- Track your time on tasks, assigning them a dollar value to help you prioritize your workday.
- Calculate your net profit—not just your revenue—to better understand your business’s cash flow.
- Grow your venture by setting ambitious goals and, in times like these, accounting for inflation.
There are common refrains about “follow your passion” and “work for yourself,” but if you grew up with older parents, grandparents or even in a different country, the words “security” and “corporate” might be more familiae. And most of us were raised to work for a stable large corporation. When I was growing up, it was more prestigious to lead a division of a Fortune 500 company than to start your own business.
Times have changed—and I applaud those who have the discipline and drive to thrive daily without a boss, who start every month with no paycheck and whose income depends on the hours worked, literally. I know this firsthand: After more than 15 years of corporate life, I decided to be independent and, little by little, form my own business.
I’m sure you’re selling or offering goods and services that truly make you happy and reflect your values and passion—but do you often wonder aloud: Am I making enough? How do I know if my business is profitable? How do I ensure I am growing it?
Here are some tips that should help you answer these questions.
Track your time
The most limited commodity when you are a freelancer is your time. In my experience working with freelancers, passion and energy are not in short supply, but lacking time management skills can cause stress.
At a recent workshop I attended for top sales managers, a CEO confessed that the challenge was not selling products—instead, it was to make certain that their team was not burnt out.
Simple ideas, such as making a list of your tasks and adding the time spent next to each one, will shed a light on where you are spending most of your time. This will help you track the amount of money you make for each task, helping you prioritize tasks by value.
Some examples of time saving activities are:
Going shopping for food every week at a time with less traffic
Delegating remedial tasks, such as bookkeeping, to a professional
Clustering tasks by day, such as billing clients only on Fridays
Keeping a monthly journal by task and category
Having a daily routine broken down by tasks—and the amount of money each rakes in—will increase your focus and the probability of your success.
Calculate net profit
There are two muscles you must strengthen when having your own business, one is having a recurring pipeline of existing and new clients and another is earning a net profit.
The latter muscle is often overlooked when there are lots of clients and you are so busy that there is no time left to identify and monitor your key performance indicators (KPI). Each business has unique indicators, but a universal KPI is your net profit. It’s often confused with “money coming in,” but net profit is different from revenue. It accounts for the costs of generating that revenue.
Many freelancers and small business owners make the mistake of not paying themselves a salary. For example, if you charge $500 for a project that only cost you your time, you might assume the net profit is $500. But you must deduct other ongoing expenses, such as taxes, insurance, advertising and more.
I recommend having a set percentage deduction based on annual expenses. For example, if all your expenses add up to 20% of all your income, then just deduct 20% of the $500 project.
Focus on growth
On average, inflation increases 3% annually—but these aren’t average times. With rising, record-breaking inflation in the economy, you must adjust your products and services or reduce your expenses to ensure you’re still growing. Adding sales goals and projecting expenses for the next 12 months or three years will keep you focused and fortify accomplishing your business goals.
To reduce your expenses, consider:
Automating processes that take you time, such as invoicing
Delegating and outsourcing when appropriate
Sharing an office space or working out of your home
Finding a business partner or a business coach to hold you accountable will reduce the odds of disruptions and can help you with economies of scale or with time.
Callout tip: Calculate the cost of your time by dividing your monthly income by the amount of hours it took you to earn it. Establish a competitive goal to increase that number by at least 10% to 20% every year.
With these three tips, you and your business should keep flourishing.