monthly earnings are likely to dip below the minimum needed to pay the bills. Savings will help you to cover the inevitable shortfall while instilling a discipline that will serve you well in other areas of your life. Every dollar saved and invested can grow to fund other needs, from a child's education to a dream vacation to retirement. But don't get too aggressive too quickly. Build your savings up to at least three months' worth and as much as six months' worth of minimum savings before investing in other areas.
3. Set limits
If you don't know how much you earn, from whom, and what effort is required to earn it—from all your major clients—you can find yourself working lots of overtime just to play catch-up. Do this for long enough and you'll start to think your work hours begin just after the coffee is brewed and end just before your head hits the pillow. Freelancing encourages this type of limitless work. Setting limits on your available hours (within reason) can help to increase your sense of urgency, boost productivity, and still allow for the time off you'll need to do creative work worth paying for.
And you'll stay sane. For a vocation that only the craziest among us would choose, that's a win which can be elusive. Trust me, I've been there.