About taxes in Britt's and Frank's equations: You guys figure 30% for taxes
and benefits. It is more than that. A freelancer (sole proprietor) that
grosses $50,000 is taxed 43.3% - 28% income tax and 15.3% Social Security.
If you work for somebody else, they pay half of your Soc. Sec.
Unfortunately, as a sole proprietor, you are the employer and employee and
are responsible for the additional 7 1/2% Soc. Sec. (Actually, the 15.3%
Soc. Sec tax is based upon 92% of your gross income) Now add your benefits
to that and you get something like 50%.
Something else I'd like to add in regards to all the estimating: The best
thing a freelancer can do for him/herself is keep excellent records. You
have to know what the real cost of doing business is. The only way to know
is to keep records. Without the records, you only have a perceived cost of
doing business, and as I'll illustrate below, perceptions may not match
Here is a bit of my personal experience. As many of you know from my
earlier postings, I have only recently begun to pursue freelance
illustration as a career (part-time, 3 days per week for now but full-time
in the near future if things keep going as they are). I started by writing
a business plan, which BTW required a lot of research, and I got some good
accounting software. I also have an accountant.
I have two points here. 1. The business plan helped me get a budget going,
and helped me project the income I needed to make this thing work. It also
made me think about where this income could come from and how I would try
to get it (marketing). I also had to think about expenses. There is a
difference between the dream world and reality and this really became
apparent when I put things down on paper. Before I approached freelancing
as a business, I never really thought hard about all this stuff - I just
cranked out work and got paid for it. I guess it was more of a hobby than a
business. The point is that the business plan is an essential part of any
business and according to the SBA, many businesses fail due to lack of a
business plan. And a bus plan is not only for those just starting up, it is
something that should be revised annually. This leads to #2.
#2. The accounting software is necessary for me to track every aspect of my
business, I'll leave the taxes part to my accountant. What I want to know
is how much time I've spent on a job, how much expenses for a job, how much
time I spend doing non-billable stuff, how much expenses for non-billables,
how much of my budget is spent, etc. Now my point: when I compared the
actual numbers here to the projected numbers above in the bus plan, I got
some surprises. One example is expenses. I thought I did a pretty thorough
job in estimating but there were many things that I never considered. So I
was low in estimating my expenses.
On the other hand, when I compared my time spent doing two large projects
to my estimates for those projects, the numbers were real close. One
project I had estimated would take me 160 hours and when I printed out my
report for that project, to my surprise, I had spent exactly 160 on that
job. This was a total surprise because I figured I was way in the hole on
this one because it seemed that I was using more hours on this job than I
had allotted for it. My point here is that had I not been tracking my time,
I would have never known what hourly rate I was really getting.
Also related to time tracking, one thing that I didn't have a handle on was
what I call administrative time - the time spent running the business,
non-billables. I felt like I was spending a tremendous amount of time
keeping books, getting work, talking on the phone or emailing prospective
clients, etc., etc. Much to my surprise it isn't as bad as I perceived - so
far about 15% of my total time.
Granted, I have not been doing this very long as some of ya'll. What I can
see is that without the bus plan and record keeping, I'd probably end up as
one of those statistics of failed businesses.
Estimating and theoretical numbers are necessary, you also need real
numbers to make a comparison, adjust, and move forward.
Wm. Keith Harrison
Natural Science Illustrator
P.O. Box 35
Glyndon, Maryland 21071-0035
Email: [log in to unmask]