Surviving the first year: What freelancers need to know about

budgets.

Contact Info:

Angel Rodriguez

215-427-9245 ext. 405

arodriguez@empowerment-group.org

www.empowerment-group.org

The following chart outlines a range of emotions you may or may not experience as you move towards your goals:

Objectives

1. Explain what a Budget and a Cash Flow forecast are.

2. What is the difference between a Budget and a Cash Flow forecast.

3. Review your baseline information, forms needed in the first year.

4. The relationship between Cash Flow Forecasting and Strategic Marketing.

5. Introduce financial terms and Break-even analysis

Budgets &Cash Flow Forecasting

What is a Budget?

1.Budgets are financial statements setting out the planned future performance of a freelancer’s activities.

2.A budget allows a freelancer to plan ahead and then to check on their performance against their projected budgeted figures.

What is a Variance?

1. The difference between budgeted figures/ performance and actual figures/ performance is termed a variance.

2. Variance is an important management tool because it allows freelancers to manage their activities - i.e. to make informed decisions based on real information (i.e. how actual performance compares with budgeted performance). A positive variance is one where actual business performance proves to be better than what was budgeted for.

Financial Preparations: Budget ChartAnnual Household Income  

Monthly Income (Annual Income ÷ 12 months)

 

   

Monthly Expenses (estimate how much you spend per month)

 

Food  

Housing  

Transportation  

Healthcare  

Entertainment  

Personal Items  

Education  

Other:  

Other:  

Other:  

Credit Card payment (estimated)

 

Student loans (estimated)  

Other debt (estimated)  

Total Monthly Expenses

(add all expenses) 

Financial Preparations: Start-up Cost Chart

Item Needed to Start Business Cost of Item

 Equipment  

Advertising   

Computer   

Internet Access   

Rent   

Moving Costs   

Subscriptions   

Office Outfit   

   

   

   

   

 Total Start-up Costs  

Financial Preparations: On Going Cost Chart

On-Going Costs (Monthly Expenses) Cost of Items

 Equipment Lease  

Advertising   

Utilities   

Internet Access   

Rent   

Transportation   

Subscriptions   

   

   

   

   

   

 Total On-Going Costs (Monthly)  

What is a Cash Flow Forecast?

1. A cash flow forecast - is a forecast of cash coming into and going out of a business based on previous experience e.g. last month, or last year.

2. A cash flow budget, is a plan usually to generate more cash coming into a business than going out.

What is a Cash Flow Forecast?1. In order to prepare a cash budget a freelancer

needs to know what receipts and payments are likely to take place in the future and the dates when they will happen.

2. It is important find the length of lead time between incurring an expense and paying for it as well as the time lag between making a sale and collecting from clients.

Cash Flow ForecastJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

Bal Fwd

+$1,250 +$1,250 +$1,250 +$500 -$500 -$1,500 -$2,250 -$3,250 -$2,750 -$3,000 -$3,500

Ovhd $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $24,000

C1 $500 $500 $500 $1,500

C2 $250 $250 $250 $250 $1,000

C3 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $6,000

C4 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $9,000

C5 $1,000 $1,000

Ttl Ernd

$3,250 $3,250 $3,250 $2,500 $1,500 $1,000 $1,250 $1,000 $2,500 $1,750 $1,500 $0 $18,500

Bal +$1,250 +$1,250 +$1,250 +$500 -$500 -$1,500 -$2,250 -$3,250 -$2,750 -$3,000 -$3,500 -$5,500 $5,500

Financial Terms

EMPOWERMENT GROUPWWW.EMPOWERMENT-GROUP.ORG 14

1. Overhead Costs: costs that are incurred no matter whether any activity is carried out.

2.Fixed Costs: costs that do not change month to month.

3.Variable Costs: costs that do change month to month.

4.Income: the money that comes into your business.

5.Expenses: the money that you spend on items to operate or improve your business.

6.Break Even Point: the amount it takes to meet all your expenses while having additional income.

Financial Terms

The relationship between Cash Flow and Strategic Marketing

Cash FlowJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

Bal Fwd

+$1,250 +$1,250 +$1,250 +$500 -$500 -$1,500 -$2,250 -$3,250 -$2,750 -$3,000 -$3,500

Ovhd $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $24,000

C1 $500 $500 $500 $1,500

C2 $250 $250 $250 $250 $1,000

C3 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $6,000

C4 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $9,000

C5 $1,000 $1,000

Ttl Ernd

$3,250 $3,250 $3,250 $2,500 $1,500 $1,000 $1,250 $1,000 $2,500 $1,750 $1,500 $0 $18,500

Bal +$1,250 +$1,250 +$1,250 +$500 -$500 -$1,500 -$2,250 -$3,250 -$2,750 -$3,000 -$3,500 -$5,500 $5,500

Target Market Revisited

Goal: $5,000 Client 1 Client 2 

Average Contract Size $50 $2,500 

Number of Clients 100 2 

Total Number of Contact Hrs 1000 20 

Average Work Day 8  8

Total Days Needed 125 2.5 

Months 4 0 

Overhead Used: $8,000 0 

It Takes Time To Sell a Product or Service:As a general rule you should use a ratio of 10:1 to calculate the amount of time it will take you to close a contract or make a sale.So for every one Contract you close assume it will take ten 1 hour meetings to get to that point.

