Tagged with "freelance" http://www.addedbytes.com/feeds/tag-feed/ en Web Development in Brighton - Added Bytes 2006 120 Going Freelance - Cash Flow http://www.addedbytes.com/blog/going-freelance-cash-flow/ A comment from Michael on my Going Freelance: First Impressions post raised a great (and common) question, and one that I reckon most freelancers ask themselves when starting out: what if somebody doesn't pay, or pays late?

What is Cash Flow?

Your business, like any other (and even if you are a freelancer without an official limited company) takes money in in return for work, and spends money out in expenses, wages and so on. The money that comes in is based on the work you have completed, but more often than not there is a delay between finishing the work and being paid for it.

If the money isn't in the business to pay expenses and wages, you may find yourself out of business - even if you have taken on as much work as you could handle. You can be profitable on paper, but out of cash and out of business, just because cash wasn't coming in quickly enough. Having enough cash to pay your bills is referred to as being "liquid".

Woohoo! You Got a Gig!

Well done! Convincing somebody that you are the right person to take on a paid job is the first step on the road to successful freelancing. Now, what does that mean in terms of cash flow?

Most people will look at a project, and will base their forecasts on something like this. We'll assume this job is estimated to take one month - a good sized job, and starts on January 1st. The job finishes on time on February 1st, and the invoice is sent immediately. The client pays in good time, and the money is received on March 1st. Based on this, a freelancer just starting out will only need to cope for two months with no income - achievable with minimal savings.

This would be lovely, but it's often not how things work in practice. Let's look at how cash flow can go wrong. To begin with, we'll assume this project runs long for some reason - although the bulk of the work was complete in one month, the client finishes their copy after two months, and once the copy is in they request a few changes. The job is eventually signed off in mid-March. With 30 day terms, the invoice is due in mid-April. And the client pays late - initially because they didn't receive the invoice, and then because they were just slow to pay. After a few weeks of chasing, money arrives in late May.

Four, nearly five, months, from the project being agreed to money being received. That means, assuming this was your first gig, and you had two months of income saved up at the start, you'd be looking at surviving over two extra months with no income. For most people, surviving with no income isn't an option. So you're left with two choices - take out a loan, or give up and take a salary at a company. Neither is a great start to your freelancing career!

How Many People Pay Late

I've been asked several times how many invoices are paid late, or how many clients pay late. Unfortunately, there's no right answer. Some people go for years with no late payments. Some have a particularly bad period where everybody pays late.

In my experience so far, around:

  • 25% of clients pay invoices a week or more early (deposits especially)
  • 50% pay in the few days before the invoice due date
  • 20% pay within a couple of weeks after the due date
  • 5% pay later than a couple of weeks after the due date

My latest payment was three months overdue when paid. The fastest payment was under an hour.

How to Keep Your Cash Flowing

There are three ways (other than reducing your business expenses) to keeping your cash flow from being a problem:

  1. Make It Easy to Pay On Time
  2. Chase Late Payments
  3. Reducing the Impact of Late or Non Payers

Make It Easy to Pay On Time

Paying other people money is not something people look forward to. There is a financial incentive to delaying payment as long as possible (interest earned), and it might be sensible to keep money within your company as long as possible, in case a more important bill suddenly needs paying. With that in mind, it makes sense to make it as easy as possible for people to pay on time.

Bill in stages for large projects so you're not left with a single large payment outstanding at the end. Billing at the end of each month for work completed during the month is a good way to manage long projects. And it gives smaller invoices for your client to cope with. Paying a set of small invoices over time is easier on their cash flow than paying one large invoice.

Once an invoice is sent, chase it up within a few days to make sure it has been received. It is not unknown for unscrupulous people to claim to have never received an invoice to avoid paying for another few weeks. Confirming receipt of the invoice gives one less excuse for a payment to be late.

Many people incentivise or reward quick payment. Some people give a percentage discount if payment is received within a set number of days, for example. People's experiences with this are varied, but this post by Astrid, a freelance translator matches what I have heard from other freelancers - it may work for you and your clients, but there are risks.

