Is Your Idea a Business or a Dead End?

Ha! So you think you have an idea that you can parlay into a good business, whether it’s a cutting edge technology or a tried and true formula, like a car wash.

Regardless of the industry that you’d like to enter, there is a more or less standard checklist of factors you should consider before investing your money, time and hopes. Before fantasies of entrepreneurship carry you away, do yourself a favor and answer these questions first. You’ll know how to proceed from here, whether it means that you meet with the Branch Manager at your bank to learn about business financing options, or you take a trip back to the drawing board.

1. Who are the target customers and what is the size of the market?

Define your market demographic. Who will pay to buy what you plan to sell? Is this a product or service that is growing in popularity, or maintaining its broad appeal, or is there a shift in customer preference on the horizon as those who would be your customers learn about a new choice that may persuade them to switch to The Next Big Thing?

In addition to demand for your intended product or service, are there enough customers in your location to support the business? By the way, how are your competitors doing? Do they appear to be thriving?

2. What is the problem that target customers want to solve or avoid when they do business with companies like your proposed venture?

Understand the back story of why customers would buy the solutions that you plan to sell. What is it that they’d like to achieve or avoid? One calls a window washer when the windows are dirty because clean windows demonstrate the owner’s desire to protect and enhance the value of his/her home.

3. How are target customers meeting their need today?

What businesses would be your primary three or four competitors? What factors persuade their customers to do business with them—a convenient location, exceptional product variety, discount pricing, the right relationships?

What advantage can you offer that customers might be drawn to—more convenient hours of operation, for example? Can you provide a product or service that meets a need that is valued but not currently addressed?

4. What is your solution (product or service)?

Describe your proposed product or service. You should be able to easily and clearly describe (and sell) your product. Develop an off-the-cuff sales pitch, record your delivery of it, then listen and evaluate. Would you buy this product or service?

5. How will you reach your customers?

If your business is B2C and requires a physical location, can you afford to set up shop in an area that potential customers will visit? If your business idea is B2B, do you have a plan to access customers and referrals? If your plan is for e-commerce, how will potential customers learn about your website?

6. Do you have the credibility and credentials to do business in this industry?

Especially if you plan to enter the B2B sector, be certain that your education and experience will command respect and trust. If obtaining certain licensing, certifications, or an educational degree is vital (even if not required), investigate the process, plus the time and money involved.

7. Do you have the funding to launch the business?

Research the expected business start-up costs and think objectively about how long it might take you to start making sales you can live on.

Pay your bills and get your credit score. Build up your savings. Whether you expect to self-finance, ask to borrow from friends, family, or your retirement account or apply for outside funding, you will need a lump sum of cash on hand when you launch a business.

Thanks for reading,

Photograph: Financial District, Boston, MA. Kim Clark, September 23, 2018


Budget Plan: The Unexpected Windfall

Now check this out—what if Santa Claus comes to town and leaves a nice financial windfall under your Christmas tree? What a sweet surprise! You took a chance and competed for a very lucrative assignment and by some miracle, you won.  Along with making sure that you’ll deliver, if not surpass, your new client’s expectations, you should as well think about how you can most effectively utilize the proceeds from the billable hours.

Most often, we approach the subject of financial contingency planning from the negative side and prepare ourselves for unexpected expenses that could ruin a budget or seriously deplete our savings.  But why not manifest prosperity and think about what you can do if your ship comes in? Here’s a sampling of where extra money can be applied:

Erase debt.  Without a doubt, pay down and pay off all outstanding debts.  Interest rates are at loan sharking level and eliminating the burden will increase your credit score and decrease your stress level.  If you are not in debt, then pay ahead monthly installment obligations such as health and auto insurance policies or renewable business licenses and certifications.  Payment of these types of accounts payable is recorded as an asset on your Balance Sheet.

