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8 Year-End Checklist Tasks To Keep You Organized

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The sun is setting on 2024 and telling Freelancers and all business owners that it’s time to close out the waning year and prepare to welcome the New Year. To make sure that no important matter gets lost in the shuffle during what may be a rush to tie up loose ends, you may appreciate the practicality of a year-end checklist. The checklist is simply a to-do list that keeps you organized as you attend to the many tasks and responsibilities, business and personal, that arise at this time of year. Taxes and other financial responsibilities rank high on the checklist; identifying business (and personal) goals for the New Year run a close second. As you work your way through your checklist, you’ll discover a perhaps unexpected bonus—the checklist also provides an objective assessment of where your business stands as of December 31 and can indicate useful goals and benchmarks for 2025.

Before you become immersed in holiday preparations and celebrations, block out four to eight hours to devote to getting your entity’s house in order. That’s your strategy to eliminate holiday spoilers, like anxiety resulting from uncompleted responsibilities. Call on your discipline and power through the administrative tasks listed below, so you can truly enjoy dropping into parties and celebrating the season with friends, family and colleagues.

  1. Make business purchases. The end of the calendar year is your cue to buy equipment, services, or other necessities for your business on or before December 31, to add to your 2024 tax deductions and lower business taxable income. What expenditures are on your wish list and what does your budget allow? If you’ve had business goals on your mind (and I know that you have!), certain software-as-a-service subscriptions could be on your must-have list. Or maybe you’ve thought of updating business equipment, or items to make your workspace more favorable? Do you need to pay an insurance premium, or upgrade a policy? Maybe you can make an early payment and let the expense be recorded as an asset on your 2025 Balance Sheet. Think also about initiating professional services, for example, a business attorney, or even bringing in a Freelancer to help with projects such as bookkeeping or social media management? Now is a great time to make those purchases, which will result in lowering your taxable income.
  2. Send Form 1099 to your Freelance workers. First, verify that Freelance team members you’ve hired have completed IRS Form W9, so that you will be ready to send to those who provided services of $600 or more an IRS Form 1099NEC . Tax statements must arrive, by USPS or email, no later than January 31, 2025, as required by IRS regulations.
  3. Get your bookkeeping up to date and schedule tax appointments. Before the holidays dominate your focus, bring your books up to date. If you maintain the business financial records yourself, get busy now and review the year’s financial records, receipts and accounting so that documents are organized and closed out for the end of the year and ready for tax preparation time. If you’ll hire a bookkeeper or a tax accountant to handle business taxes, schedule an appointment today to ensure that you’ll 1.) get on the calendar of whom you want to see and 2.) improve your chances of getting an appointment date that’s good for you.
  4. Consider your business legal entity and tax election changes. As a business grows and evolves, it may be beneficial to change your business entity classification or change the tax category. In many cases, forming an LLC or corporation, both of which change the entity’s tax status, can be more complicated when the change occurs mid-year and is sure to complicate that year’s tax returns. Furthermore, changing your tax status (e.g., converting your entity to an S-Corp) is time-sensitive and must be completed before the May 15th due date in most cases. Year-end is a good time to assess whether or not your current business entity type and tax status election are the best choice for your business. Incidentally, making this decision is ample motivation to upgrade your professional services by bringing on a business attorney and/or business accountant (or a very savvy bookkeeper) because you’ll want the guidance of a certified professional such as a CPA, financial planner, or attorney and to help you plan any major changes to have them effective for the start of the new year.
  5. Add dates for taxes, registrations and important filings to your new calendar. What with quarterly taxes, business registration or certificate renewals and other important records filings required of a business, you absolutely want to be ready and not caught unawares by any due dates. Record in your new year calendar all important filing, payment and renewal dates so you can keep your business compliant and in legal operation without incurring costly penalties and fees.
    • Business license renewal
    • Estimated income tax payments
    • Sales tax return filings and payments
    • LLC tax payment
    • LLC Statement of Information filing
    • Business insurance premium payments
  6. Contribute to your self-employed retirement account Investing money in a self-employed retirement account, such as a solo 401k or SEP-IRA, is 100% tax-free and lets you save on three tax categories that would otherwise pay. Instead, money invested in your self-employed retirement account enables you to avoid the federal and state self-employment tax – and book significant savings! Self-employed professionals can contribute up to 25% of annual net earnings, up to $66,000, to a self-employed retirement account tax-free (for 2023). Make your payment on or before December 31to lower your 2024 taxable income.
  7. Cancel any unused memberships and subscriptions. Oh, the best of intentions! You may have signed up for subscriptions, memberships, or other services that renew monthly or annually, which may have been helpful at one point in your business but are no longer useful—or IRT, you found that can’t find a role for them. The end of the year is a great time to review automatic payments charged to your business checking account and verify what is worthwhile and is actively being used.
  8. Plan your goals for the New Year. What next big steps to promote business growth do you see? What might be the next strategies you’ll implement to create a sustainable, profitable business? The possibilities are exciting and yours to pursue, guided by a good plan. In the October 15 post, we explored how you might scale your operation—maybe the new year is when you take actionable steps to do that? To avoid feeling overwhelmed, consider dividing your goals into short-term and long-term projects, breaking your larger goals into smaller, actionable steps you will need to plan ahead. Consider also tasks that can possibly be outsourced by hiring a Freelance professional like yourself? Start your new year goal setting by examining the current state of your business and then think about where you would like to be at the end of next year. What actions appear to be needed to get to that point? Next, break those goals into smaller projects and create a plan of smaller goals for each month of next year. When you start the year with smaller, actionable goals that seem easier to reach, it will seem easier to consistently take those smaller steps that can add up to big changes over time. Setting micro goals in advance can motivate you to develop strategies and implement action items that drive achievement.