Make sure you accept as many payment options as is practical. If your client finds it easiest to pay by cheque, that's fine. It might not be your preferred method, but if it means they pay on time, then let them do it. By the same token, if someone offers to pay early, always accept. There's nothing stopping you charging more later if needed, or refunding money if the project is under budget, but always opt to take the money when it's offered.

Chase Late Payments

This video, from Mike Monteiro and San Francisco Creative Mornings, offers one (NSFW, language) perspective:

Chasing overdue payments can be time-consuming and stressful, but it is inevitable. Everybody handles it differently, and there is a lot to consider.

First, establish whether this is a client you want to do business with in future. Some businesses have cash flow problems themselves, but that doesn't mean they can't be a valuable client later. On the other hand, if the project has not been great for either party, you might not want to work with them again.

Some people advocate contact every day once a payment is late, ideally by phone. I tend to adopt a slightly less aggressive approach - I send a chasing email once a payment goes late, and then chase regularly every few days from there by email and phone. If I don't hear back, I will continue to keep contacting until I do. If I do hear back, then the next stages are dependent upon the client response. If not, and it's been a few weeks, I'll send recorded delivery post, and if necessary begin the paperwork for small claims court.

If the client is in contact, that's a good sign. You need to start worrying when they're avoiding you - the fact they're speaking to you indicates that they are likely to be willing to pay. Try to work out why the payment is late, if possible. If the client is having cash flow problems, you are probably not the only person chasing them, and you may find that offering a payment schedule is the best way to get the bill resolved. This kind of friendly approach may win you loyalty from your customer, and you might find that, once they are over this particular tough patch, they are a great client.

Some companies will tell you they have "45 day payment terms" or "60 day payment terms". You should have your payment terms clearly outlined in your proposals, your contracts and your invoices - and the terms they would like to pay on are irrelevant - the terms agreed in proposals and invoices are what matters. If they pay late, by the terms agreed, you can chase payment and, if appropriate, invoke penalty charges or clauses. If you didn't agree payment terms before starting, you're pretty much stuck with their standard policy.

If the client is refusing to pay, and you have delivered what was agreed, your position is tougher. At this point, you first need to establish whether it is worth chasing payment at all. There is no sense wasting days of time if there is only a small amount owed.

If you have tried to resolve the issue and got nowhere, look at your legal options. In the UK, for amounts under £10k, you can use the small claims court, which is a great, cheap option (no lawyer required) (there's a great guide to using the small claims court here). As long as you can demonstrate you have delivered what was agreed, and that you have tried to resolve the issue without resorting to court, you will likely find the court siding with you.

Unfortunately, that isn't the end of the story. The judge may not award you the full amount you have asked for. The client may still be unable to pay. And the client may still refuse to pay, at which point you will need to obtain a warrant of execution to recover goods to the value of the money owed. Between this, the initial court fees, and the time involved in chasing, you can easily end up out of pocket even if you win.

Reducing the Impact of Late or Non Payers

Some people won't pay. Some people will pay late. Some will delay for months over trivial amounts of money. Some will attempt to find excuses not to pay. These are unavoidable, but there is plenty you can do to ensure that any damage caused by late payments is kept to a minimum.

Consider getting a credit report on clients before starting work. Many people do this as standard, and pay a flat fee for the ability to do so. It's not something I've done so far, but I would do it for a client where a failed payment meant the end of my business.

Make sure you have enough cash reserves to cope with a few months of waiting. Expect people to pay late and prepare for it. If you only have enough cash reserves to cope with one payment being a week or two late, you don't have enough cash reserves. Make it a priority to build up enough of a cushion to cope with as much as you are comfortable with. Enough money to cope with at least three months with no income would be sensible.

Always ask for a deposit before starting work. I usually ask for 30%-50% in advance, except for small projects or overseas projects, where I ask for full payment in advance. This weeds out the time-wasters pretty quickly. You will find that sometimes there is a lot of pressure to start a job before the deposit is paid, and it is up to you to decide whether to do so. I have done, for time-sensitive projects, but try not to unless unavoidable. If the deposit invoice goes overdue, you may have a serious problem - I won't continue a project until that deposit is paid, and would happily insist on a further deposit also being paid in that situation. And if the client ultimately doesn't pay their final invoice on time, or at all, then you are not left having earned nothing for the work.