Professional development.  Are there continuing education workshops and courses or certifications that if acquired stand to enhance your stature and brand? Is there a conference that not only provides good business information, but also excellent networking opportunities? Explore how you might be able to raise the bar on your qualifications and make yourself a more employable Freelance consultant.

Business investment.  Maybe your billable hours are sufficiently generous to allow you to buy a new car? Ask your accountant or business attorney if the proposed new automobile can be designated as a company vehicle and permit you to write off some portion of the expenses plus depreciation, so that you could sweeten the investment.  You might also consider computer or other technology upgrades, or office equipment such as a new desk or an ergonomically correct office chair.  Much smaller but still significant branding upgrades include personalized business note cards, holiday greeting cards, stationery and your invoice statement.

Retirement account.  Fund your retirement account to the maximum annual amount with pre-tax dollars.  If you have extra money, open a Roth IRA account in tandem with your primary retirement account and enhance your financial future with after-tax dollars. Verify first the financial guidelines required for simultaneously holding these two retirement funds.

General savings. You might also meet with a wealth manager, if you meet the investment minimum and can find someone who can be trusted.  Alternatively,  on your own you can research and invest a couple of thousand dollars in a mutual fund that is indexed to the stock market and watch it grow (and it will, despite some ups and downs along the way).

Splurge.  Oh, go ahead! When’s the last time you took a wonderful vacation? Freelancers work so hard and we worry so much about how we will be able to satisfy our clients, find new clients, win back lapsed clients, generate relevant content marketing, distinguish ourselves from our many competitors and on and on.  I don’t know about all of you, but I am so exhausted it’s absurd.  I’ve been able to take brief local vacations, but I dream of taking two weeks or even more in Marrakesh, Morocco. Or Bahia, Brazil. Or Shanghai. Or Rome. Or Tokyo. Or Buenos Aires. Mmmmm….!

Thanks for reading,


Understanding Break-Even Financial Analysis

Most business owners are familiar with the big three financial control documents: the Income (Profit & Loss) Statement; Cash-Flow Statement (or projection, when used for budget planning); and Balance Sheet. Those three statements are compiled monthly, quarterly and annually. They give useful insight into the fiscal health of the company. The smart business owner consults these statements each month, teases out the story that is revealed and makes decisions accordingly.

A fourth financial document, the Break-Even Analysis, provides forecasting information. The Break-Even is used when a new product or service will be introduced, or when a capital improvement or other upgrade is scheduled to be made.  The Break-Even indicates the amount of sales revenue the product or service must generate to cover the roll-out costs associated with its introduction or acquisition and therefore, positioned to become a decision that pays off.  A Break-Even is also generated when a new business venture is launched. The Break-Even allows the business leader to predict how long losses must be sustained and how to anticipate cash-flow comditions and management in response.

Break-Even is achieved when revenues = expenses; the business is neither making nor losing money. Business expenses are of two types, Fixed and Variable. Fixed Costs are the standard monthly operating costs and they are not impacted by sales revenue generated.  Office space rent, insurance, utilities and payroll are Fixed Costs.

Variable Costs are largely tied to sales: product acquisition or manufacturing costs, inventory purchases, the cost of materials used to manufacture the products sold and all aspects of marketing and selling costs.  As sales increase, Variable Costs increase proportionately, because more product must be purchased or manufactured to be available for sale.  Total Expenses = Fixed + Variable Costs, as recorded on the Income Statement.

When calculating expenses, it is standard to determine the relationship of Variable Costs to sales revenues.  The Variable Cost amount is divided by the number of product units sold,  yielding the Variable Cost per Unit.  In other words,  Variable Costs = units sold  X  variable cost per unit.  For the purpose of calculating Break-Even,  Total Expenses = Fixed Costs + Variable Costs (expressed as units sold  X  variable cost per unit). As always, sales revenues = unit price  X  number of units sold.

