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Estimating costs

From: Freelancing Fundamentals

Video: Estimating costs

Even if you've decided to keep your job while freelancing, it would be wise to figure out how the start-up will affect your finances. Because no matter what, you're going to have some new expenses. I've created a spreadsheet to help you figure this out. It's in the exercise files. Use this cost-analysis worksheet to estimate your own costs as we go through the most common expenses. First are the large, infrequent costs such as equipment. That could include a new computer, software or a desk. Basically, anything you'd normally find in a workplace but don't own yet.

Estimating costs

Even if you've decided to keep your job while freelancing, it would be wise to figure out how the start-up will affect your finances. Because no matter what, you're going to have some new expenses. I've created a spreadsheet to help you figure this out. It's in the exercise files. Use this cost-analysis worksheet to estimate your own costs as we go through the most common expenses. First are the large, infrequent costs such as equipment. That could include a new computer, software or a desk. Basically, anything you'd normally find in a workplace but don't own yet.

It also includes necessary certifications and one-time professional services. These comprise the bulk of your start-up costs. The second kind of expense is recurring costs, such as utilities, subscriptions and monthly insurance payments. Keep in mind that as a freelancer, your phone and Internet bills are likely to increase along with your home utilities, if that's where you'll be working. Third are occasional costs, such as those for conferences, training and professional consulting.

These can be substantial, but hard to predict. Finally, we have living costs, which are likely to change a bit when you start freelancing. In the United States for example, you'll probably have new expense of health insurance, which can run into hundreds of dollars per month. There's one other cost you can't ignore. Debt repayment. I'll talk more about that in a minute. If you want a nice breakdown of these costs in a slightly different form but much greater detail, I recommend Laura Spencer's article, "What it Really Costs to Be a Freelancer" at freelancefolder.com.

For all expenses, mentally balance the cost of the item against the benefits you expect to get out of it. Sometimes the benefit doesn't have a direct financial value. For example, spending an extra $100 on a comfortable chair won't necessarily make you more money, but your cost- benefit analysis will help you decide whether that comfort spread over the life of the chair is worth the $100. Take a look at the exercise file to calculate your own expenses. The point of this is to figure out how much money you'll need for that initial spending spree and then for each month for a while after that.

As I said before, I think it's good to have six months of expenses in reserve although more is always better. You'll start with your initial costs, then subtract the amount of money you have available to give the business. The amount left over is how much you'll have to raise to get started. For your ongoing finances, first figure out what your monthly cost will be, then subtract any continuing income that doesn't come from freelancing. For example, from royalties, investments or a partner who supports you.

That amount is what you'll need to either finance or earn from freelancing every month. Putting this all together, we get a formula that looks like this. Your start up costs plus six times your monthly deficit equals the amount of money you'll need to stay afloat until your income covers your expenses. Now that you have a target, you need to gather that amount of money together. I'll cover the various ways to do so next.

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Freelancing Fundamentals

42 video lessons · 24605 viewers

Tom Geller
Author

 
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  1. 10m 50s
    1. Welcome
      1m 53s
    2. What is freelancing?
      2m 53s
    3. How freelancing and employment differ
      2m 33s
    4. Preparing your mindset
      3m 31s
  2. 9m 24s
    1. Defining career goals
      2m 48s
    2. Sharpening your market focus
      3m 18s
    3. Transitioning to freelancing
      3m 18s
  3. 16m 11s
    1. Preparing your portfolio
      3m 11s
    2. Estimating costs
      3m 10s
    3. Funding your startup
      2m 42s
    4. Establishing your workspace
      3m 35s
    5. Building your professional network
      3m 33s
  4. 8m 51s
    1. Getting licenses, permits, and insurance
      2m 15s
    2. Creating contracts
      4m 23s
    3. Finding professional service vendors
      2m 13s
  5. 12m 54s
    1. Setting prices
      3m 13s
    2. Establishing payment systems
      1m 36s
    3. Invoicing and getting paid
      3m 50s
    4. Keeping the books
      2m 32s
    5. Managing taxes
      1m 43s
  6. 14m 41s
    1. Announcing your availability
      3m 16s
    2. Finding work through agencies
      2m 2s
    3. Onboarding clients
      2m 59s
    4. Avoiding scams
      3m 25s
    5. Choosing assignments
      2m 59s
  7. 11m 27s
    1. Interacting with clients
      2m 11s
    2. Delivering quality work
      2m 28s
    3. Getting referrals and recommendations
      2m 34s
    4. Losing and firing clients
      4m 14s
  8. 10m 48s
    1. Deconstructing big jobs
      3m 34s
    2. Adopting time-management tools
      2m 35s
    3. Creating schedules
      2m 30s
    4. Turning off the clock for "me time"
      2m 9s
  9. 20m 6s
    1. Staying motivated
      3m 3s
    2. Increasing your rates
      2m 52s
    3. Marketing beyond your professional network
      2m 56s
    4. Growing through hires and partnerships
      3m 30s
    5. Building passive income
      3m 48s
    6. Changing focus
      3m 57s
  10. 4m 52s
    1. Case study: Publishing a book
      2m 47s
    2. Next steps
      2m 5s
  11. 12m 42s
    1. Freelancing Q&A
      12m 42s

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