Add a provision for penalty charges for late payments to your estimates, contracts and invoices. Even if you never actually charge it, it is a good bargaining tool once a payment is late. The penalty charge should include a percentage fee charged on a regular basis, so that the longer the money is owed, the more the penalty. Charging a single, fixed-price penalty is only of limited use, as once it is applied there is nothing to stop the payment being delayed even further.

Finally, and perhaps most importantly, you can spread your risk by taking smaller jobs with more clients. If you have just one client, you're at much greater risk if they have trouble. If you have several, you should be able to cope better with one or two paying late (or not at all).

My approach to this last point is to differentiate between projects (work which is more than 2 days) from small jobs and maintenance work. I book in project work based on a three day week (so a 15 day project is delivered over 5 weeks). The other two days I can spend on the smaller pieces of work or my own projects. This means that even with a larger project I am still billing smaller jobs frequently. As a result of this I can also cope better with projects taking longer than expected, as I can have two projects on the go at the same time - something I couldn't do if I based projects on a five day week.

Back to Michael

Michael's comment was pretty typical of the fears most freelancers have about getting started. The beginning is stressful, and with no guarantees of rewards. But with some decent planning, a bit of hard work and some careful money management, it's all quite manageable. And while I can't speak for everyone, for me it's been worth it in every meaningful way - six months in I am happier, financially better off, working with interesting clients on interesting projects, and able to spend more time with my family, all at the same time.

Fri, 03 May 2013 10:43:46 +0100 http://www.addedbytes.com/blog/going-freelance-cash-flow/ Dave Child ,,,
Freelancing with a Newborn - A Survivor's Guide http://www.addedbytes.com/blog/freelancing-with-a-newborn-a-survivors-guide/ Having a little gremlin that insists on being fed after midnight added to the mix when you're freelancing brings along a whole new set of challenges. Having only been working for myself for six months, perhaps this meant it was easier for me to adjust - fewer routines to break. Perhaps not, as I still have plenty of inefficiency in my working processes. Either way, these are a few of the things that have made my life as a work-from-home developer a bit easier.

This is inevitably going to be focused on male developers, because this is all from my own experience. Also, some of these tips and thoughts relate to being a new dad in general and aren't specific to being a freelancer.

Before we get started, let me introduce you to the newest member of the Added Bytes family. He screams, he poops, he smiles with his whole head and he's awesome. He's Henry:

Mr Noisy in his Mr Noisy top, making a noise.

1. Write Down Everything

As a developer, you probably (hopefully) have a pretty good memory and are used to keeping lots of threads on the go at once. When a baby arrives, that's going to change, at least to begin with. By my reckoning, I lost a third of my memory to sleep deprivation, and a third which was instead occupied by baby-related thought.

The solution for me was to write down everything. Everything. No matter how mundane. Took some paracetamol? Write down the time. Going to the shop to pick up a loaf of bread, and nothing else - write a very short shopping list. Client phoned up for a simple, easy-to-remember change? Write it down. Making notes now? Make a note to remind yourself to do it.

2. Take Time Off

My main responsibility right at the start was to look after my significant other. Dishes, laundry, fetching her water or juice, making food, making more food, making something to eat, buying food, cooking ... all of these things were my world. Clients, at the very start at least, have to take a back seat. The more stressed the mother gets, the more stressed baby is likely to get, especially if she is feeding the baby. A stressed baby makes for a stressed mother, and you'll quickly get yourself into a vicious cycle.

I've been able to grab a few minutes a day to reply to emails, just to say I'm not really around but I received the message, with a very broad idea of when I'll be back to work. I also planned ahead and booked in a minimal amount of work around the due date. That means I've not had to worry about client management or hitting billing targets.