The Break-Even Point is reached when

Price  X  Units Sold = (Units  Sold  X  Variable Cost/Unit) + Fixed Costs

The difference between selling price per unit and the variable cost per unit sold reveals the amount that can be applied to Fixed Costs each time a unit is sold.  Think of it this way: if monthly Fixed Costs are $2000 and the average price of your product units sold is $2, with an average Variable Cost of $1 each,  when you sell a unit, you earn $1 to apply to Fixed Costs. With monthly Fixed Costs of $2000, Break-Even is reached when the business sells 2000 units per month.

Knowing how many units must be sold each month to achieve Break-Even is essential for effective financial management of the venture.  One can also calculate Break-Even in terms of dollars that must be generated each month.  In this example, Break-Even Revenue is achieved at $4000 in monthly sales, since the sales price is $2/unit and 2000 units must be sold each month to cover expenses.

A basic knowledge of the process of business financial calculations and the ability to interpret the data generated are must-have skills for all business owners and Freelance consultants. While it is true that one’s bookkeeper or accountant will perform the Break-Even on Quickbooks by plugging in numbers derived from the Income Statement,  it is always in your best interest to understand how the calculations are made and how to make sense of what the financial documents reveal.

When it is proposed that a new product or service might be sold, which might be the development of a new workshop to propose and teach or some other intangible service, a Break-Even Analysis will indicate how many units must be sold, billable hours generated, or classes must be taught before the production costs will be re-couped and the new offering will be positioned to generate ROI.

Thanks for reading,



It’s in the Bank

Are you happy with your bank? Do you consider what you pay in fees to be a good value for the services provided? Do you consider your bank to be a source of support for your business? If the answer to any of these question is “no” or “maybe”, read on.

The choice of a bank is a serious decision in our personal and business lives and size matters,  as regards the account,  business or personal,  and the bank as an entity. As with all planning,  the expected needs of the individual and/or the business must be considered when choices are made. Banks have become competitive and expensive over the past couple of decades and as a consumer and a businessperson, you owe it to yourself to get the most for your money and your needs met as you do.

As a private citizen,  you may want to buy or refinance a home,  make home upgrades, or finance your child’s education.  As a business owner or Freelance consultant,  you may have equipment or technology upgrades,  growth and expansion plans that will benefit from outside financing.  Whatever your financial plans,  a helpful banker will be an essential building block toward the realization of  your goals and obligations.

How should Freelancers and business owners choose a bank?  A good way to start is to identify two community banks,  two regional and two large national outfits and pay each a visit.  Walk in and ask to meet the business banker,  who is also usually the commercial loan officer.  If you need an appointment make one,  so that you will have time to talk.  Tell this individual about your business and your plans and perceived needs.  How can the bank augment and support your business?

If business credit is a priority, ask these two questions:

  1.  What is the amount of the credit line that the business banker can personally approve?
  2.  Does the bank offer SBA loans and is it a Preferred SBA Lender and able to approve and underwrite such loans independently.  How much SBA loan business is done and what percentage of applications are approved?

Below is a general guideline as to what type of bank is likely to be appropriate for your business venture.  Remember to ask about merchant credit card processing fees if you accept cards.

Community banks

  • Freelancers, small  and medium businesses
  • Fees can be on the high side
  • Technology can be slow or not comprehensive
  • Service is typically excellent. This is old-fashioned banking.  Customers are taken care of. The tellers and managers know you.
  • Loaning decisions are made locally. They know you and your business. They want to help.  Your character will count.

Regional banks

  • Small – medium size businesses that plan to grow
  • Fees are average
  • Technology will meet expectations, the basics will be available
  • Service is usually good, the regionals are capable of delivering personalized service
  • Loan decisions will be made with an eye to the local economy, along with what your financials indicate about your ability to repay

National banks

  • Medium-large business that do out-of-state and/or international business
  • Fees are usually the lowest available, the result of economies of scale
  • Technology will be the most cutting-edge available. Banking can be almost entirely done online.
  • Service is often impersonal because staff turn-over is often high. No one knows you for long. Decisions are not made locally at the branch level.
  • Loans are issued strictly by the numbers, the manager will not be able to give you the benefit of the doubt.