Happy Thanksgiving to my American readers! To everyone, thanks for reading.

Kim

Image: © ProHow

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Build A Budget, Build A Business

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Fact of life—if you run a company, even as a Freelance solopreneur, you’re going to have to suck it up and put together a business budget every year. If you fall into avoidance behavior and tell yourself that you’ll do it “next month,” it is almost certain that 1) you won’t do the budget anytime soon; and 2) your business could eventually slide into financial chaos, taking with it the money and time you invested. Failure to mind business finances is business sabotage.

For many people the mere thought of budgeting brings a sour feeling to their stomach, but the fact remains—budgeting supports business success and your organization is unlikely to thrive, and may not survive, unless you do it. You may find budgeting to be an onerous task, but there is a silver lining—a budget is empowering!

Budgeting is integral to effective financial management and allows you to make informed decisions and take calculated risks that can move your company into a stronger position. Budgeting brings to light the reality of your company’s fiscal health and performance. Problem areas will be recognized and you’ll be able to propose and implement remedies designed to rectify the lapse. You will be positioned to develop reasonable, reachable, goals.

The budget is your buddy

While budgeting often brings to mind thoughts of scarcity and sacrifice, saying no when you want to say yes, you’ll feel much better when you reframe your thinking about budgets; budgeting need not always result in cutbacks. Instead of focusing on limitations, why not flip the script and think about growth? It is reasonable to view budgeting as a pathway to business success, a tactic that enables your entrepreneurial ambitions. Rather than obsessing over cutting expenses, utilize your budget as an element of your strategy to manage expenses and drive growth and profitability.

In fact, only when finances are in order can you operate from a position of strength and make good decisions. When the cash-flow and business reserve fund are healthy, you can demonstrate business savvy—you might hire one or more employees, whose productivity will positively impact sales revenue; you might move the company into a larger space; you might upgrade office or manufacturing equipment that introduce operational efficiencies that benefit anything from your marketing campaigns to the customer service and customer experience your company offers, enhancements that reward your business with loyalty, good word of mouth and returning customers.