3. Sleep When You Can

Remember how I said it's your job to look after the new mother? That also means it's important she gets plenty of sleep. You might have to man up for a while and do without sleep, but don't worry, your turn will come. That also makes it important, at the start, to grab sleep when you have the opportunity, even if it's in the middle of the day. Make a bedroom into a dark-all-day room that you can both crash in when you have a moment.

4. Have Awesome Clients

This may be out of your hands a little, but life becomes very unpredictable with a newborn, so having clients that are understanding is very handy. Phone calls with screaming in the background, late starts after bad nights and even a few short-notice cancellations of meetings are all to be expected, after all, and most clients will be fine with this, especially if you prepare them well in advance. By the same token, they aren't going to be too happy if you agree to deliver a critical project in a short timeframe around the due date and are then unable to do so - after all, you did know disruption was very likely.

5. Be Flexible

It's been a few weeks now, and I've found a routine that is working for me. I start early (6am usually), and work till 8 or 10 at night. I take Henry for an hour or so in the morning, spend an extended lunchtime with my other half and son, and take a couple of long breaks at other points in the day. Inevitably Henry has some times when he needs to be heard, so I usually down tools for a while and help with him then as well. So for a 14-16 hour start-to-finish workday, I actually work for anything from 8-12 of those hours. It's a good balance - the breaks help keep me fresh, I get to spend time with my family (which, after all, is the whole point), and I get enough good working time to keep on top of work.

I tried a few other approaches, but they all led to either not spending enough time working, or being unable to be any use when actually needed to help with Henry. Flexibility was the key, although the downside is that it's difficult to feel like you're ever not working if you're working so much! This will improve, with any luck, as Henry develops his own routines.

Not So Good

I heard and had a few ideas that I tried and that didn't work so well. Working with Henry in my office has been a mixed bag. He has a little bouncy chair he sits in, but he gets agitated after a while and needs attention. It's great having him with me for a short period, but not more than half an hour at a time.

I also tried keeping strict office hours. That was great for preventing work spilling over into the evenings, but meant that I missed out on anything interesting happening in the day. I found that approach just too inflexible (and keeping hours that suit my working patterns was one of the benefits of going freelance).

One of the biggest mistakes we made early on was trying to do too much in a day. Visiting too many people, or taking him out too long, or playing music with him for too long, all resulted in an unsettled baby for the rest of the day, and often the following night.

What Next?

As Henry grows, his needs and the challenges of working from home will change. Once he can walk, and open my office door, it's a whole different ball game.

A few people have suggested renting out an office or a desk somewhere. The idea is tempting but not something I want to do yet. If working from home becomes unproductive (and it might well do as Henry gets older, or is joined by another bundle) then an office space makes a lot of sense. It's probably inevitable at some point. For now, I'm loving being at home and involved.

For now, though, freelancing and working from home with a newborn is a great experience, and one I'd recommend to anyone starting a family.

Thu, 04 Apr 2013 13:57:00 +0100 http://www.addedbytes.com/blog/freelancing-with-a-newborn-a-survivors-guide/ Dave Child ,,
Freelancer Rate Calculator http://www.addedbytes.com/blog/freelancer-rate-calculator/ One of the first things many new freelancers, myself included, struggle with is setting their rates. Should you aim high, and maximise your earnings per hour, or aim low to fill up all of your time? Should you compete on price with off-shore teams? Should you charge per hour, per day, per week or per project?

One important step in working out what your rates should be (or even if you can afford to go freelance) is working out what you need to charge just to break even. For many people considering going freelance, they want to know what they need to charge to earn at least the same as they make in their current job.

With that in mind, I've built a very simple JavaScript-based tool (also available as a spreadsheet) to help work out what a daily rate translates to as an annual income. Just enter your daily rate, and your estimated costs, holidays, expenses and tax and it will give you a rough idea of what net income you can expect every year. Below the tool is a run-through of the fields with some suggested values.

