The subject of finance is usually treated either as endless complaining about low rates or how to set prices for translation or interpreting. I wanted to take a different approach to discussing finance on my blog and start with some tips that will help you maintain a healthy financial condition.
You know my writing style by now and you’re aware that I don’t usually spend a lot of time discussing my personal situation but I get straight to the point instead. This time it’s no different, but I just wanted to let you know that I’m sharing these tips because I’ve been in a position where I found them useful. So, let’s jump in.
Set money aside for taxes
If, like me, you live in a country where the tax office doesn’t collect its share every month, you can very easily forget that you owe them that bit. Needless to say, if that’s your case, you’re in for a surprise by the end of the tax year. The best way to avoid being in this rather unpleasant situation is to set money aside on a savings account, be it 20 or 30% of your income. Also, remember that this translates directly into how much you charge, so don’t forget that 20 to 30% of your per word/per hour charge goes for taxes.
Prepare for quiet periods
Whether you call it savings, financial cushion or simply financial management, be always prepared for quiet periods. During good months, set aside money on a special fund that you’ll use up when you’re going through a rough patch. They do happen to everybody and there’s no shame about it. But as a responsible business owner, you should be prepared for a quiet period.
Always keep receipts and invoices for every purchase you make for your business, even if you’re not sure it counts as a business expense. You’re much better off asking an accountant to find out rather than not being able to claim it later.
Draw a budget
Perhaps the single most useful piece of advice I took away from my business training was to draw a budget for my business, covering training, marketing and operational expenses. Personally, my budget is allocated as percentage of my revenue, so the more I make, the more I spend on CPD and marketing my services.
There’s one thing you should know about me: I’m obsessed with planning and measuring. Budgeting is one thing, but then tracking all expenses is the other essential element. I may be a bit extreme, but I track how much I spend on everything each month (I’m a bit of a control freak and this gives me a feeling of security and stability). It doesn’t mean I’m saving, it means I know precisely how much I spent on take away coffee or eating out last month. I believe that tracking expenses, both personal and professional, is a good habit that we could safely adopt from the world of big corporations.
Set up a good system for time tracking
In the world of freelancing, there’s a direct correlation between time we spend and money we make. This is why effective time tracking is a very important element in your business. To give you an example, you may very well earn £200 on an assignment and be happy about it without realising you actually spent 15 hours on it, averaging at £13 per hour. Doesn’t look that great anymore, does it?
Establish a profit margin
As I try to convince you in my book, every business, even the smallest freelance enterprise, should aim to generate profit. Profit is what stays after paying all your expenses and you need it to be able to invest in your further education, marketing and growing your business.
Pay yourself a salary
Usually freelancers just assume that whatever’s left after paying the bills each month is their money. I suggest you take a different approach and try to establish a salary you pay yourself each month. Count this salary into your business expenses and then you’ll see how much is actually left in your profits. Paying yourself a salary also motivates you to achieve a certain level of income every month.
Set income and profit goals
All too often freelance translators and interpreters seem to be simply drifting along whatever each month brings. I’ve hardly ever come across freelancers setting firm income goals to establish how much money they actually should be making and how much they’re aiming at. The reason why this is important is very simple: if you don’t set yourself goals, you’ll never achieve them.
Ensure you’re getting paid on time
Cash flow is one of the biggest problems for freelance translators and interpreters. If you’ve invoiced for a lot of money but it’s getting delayed and is hanging in the air, you’re getting into trouble because you can’t cover your own expenses. Try to prepare some counter-measures, for example having different payment terms (from in advance, through NET15 to NET30) to make sure there’s always some money coming in. Consider penalties for late payments and get in touch with a collection agency to have the contact details ready when the need arises.
This is my list of 10 financial tips for freelance translators and interpreters. What would you add?