Thanks for reading,




Plans For Your Business

Whatever the health and condition of your Freelance business venture, you will at some point benefit from planning.  Business planning of any type provides a roadmap that will help you to successfully achieve your business goals.  Business planning can be instituted when sales are tanking and you need to find a way to improve billable hours.  Or you may have decided to aim for larger assignments  or roll out new services and need to figure out how to make it happen.

I’ve taught business plan writing for 7 or more years and I’ve also developed a one-day business plan writing workshop. As I see it,  the process of writing a business plan gives the writer (or the team) many opportunities to think things through and  get the magical thinking out of one’s head. The business plan shows us first,  if the dream is potentially viable and second,  how to make the dream a reality.

The plan you write will depend on what you set out to achieve.  If you’re launching a start-up that will involve significant outside investment,  then you’ll need a very detailed plan that focuses on financial projections;  marketing plans that delve into customer acquisition, the competitive landscape, the product or service launch, messaging,  sales distribution; and operational aspects such as manufacturing,  staffing and quality control.  Freelance consultants will mostly focus on marketing, in particular defining the target clients,  client acquisition; providing the right services; appropriate pricing; and the budget to pay for their marketing strategies.

Whether your plan will be used to launch a big venture and attract outside money,  or is a boutique style service provider, include the following elements in your plan.  Even if you’ll be writing what amounts to an extended marketing plan used for a one-person shop,  it will be a good exercise to include these elements, because you’ll be encouraged to think seriously and strategically about your mini-enterprise.


Present the business mission statement. Include as well the date when the business was formed; key management personnel; your unique credentials or experience that make you especially suited to start and successfully run the venture; the business legal structure (LLC, Sole Proprietor, or Corporation); the products and services; one or two key competitive advantages (maybe you have a patent?); sales projections; and the amount of capital needed (if you’re looking for investors).


It’s traditional to present a brief description of your industry and its outlook,  nationally and regionally. give the details of your products and services and competitive advantages. Identify whether your venture is B2B, B2C, or B2G. If you hold a patent,  detail the competitive advantages that it will convey. Have there been any technological advances that will help or hinder your business?  Divulge here.


The category is a big tent that encompasses sales, product or service distribution,  competitors, advertising,  social media, PR,  networking,  branding, customer acquisition and pricing. The plan written for a mall organization will essentially consist of an extended marketing plan, because for Freelance consultants,  success hinges on identifying and reaching clients who will pay as well as pricing the services advantageously.


Whether you’ll self-finance because you’re wealthy enough,  or the venture is small and  not especially demanding of capital investment,  you nevertheless need to know with a reasonable degree of certainty how much you’ll need to spend to carry out the plan ( that could be a new product, or the purchase of something big, or a marketing plan, for example).  If your strategy is to attract investors,  they’ll need to be convinced by your projected sales revenue figures,  because they’ll want to know when they’ll be paid back or know when to expect profits if they are made co-owners of the business.  A break-even analysis, projected income statement, projected cash-flow statement and projected balance sheet are required by those who will need significant money.


How will day-to-day business processes function?  Tell it here,  along with providing the organizational chart,  the business location,  the method of producing that which you sell (if you are,  say,  a Freelance book editor or  graphics specialist,  you produce the service yourself),  your sub-contractors (if you are a special events organizer,  who is your usual caterer, florist,  limo service, etc.?) and quality control methods.  This element is about logistics.

For more information on writing a business plan,  visit the Small Business Association website

Thanks for reading,












2Q Pep Talk and Organizing Primer

Hello there, Freelancer and welcome to second quarter 2015. As a precaution against slowly sliding off-course, let’s take a look at some Freelance consultant basics that will keep stress at bay and you in the mood to work hard and smart to achieve your goals of business success, as you define it. Free or low-cost technology can help.