Freelancer Rate Calculator

Daily Rate £
Item Days Income
1 Year + 365 £36,500
Weekends - 104 £26,100
Holidays - £24,100
Sickness - £23,600
Sales & Admin ( %) - 46 £23,600
Unpaid Time ( %) - 23 £23,600
Total Income (annual) £23,600
Total Income (monthly) £23,600
Expense Amount Income
Professional Services - £ £23,600
Hardware - £ £23,600
Software - £ £23,600
Office - £ £23,600
Sales - £ £23,600
Insurance - £ £23,600
Miscellaneous - £ £23,600
Total (less expenses) (annual) £23,600
Total (less expenses) (Monthly) £23,600
Tax ( %) - £23,600 £23,600
Net Income (annual) £23,600
Net Income (monthly) £23,600

Please Note: Many expenses will be deducted before tax, but some may not be - this tool provides an estimate for net income, but for an actual calculation you should always speak to an accountant.

The Fields

Daily Rate: The daily rate you charge to clients (£100 by default).

Holidays: How many days of holiday a year will you take? One of the most alluring advantages of being a freelancer is the opportunity to take more time off (30 days by default).

Sickness: How many days a year will you be unable to work? And for freelancers, a couple of days of sickness often translates into more lost time, as you try to catch up with delayed work (default 5 days).

Sales & Admin: What percentage of time needs to be spent on sales calls, meetings and administrative tasks (20% is the default here, but this is a low figure, especially for people just starting out).

Unpaid Time: As a percentage of total earnings, what is the amount each year likely to go unpaid (5% by default).

Professional Services: This includes accountants, lawyers and any other professional services you need to make use of.

Hardware: How much per year do you spend on hardware, including computers, phones, printers, paper and so on.

Software: Including licensed software like Photoshop and software as a service like FreeAgent.

Office: Including office rental, phone line, internet connection and any relevant taxes

Sales: Any cost of sales, including your own website, PPC, marketing materials, business cards and expenses for meetings.

Insurance: Including professional indemnity and office insurance.

Miscellaneous: Other expenses, including travel, bank fees and so on.

Tax: What percentage of your after-expense income will go on taxes (25% by default)?

Mon, 07 Jan 2013 07:33:00 +0000 http://www.addedbytes.com/blog/freelancer-rate-calculator/ Dave Child
Going Freelance - First Impressions http://www.addedbytes.com/blog/going-freelance-first-impressions/ The Good

There are two reasons, I suspect, that most people set up shop for themselves. One is to build something they have a real stake in and something that, if successful, they share in the profits of. The other is to have a greater control of their work - their environment, which work they do, and how that work is valued.

The first of those is measurable, to start with, really only by income. And so far, I've invoiced more than my targets for my first month. So that's good! Ultimately the aim is to replace freelance income with residual recurring income from web apps like Cheatography and FeedbackFair, but for the time being my targets are all based on freelance income, and that's exactly at the level it should be.

The second of those motivations is why I'm enjoying this so much, so far. My working environment (on which a future post) is exactly the way I want it. When I'm in the office - standing desk, decent hardware, good light, open window, music, plenty of tea. If I'm out - laptop or netbook for remote work, invoicing, emails, estimates. My working hours are also just right for me - I start early (6-7 am), and the morning is usually then two stretches of wonderful uninterrupted productive time. The afternoon is fairly flexible, and I usually save admin work, estimates and so on for then. In the late afternoon or evening I have a third productive stretch, if needed. And that works brilliantly.

Historically, I've found organising myself tricky. It's all too easy to let work items sit in emails, on notes, or try to remember them. This is, of course, a crazy way to try and manage work. Fortunately, I've been building my own work management tool for ages (Envoy) and that's been working well for me so far to manage work items and track time, and I've been using the wiki as well fairly extensively.

I've been using the amazing FreeAgent to handle all of my accounting needs so far and am very impressed - it connects to both my business bank and Paypal accounts, handles all invoices with minimal fuss, logs expenses - and at the end of the year will do most of the legwork for my tax returns.

Remember The Milk is great, and runs on my mobile and desktops. I use it to manage sales tasks and as a general repository for ideas (for clients and for my own apps). The app collection is rounded out with GMail (email), Google Calender (meetings) and PassPack (for passwords).