For this example assume your monthly overhead is $2,000.

Strategic Planning

All tasks below the red line, require

decisions and a dollar

value.

Everything above the red line,

like planning, does not need a dollar value.

Where are you now?Where do you want to be?

By when?What is your GOAL?

How will you get to where you want to be?

What is your STRATEGY or PROCESS?

What will you do to

accomplish your

strategy? What steps and actions must you

take?

What will you do to

accomplish your

strategy? What steps and actions must you

take?

What will you do to

accomplish your

strategy? What steps and actions must you

take?

What will you do to

accomplish your

strategy? What steps and actions must you

take?

Strategic Planning Schematic

Strategic Planning Example 1

Have an idea for a business

Build a compelling web site

Hire the right person to build the web site

Learn how to communicate

effectively

Create shopping cart for web site

Understand how you will fill

orders people make

Launch an on-line business within six months

Where are you now?Where do you want to be? And by

when?

What strategic imperative must be accomplished?

What tactics will allow you to accomplish your strategy?

GOAL / OBJECTIVE

File all necessary paperwork

Strategic Planning Template –Example #1Starting A Business

Strategic Planning Example 2

Sales For Past Six Months Stagnant

Create and then implement a detailed marketing plan

Identify or revisit your

value proposition

Analyze what competitors are

offering

Start a relationship marketing program

Provide rewards program for

best customers

Increase Sales by 3%-5% each month for the next

12 months

Where are you now?Where do you want to be? And by

when?

What strategic imperative must be accomplished?

What tactics will allow you to accomplish your strategy?

GOAL / OBJECTIVE

Get customer feedback

immediately

Strategic Planning Template –Example #2Already Have a Business

Breakeven Analysis

23

Break Even AnalysisThe Break Even Calculator

Ian's T-shirt Co.

Initial Projections 6mos.

Price Per Unit: $ 7.99

Expected Unit Sales: 2,100

Total Revenue:=PPU*EUS $16,779.00

Cost Per Unit: $ 6.61

Variable Unit Cost:=EUS*CPU $13,881.00

Fixed Cost: $ 4,150.00

Profit: =Ttl Rev-FC-VUC $ (1,252.00)

24

Break Even AnalysisChange Price Per Unit

  Original Change Variation

Price Per Unit: $ 7.99 $ 8.59 $ 0.60

Expected Unit Sales: 2,100 2,100 0

Total Revenue: $16,779.00 $ 18,031.00 $ 1,252.00

Cost Per Unit: $ 6.61 $ 6.61 $ -

Variable Unit Cost: $13,881.00 $ 13,881.00 $ -

Fixed Cost: $ 4,150.00 $ 4,150.00 $ -

Profit: $ (1,252.00) $ - $ 1,252.00

25

Break Even AnalysisChange Unit Sales

  Original Change Variation

Price Per Unit: $ 7.99 $ 7.99 $ -

Expected Unit Sales: 2,100 3,007 907

Total Revenue: $16,779.00 $ 24,027.90 $ 7,248.90

Cost Per Unit: $ 6.61 $ 6.61 $ -

Variable Unit Cost: $13,881.00 $ 19,877.90 $ 5,996.90

Fixed Cost: $ 4,150.00 $ 4,150.00 $ -

Profit: $ (1,252.00) $ - $ 1,252.00

26

Break Even AnalysisChange Cost Per Unit

  Original Change Variation

Price Per Unit: $ 7.99 $7.99 $0.00

Expected Unit Sales: 2,100 2,100 0

Total Revenue: $16,779.00 $ 16,779.00 $ -

Cost Per Unit: $ 6.61 $6.01 $ (0.60)

Variable Unit Cost: $13,881.00 $ 12,629.00 $ (1,252.00)

Fixed Cost: $ 4,150.00 $4,150.00 $ -

Profit: $ (1,252.00) $ - $ 1,252.00

27

Break Even AnalysisChange Fixed Cost

  Original Change Variation

Price Per Unit: $ 7.99 $7.99 $0.00

Expected Unit Sales: 2,100 2,100 0

Total Revenue: $16,779.00 $ 16,779.00 $0.00

Cost Per Unit: $ 6.61 $6.61 $0.00

Variable Unit Cost: $13,881.00 $ 13,881.00 $0.00

Fixed Cost: $ 4,150.00 $2,898.00 $ (1,252.00)

Profit: $ (1,252.00) $ - $1,252.00