Budget your income

Poor financial management = sleepless nights and stress.  Your paychecks are irregular and taxes are not withheld.  Check stubs and business expense receipts can be misplaced, making it difficult to track accounts receivable and payable.  How you keep track of your revenue/ income is your choice, but keep track of it you must,  along with deductible business expenses. An Excel spreadsheet is your level one financial management tool.  Whenever you receive a revenue check, get into the habit of recording the payer, amount and date.  Save the check stub as well and keep them all together in a place that you’ll remember. Record also your accounts payable business expenses and save the receipts alongside the revenue checks.

If you are in the mood to pay, Intuit has two choices for you.  QuickBooks is the gold standard of bookkeeping and basic financial management for business ventures large and small. QuickBooks will produce income statements and balance sheets monthly, quarterly and annually and make sure that you know where you stand financially.  For about $10/month,  through a basic QuickBooks app on your smart phone or tablet, you’ll be able to download transactions from your bank account and credit cards; separate your business and personal spending; track all of your IRS Schedule C Profit & Loss From a Business variable expenses; calculate and pay estimated quarterly taxes; do it all with the same security encryption as your bank.

Intuit’s Mint will pull together all of your financial transactions and arrange in colorful and easy-to-decipher graphics that depict your financial picture. Get started for free and add your accounts. Mint will analyze all of your financial transactions: checking and savings account activity, credit and debit card activity, investments like brokerage and retirement accounts, and IRA rollover offers and will make recommendations as to how you can pay less, save more and earn more.

Mint will essentially do your budgeting for you, by calculating your average spending by category so that you can create a budget based on an accurate assessment of your spending patterns.  This is the way to create and achieve your savings goals, whether for retirement, for a home, or vacation.

Manage your time

Recognize and respect priorities and refuse to allow the time-suckers to take over your life.  Time is totally money for Freelance consultants and we bill by the hour, or on a project basis. Do whatever you can to devise and approach your to-do list with good time management in mind. At the very least, keep a written calendar in which you can see a monthly view of your appointments (it is superior to a weekly view). Record your obligations and the due dates, so that deadlines will be met. On your smart phone, make use of the Notes app, so you can easily jot down important dates or deliverables.

Evernote is a very handy technology tool that works on your desktop or laptop, tablet or smart phone and costs between zero and $10/month. When you’re working on a project, your notes can even be transformed into a screen-friendly graphic lay-out that works for a client meeting. Access attachments, including PDFs, all your notes and images, too. The details of your project will be easily available and readily organized. You will look so professional and in-charge!

Thanks for reading,


***WARNING***WARNING***Take Action Now

Ernest Hemingway said it best when he warned of how financial troubles visit us: slowly at first and then all at once. There are usually warning signs,  but they are not always recognized and they may persist for months,  or even years. For example,  business owners can go into denial about regularly occurring mid-month cash-flow problems if at the end of the month the bottom line looks healthy. Working more hours can be seen as just a sign of the times and in many ways that is a valid assumption. After all,  someone has to manage the social media accounts and generate the content marketing.

Oftentimes, corrective action can be taken to divert the impending disaster and other times, the crash is fated. Still, forewarned is forearmed and taking steps to protect the business enterprise is always the right thing to do (as long as one does the right thing!). Presented here is a list of early warning signs that indicate all is not well in your business venture:

1   Flat or declining revenue

2.  Unreliable cash-flow: difficulty in covering payroll, accounts payable, or payment to sub-contractors or vendors

3.   Prices reduced to stimulate sales

4.   Critical business investments cannot be budgeted

5.   Repeat business is declining

6.   Leads are dwindling or the sales conversion rate is declining

7.   Referrals are declining

8.   Inability to keep pace with growth, operational systems are overwhelmed

9.   Inability to fulfill promised deliverables on time

10. Client complaints about the quality of products or services

11. Accounts receivable statements not issued as scheduled

12. Working many more hours just to “hold on”

So what can you do? First, be vigilant about detecting warning signs and pay attention to the client list, conversion rate of leads, referrals and the amount of repeat business. If those values begin to trend downward over the course of a year, that is serious. Do you have a new competitor? Might you need to upgrade customer service? Should you step up networking? Or do you need to update your marketing message and sales pitch to better reflect client priorities?