The Bad

My nerves have taken a thorough pounding. Despite being busy, and lining work up for more than a month ahead, there's always that nagging thought at the back of your mind that the work could dry up in an instant. That might be because I'm just starting out, but I doubt it will ever fade completely. I think it's probably a good thing - I doubt that complacency is good for business!

Again, this is likely to be largely the result of just starting out, but I'm working far more hours than previous workplaces. Partly this is a result of having ownership of the company I'm working for, of course - much easier to justify working long hours when you're rewarded for it. But partly it is because the first months are about building relationships with new and prospective clients and contacts. This might change, but from talking to other freelancers I'm not expecting it to happen any time soon! Unfortunately, a side-effect of this is that my current Open University courses have been rather badly affected.

It's pretty easy to go for long periods of time without human contact when working as a freelancer. Apparently. For me, it's not been an issue so far - between taking on consultancy work and going to the Brighton Farm regularly, I'm spending more time with more people than ever before. I can see how easy it would be to skip a few networking events, though, when things are very busy, and that's when the cabin fever will start to set in.

The Ugly

The sales process is, at the moment, expensive. With a one-hour meeting a short distance away, and a typical estimate document, each project takes around half a day of sales time, at a minimum. If a sale results in one or two days of work, that's time becomes a very significant cost. The time to write an estimate will come down, and smart organisation of meetings - as well as developing a sense of when it is worth having the meeting at all - will help improve this.

I still am not quite used to asking for money from clients, especially when their payments are overdue. I find myself being almost apologetic about it. With any luck, I'll have plenty of practice and this and will get better in no time.

Being so busy means that writing blog posts is taking a back seat. I'd hoped (and planned) to write much more often, about web development and freelancing, and about web apps and building an income from my own products. I'm still planning to do that, but it's not been a good start!

The Future

By and large, it's been a great start. One month in and I'm going strong, with work lined up and more in the pipeline. I'm determined to improve my working environment even more, write more blog posts, and keep heading out to events and gatherings of other local freelancers.

Are you a freelancer? How were your first few months? Do you have any tips or advice for me (or other people just starting out)?

Tue, 09 Oct 2012 10:23:14 +0100 http://www.addedbytes.com/blog/going-freelance-first-impressions/ Dave Child
Going Freelance http://www.addedbytes.com/blog/going-freelance/ From early September, I'm going to be leaving my former employment, where I've spent the last four years wrangling code deep in the bowels of the likes of Magento, MODX, Drupal and

From early September, I'm going to be leaving my former employment, where I've spent the last four years wrangling code deep in the bowels of the likes of Magento, MODX, Drupal and OpenCart. I want to build something for myself - and that means leaving the stability of full-time employment and venturing into the lesser-known realms of entrepreneurship and self-employment.

This will give me a great chance to spend more time with new technologies. Agency life often doesn't provide much time to get properly to grips with new languages or skills, unless they are already in use within the agency. I'm looking forward to spending more time with Python, node.js, SQLite and other technologies that, so far, I've really just dipped a toe into.

Even more exciting, this move offers the potential for me to spend more time working on my own projects. Cheatography and Envoy have been running for a while but lacking the attention they deserve. Newer projects, on which I'll write more shortly, have also suffered from a lack of available time. This decision should allow me to turn more of the ideas floating around my head into actual working websites, with a view to then becoming profitable ventures.

If you're reading this on the site, you might have spotted a few changes here as well - a new logo, new homepage and new portfolio being the most significant changes, all geared towards making a more prominent feature of my services and previous work.

To begin with, though, my focus is on making sure I have an income that can comfortably provide for myself and my growing family. So I'll be taking on freelance projects and focussing on the things I know best and that I've spent the last few years with - PHP development (especially Magento, MODX and Drupal).

I'm enthusiastic, capable and, in a few short weeks, available for your project!

Thu, 23 Aug 2012 10:57:00 +0100 http://www.addedbytes.com/blog/going-freelance/ Dave Child