Build the budget

Your primary goal will be to ensure that there will be enough money to operate the business, from covering selling and marketing expenses that generate revenue to meeting fixed expenses such as payroll, rent, utilities and insurance. Among the projected expenses you’ll calculate will be those specific to acquiring or creating your product or service, that is, the cost of materials or the time involved in crafting what you sell. You’ll budget for the year, so it will be necessary to make reasonable projections of future expenses and sales revenue. You also want to set aside funds you can invest in business growth, whether to carry out specific initiatives or maybe take advantage of an unexpected opportunity as well.

You will be wise to structure your budget to predict somewhat modest sales revenue and anticipate expenses that are somewhat higher than the previous year. Planning for a less than rosy scenario is the safest strategy, giving budgetary wiggle room by encouraging you to trim expenses where possible to help you build up the business growth fund.

Once you make revenue and expense projections, you can run different potential scenarios and refine your estimates of likely cash-flow and sales revenue income, to enhance your trust in your estimate of how much will be available to finance marketing and business growth.

Create a spreadsheet

A spreadsheet is one of the most powerful tools available to create a budget, not only to make it easy to view and analyze your data, but also to make it easy to change your projected data and evaluate different business scenarios. You can do the same when reviewing projected costs and sales revenue associated with carrying out a proposed business goal.

Get comfortable with the Microsoft Excel spreadsheet and learn to call up different combinations of projected revenues and fixed and variable expenses that will enable prudent decisions in every aspect of your business, from pricing to hiring additional employees. Take a Microsoft Excel for Beginners tutorial .

Monthly budget reviews

Your budget will be useful only if you review it regularly, to assess your company’s performance. Get ready for the big reveal when you discover whether (or not) actual spending aligns with the amount budgeted. If certain expenses are consistently higher than anticipated, you may need to revise the budget to reflect reality, or find ways to reduce those costs. Likewise, your budget will also reveal if sales revenue projections are either too optimistic or too conservative.

Responding to changes in your business environment ensures that your budget functions as a useful tool for financial planning. Finally, the budgeting process will, over time, become a repository of company performance data and provide an important historical overview that could be useful when anticipating seasonal fluctuations or other patterns that support your projections of future business performance.

Thanks for reading,

Kim

Image: © Mee Ko Dong for Shutterstock

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Close- Up: Revenue and Profit

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Does the thought of managing finances more complicated than your household budget fill you with fear and loathing? You are not alone! Many share that sentiment but in the world of Freelancing, getting your arms around the management of company finances comes with the territory. Outsourcing your bookkeeping and accounting functions can be a smart move that allows you to focus on client acquisition and retention or other things that only you can do, for example, but you cannot afford to be in the dark about what’s happening with your money. You can’t plan and execute a marketing campaign or an expansion strategy until you know how much money will be available to carry it through.

You can ask your bookkeeper or accountant to suggest a reasonable budget for your plan, but it’s better if you have the answer before you ask the question. In order to know how much money you’ve got, you’ll need to get comfortable with reading your Income Statement, also known as the Profit and Loss (P&L) Statement. The P&L details all the money that is earned (sales revenue) and expenses paid, e.g., rent, utilities, professional association dues, or payroll.

Financial management is a big topic so today we’ll limit our focus to money that comes into the business—revenue—and the money that remains after expenses are paid—profit. The two categories are very similar and are frequently used interchangeably by those of us who are not accountants or bookkeepers, but there is a subtle difference between the two and it makes sense for Freelancers to grasp what each term says about your entity.

Revenue

Revenue is money generated through the sale of products and services plus other money-making activities that take place within the business. The initial tally of revenue indicates what’s been generated before expenses are deducted. Calculate revenue by using this equation:

Revenue = Price x Quantity sold

Sales generated when clients pay for your products and services, along with other income streams if applicable, is classified as revenue derived from normal business operations. However, since a business may generate revenue from different sources (income streams) it’s useful to consider each line of business separately, so that you can scrutinize how each performs. When you separate revenue by source and type you’ll quickly see which is lucrative and which is lagging—and you’ll be positioned to make smart business decisions.