Declining revenue and cash-flow issues might be at least partially remedied by sending accounts receivable statements on time, or increasing the down-payment that clients are asked to pay when a contract for services is signed. Declining revenues also ask you to look at the products and services that you offer and how you package and present them. You may need to increase prices, if expenses are cutting too deeply into revenues.

If repeat business and/or referrals are noticeably weaker, networking to renew your relationships and meeting new prospects may do the trick. Figure out ways to stay in contact with former and current clients. If you haven’t been sending holiday cards in December,  make a note to look into the process by the end of October.  Send congratulatory emails if you hear of a client success story. Reinvigorated marketing and PR can also be a useful defense, including content marketing. It may be time to start a monthly newsletter, to remind your client and referral bases that you are relevant.

On the other hand, maybe you’re facing too much growth too fast and you lack the infrastructure to successfully manage your good luck. Get ready to spend money to hire the right help and make useful systems or technology upgrades ASAP and cure problems in service delivery immediately. You are only as good as your reputation and word of problems travels very fast.

Finally, console yourself with the knowledge that every business venture must eventually respond to change and that will mean doing things differently and taking on risk by plunging into the unknown. How we respond to change is a test of our mettle. Be brave and face it down by first conducting an analysis of your business environment, competitive landscape and client priorities and then developing strategies and action plans designed to save the day.

Thanks for reading,


Cash-Flow Woes and Antidotes

Lucky you.  Your sales pitch to prospects is working and clients are stacked up like planes landing at O’Hare.  Receivables are numerous and the balance sheet rocks.  So how can it be that you almost didn’t make payroll  (again)?  How can you come up short on cash,  with all the business you’ve created?

Like so many business owners,  especially those who are new or who suddenly acquire a competitive advantage that creates a tidal wave of business,  you did not recognize the signs that a cash-flow crash was impending,  regardless of how much money was scheduled to flow into your coffers.  You placed your primary focus on creating business (which is vital),  but neglected to monitor the ebb and flow of revenues and expenses (which are vital).  Every business owner must keep an eye on the money ball and take corrective actions as needed,  if we want to keep the business alive and thriving because quite perversely,  as sales go up,  cash can go down.

Here is one example of how a cash-flow crash might happen.   As business expands,  staying on top of accounts receivable becomes more time-consuming.  Those in service businesses  (like website design or public relations) may find that clients,  oftentimes larger businesses whose names we crave for our client list,  may unilaterally decide to pay receivables in 60 days,  instead of 30 days.   Meanwhile,  you have payroll,  office rent,  phone bills,  auto insurance and numerous other operating expenses that are due somewhere between right now and 30 days.

Another cause of cash-flow crashes is improper pricing.  You may sell a ton of T-shirts but if the profit margin is too thin,  you’ll find that excellent sales volume as demonstrated by number of items sold does not overcome an inadequate mark-up.  Revenues generated will not cover expenses.  It will be necessary to either acquire the product less expensively,  or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures.  You will need to decide whether or not and when  (or not)  to upgrade office equipment,  open a new office or move to larger quarters,  or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table,  plus dissatisfied customers who are likely to kill you on social media.  Get fooled by the romantic delusion of further growth,  invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

That is quite the dilemma and only the best fortune-teller can give the right answer.  John Terry,  of Churchill Terry business advisers in Dallas, TX,  recommends that the business owner focus on one question only when evaluating the possibility of making large capital investments:  will it bring money in the door?  If not,  find a less expensive alternative or learn to make do without it.  Successful business owners learn to preserve and protect liquidity.  Here is an effective antidote:

