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Writing budgets as a freelancer: The complete guide
As a freelancer, you need to know how to write a budget, for several reasons.
First, as part of business planning, freelancers should have a budget that accounts for all their income and expenses. A budget helps freelancers figure out how much money they expect to take in when their invoice templates are paid, how much they spend on business expenses, and how much to save for things like retirement planning. Don’t forget to pay yourself a wage to live on!
As part of bidding on work, freelancers also need to know how to write a budget proposal. If you’re successful in landing the work, that budget will become part of the contract with your client. You’ll set up your freelance invoicing and get paid based on reaching the milestones in the contract, and based on the budget outlined with, and agreed to by the client.
Let’s look at those two aspects of budgeting for freelancers.
1. How to write a budget for your freelance business
Every business needs to have a budget to follow and track. This can serve as a barometer for how the business is performing.
Here’s how you can write a budget for your freelance business:
1.1. Determine Expenses
Start by noting all your freelance expenses for a given time frame. It would be valuable to build a budget for a month, which can then be expanded to include an entire year. You can also track a year’s worth of expenses, including those that may happen intermittently, like insurance costs, and then divide by 12 to determine monthly expenses.
If you’ve been in business for a while, this should not be too difficult. Use receipts and bank statements to create a record of expenses. If you’re embarking on a freelance business, spend time researching what expenses you will have. Consider any equipment you will have to purchase, rent for office space, Internet and phones, a vehicle, and so on.
It’s good to include an additional 15% per month for unexpected costs, like needing to upgrade equipment.
1.2. Determine income
Once you know your expenses, you can determine what you need for income each month, which should include a salary plus being able to cover all expenses.
If your income is greater than your expenses, set some aside for savings, retirement planning, or tax time, for instance. If your income is falling short, you need to make some decisions about cutting expenses – or finding more work. Your goal should be to have extra money each month to set aside in savings.
1.3. Track and adjust
Be sure to continue to track all expenses, whether that’s a working lunch or a new computer. Continue to monitor and make adjustments as necessary.
Using a simple tool like an Excel spreadsheet, you should make budget planning and tracking a regular part of the administrative work you do for your business.
2. How to write a budget proposal
The second type of budget essential to the success of a freelancer is writing a budget as part of a freelance proposal. After all, a budget will be a key part of your proposal, helping you to land new clients. But equally as important, if you’re successful in getting the work, it will also form part of your freelance contract.
So here are the steps how to write a budget proposal:
2.1. Determine the cost of each proposal component
The first step is figuring out what work will be done to complete the contract. If you’re approaching a new client, determine what work you will do for the client, and the costs for each milestone.
Or perhaps the client has spelled out exactly what they need done. For instance, an estimated budget and timeframe may be a key part of a response to an RFP.
Create a budget spreadsheet, using a tool such as Excel. Create columns for the items to be included in your budget, with a second column for the costs of those items, and finally a row at the bottom to calculate all the totals.
Include all expenses, which means your time, any staff or subcontractors, plus costs like travel. If you’re building a website, for instance, there will be expenses like domain name registration.
When figuring out your costs, particularly when it comes to time, consider adding an extra 5 to 10 percent. This will give you some leeway in case the work takes longer than expected. It’s easier to negotiate down with a client than to have to go back and ask for more.
If you’re looking for an all-in-one tool to time-track your freelancing, help with creating documents such as contracts, invoices, or proposals (which can include a budget), get on board and sign up for your free trial of Bonsai's services.
2.2. Create a document to support your budget proposal
Your proposal will obviously include more than a budget. So it’s time to build the words that back up your numbers.
Once the budget spreadsheet is complete, cut and paste it into your proposal. Then write descriptions for each of the budget items, including a brief background of the work to be done, description of the expense and why it’s necessary, and so on.
Bonsai's proposal software can be used for creating a budget proposal. It will allow you to build different packages for clients to choose from, with different rates for each package, to help maximize your earnings. It allows you to create, send, and track freelance proposals, bringing together contract generation, invoice creation, analytics and reporting.
2.3. Other considerations
Depending on the nature of the work, there may be other considerations to include in your budget.
For instance, perhaps the client has asked for work to be done in a compressed time frame. It’s okay to do rush projects, but only do them if the client pays an extra fee.
Therefore, you can include a rush fee clause in your proposal or contract. For simple projects, you might charge 25 percent. For more complex work, don’t be afraid to increase that amount, even up to 100 percent.
You can also include options for a client, such as different prices for different packages of work, a reduced fee if they want to put you on retainer, or a cost for continued upkeep once the project is complete.
2.4. Be sure to track your work
If you secure the work, make sure you track your results and ensure you spend what you said you would spend. A budget is just that – a budget. It isn’t necessarily set in stone, as circumstances can change.
For instance, just because you said registering a domain name would cost a certain amount, it doesn’t mean that’s what you will actually spend. If you track as you go and account for all your costs, you’ll be sure not to over-spend. Or, you may have to go back to the client for some re-budgeting.
Being able to write a budget is a key part of running a successful freelance business. You need to be able to account for income and expenses, to monitor how well the business is doing, and plan for the future.
Freelancing also means bidding on work, so a budget is a vital part of your freelance proposals to prospective clients. The budget will become part of the contract, and form the basis of what you’re paid for your work.
Now that you understand the key aspects of budgeting, writing one should be simpler. You can consider the option of using integrated tools available to you as part of Bonsai’s freelance suite by signing up for your free trial now.