  • Hire a savvy bookkeeper or accountant to function as the business controller ( full or part-time)
  • Each week,  collect the data on key financial indicators: accounts payable,  accounts receivable,  available cash and the quick ratio (cash + receivables / current liabilities + payables) to monitor that all-important liquidity
  • Each month,  collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?),  the operating cash-flow ratio (cash-flow from operations / current liabilities)  and the pre-tax net profit margin

It is imperative that you are able to pay obligations when they are due and for that you need cash in hand.  Analyze the above indicators weekly and monthly and learn what is really happening behind the scenes of your business.  Track the available cash trends over time.

Seasonal variations may become evident.   You may have to step up collections of receivables or approach certain clients about speeding up payments.  You may have to request more money up-front before taking on certain projects,  so money will come in faster.  You may need to trim expenses.  You may need to raise prices.  The decision of whether to invest in capital upgrades will become clearer.

There are software programs that will track important data and help business owners resolve problems and set priorities.  Accounts receivable,  cash,  inventory and liquidity can be monitored,  along with confirmation on whether the business is on target to meet budget and revenue goals.  For those businesses that get a lot of repeat business,  it is also possible to track the profitability margins of key clients.

Thanks for reading,


2012 Year End Tax Planning

OK folks,  it’s time to think about what  to do before December 31,  so that you can reduce your tax burden.  If you retain an accountant or a business and tax attorney,  make an appointment to discuss year-end tax planning.  You will have a few of the following issues in mind:

Full deduction vs. Depreciation

Depending on how much money you’re on track to make this year and your ability to reasonably project earnings for next year,  you will either make purchases before December 31,  or wait until after January 1.   Further,  you will either take the full up-front deduction on business equipment,  or depreciate business-related purchases and spread the deductions out over several years,  to soften the tax bite on future earnings.

If you did well financially this year,  you’ll probably take the full deduction on business equipment such as your new computer,  printer,  scanner and/or smart phone this year,  to add more expenses to charge off against gross earnings.   But if subsequent years appear more financially rosy,  then use the depreciation method and spread those deductions forward.

Remember all selling expenses

With the passage of time,  it is easy to allow a few expenses associated with generating revenue to get lost in the shuffle.  Did you attend a professional development conference this year,  or take a course?  Did you buy business books?  Pay to attend networking meetings?  Pay dues to join the chamber of commerce or Rotary club? 

You may deduct these expenses.  Proper labeling and immediate filing of receipts and posting of expenses into QuickBooks,  Excel or even an old-school ledger ensures that you will take all legal deductions in the quarter where they should be documented.  Make it easy for yourself to take advantage of every allowable deduction.  If you have not been on top of this stuff,  start looking for receipts now,  before you get tied up with Chanukkah and Christmas,  and record the transactions,  so you’ll be all set for the January 15 quarterly tax filing.

Retirement plan contribution

Especially if you had a good year,  make the maximum retirement fund contribution.  If you are 50+ years old,  or will celebrate your fiftieth birthday on or before December 31,   you are eligible to make the catch-up contribution of $5, 500.00 maximum.  If revenues generated were not stellar,  try to make the largest retirement fund contribution you can manage  (if you can manage). 

It’s not always possible to set money aside for retirement,  unfortunately.  Making money is often difficult,  slow paying clients ruin cash flow and living  expenses are rising.  It’s been reported that 40%  of the self-employed have no retirement funds available.   Many drew down to stay afloat while re-engineering  professionally,  following a lay-off.  Others used retirement money to launch their business enterprise.   As a result,  the retirement fund deduction is much underutilized,  according to the IRS.

Home office expenses

If your fancy smart phone or land line with bells and whistles are dedicated to business,  then you may fully deduct their purchase and monthly billing charges.  Ditto for your office supplies,  internet connection and other office expenses.  You may also deduct a portion of your heating and electricity expenses  (based on the square footage of your office space as a percentage of your living space).

Create boundaries

The fail-safe way to keep track of business expenses is to open up a separate business checking account and maintain a business-only credit card and thus separate your business and personal spending.  Automatically,  there will be a record of all business expenses.  Most business credit cards will provide a year-end summary of charges,  to help you along  (AmEx does this regardless).

Before the year ends,  get your arms around your business expenses,   allowable deductions and the impact on your tax burden.  As millionaires know,  it’s not just what you make,  but also what you keep.

Thanks for reading,


Business Finance Resolutions for 2012

Happy New Year!  Thank you for coming back in 2012.  The New Year is here and the time is ripe to take a fresh look at how you can bring more revenue and profit to your Freelance business.  The purpose of this blog is to inform and inspire readers to create the conditions that will generate a successful and rewarding Freelance consulting career.  Let’s get the ball rolling and look at how effective financial management promotes that goal.

Resolve to skillfully manage cash flow

Cash is king and cash flow is the life blood of every business.  Nothing flows unless the cash does.  Cash flow management means knowing how much money is expected to enter your coffers and when those checks are expected to arrive,  along with knowing how much money must be paid to creditors and when those checks must be sent. 

Even if you show a profit on your P & L,  it’s possible to have insufficient cash in hand to pay monthly bills and other accounts payable.  We all know that working as a Freelancer can be a cash flow nightmare,  so it’s vital to get arms around the accounts receivable,  or else sleepless nights will haunt.

Cash flow management actually begins in client meetings.  Once your project fee has been addressed and agreed upon,  diplomatically state that 15% – 20%  is paid at contract signing and that invoices are payable upon receipt.  Payment schedule for the balance will depend upon the length,  type and cost structure of the job. 

Whatever you do,  don’t allow more than 35%  of your fee to be payable at project conclusion  (unless it’s a small job).  Take steps to discourage the client from preserving his/her organization’s cash flow at your expense.  Write payment terms into the contract,  right along with the scope of your work,  deliverables and start date.

Resolve to get paid what you are worth

Establishing value and getting paid for same is the goal in every service business,  whether it’s teaching piano or being a nanny.  Your pricing strategy should reflect the value that your services bring to the client.  Needless to say,  pricing supports  cash flow and revenue.  To identify an appropriate fee range,  pricing experts recommend that you focus on four factors:

  • The perceived value of the services your provide
  • The demand for your services  (and your reputation as a purveyor)
  • What’s involved in the delivery of your service  (time = production cost = the Freelancer’s cost of goods sold)
  • Your mark-up / profit margin

Resolve to create and analyze the basic financial statements every quarter

Freelancers have a good idea as to how we’re faring financially,  because we either have the desired amount of money in the bank or we don’t.  We either have jobs in-house or we don’t.  We have either big jobs in or small jobs.  Like a balance sheet,  your bank statement provides the snapshot of your financial picture at a given moment.

There’s nothing like creating and then actually contemplating and analyzing one’s cash flow and income  (profit & loss)  statements to truly grasp your true financial picture and most importantly,  receive clues as to what would be advantageous for you to do about the business model,  sales and/or marketing segments of your consultancy.  Smart business decisions are invariably data-driven.

As you analyze your financials over the years,  you may identify regularly occurring busy periods and decide to hire temporary help or bring in a Freelance sub-contractor,  to give you another pair of hands at those times and allow yourself to make more money. 

Slow periods will likewise be identified.  You’ll be encouraged to find a way to either stimulate business during those times by incentivizing clients to hire you,  find temporary work,  find classes to teach (if that’s one of your competencies),  or engage in prospecting,  networking and professional development activities.

Next week,  I’ll return with more business-themed New Year’s Resolutions for 2012.

Thanks for reading,