So if you begin to regularly teach a class in addition to your Freelance consulting work, you can record that revenue separately, as it’s own income stream. If you also sell a tangible physical product in addition to your intangible B2B services, you can record revenue from your tangible products and intangible services separately. Or maybe you own a restaurant? If so, you’ll separate and analyze each revenue source by categorizing your menu offerings: side dishes, main dishes, appetizers, nonalcoholic and alcoholic beverages.

As well, you can separate your revenue into operating and non-operating sources. Operating revenue represents sales from a company’s core business. For instance, in a restaurant, operating revenue is derived from the sale of food and beverages to customers.

  • Annual Recurring Revenue

Another category of revenue that you would be wise to record and examine separately is known as annual recurring revenue (ARR). ARR is revenue that is associated with subscription agreements or other contractually dependable, expected revenue streams. Documenting ARR is critical because it provides companies with a predictable revenue stream. There is nothing sweeter than money you can depend on!

  • Non-operating Revenue

Non-operating revenue is sort of like selling an add-on—it’s revenue earned from sources outside of the primary (core) function. So in your hypothetical restaurant, non-operating revenue might represent sales of loyalty program cards, gift cards, branded T-shirts, or mugs, for example. Non-operating revenue might be unpredictable or mostly seasonable (associated with Valentine’s Day, or whatever) and is considered nonrecurring. Selling an asset is also categorized as non-operating revenue. Maybe you bought a non-fungible token (NFT) art work that’s now worth big money and you’ve decided to sell?

Revenue vs. Income

For an intermezzo we can also consider income, which in the world of accounting is distinct from revenue, despite the obvious similarities—-both categories mean money in your pocket. Recall that revenue represents money earned from core business operations, that is, the sale of your products and services and also ARR and money classified as non-operating revenue. Income is the money that (thankfully!) remains after all fixed (operating) and variable (sales, marketing, professional development, etc.) expenses have been paid. Income has more in common with net profit, or earnings, than with revenue.

Profit

Profit describes the total gain (or loss) of money that a business has at the close of the period (e.g., month). As is the case with revenue, there are various aspects of profit to calculate and consider. Gross profit, operating profit and net profit are three metrics recorded on your P&L Statement. In general, profit is calculated by subtracting the total fixed and variable expenses, taxes and calculated amortization and depreciation values from total revenue. Calculate profit by using this basic equation:

Profit = Revenue – Expenses

  • Gross profit

The amount of money brought in from the sales of products and services, minus the acquisition or manufacturing costs of the products or services that were sold, is known as gross profit. The number reflects the Cost of Goods Sold (product or service acquisition or production costs, including direct labor) but does not reflect the impact of fixed or variable expenses. Calculate gross profit by using this equation:

Gross Profit = Revenue – Cost of Goods Sold (COGS)

The interim assessments of profit, in addition to gross sales revenue (also called the top line) allow you to scrutinize the numerous expenses incurred between the top line (gross sales revenue) and the bottom line (net profit) and expose points of profitability weakness (i.e., worrisome expenses) in the acquisition or production of the solutions you sell, all of your fixed and variable costs and even taxation, of your business. In fact, if your top line number is strong but your bottom line number disappoints, an adjustment of COGS or fixed or variable expenses could remedy the problem.

  • Operating profit

Operating profit is the next step in the P&L progression toward the big reveal that is net profit, the bottom line. It’s similar to gross profit but includes three more categories of expenses. Calculate operating profit by using this equation:

Operating Profit = Revenue – COGS – Operating Expenses – Depreciation – Amortization

Depreciation and amortization are also values you’ll want to understand as one who manages money, even if you outsource to a bookkeeper and/ or an accountant. Depreciation reduces the actual value of equipment or vehicles due to time or use—wear, tear and age. This calculation puts a numerical value on the asset’s cost versus its operating and residual value.

Amortization refers to the value of intangible assets, such as patents or trademarks and is calculated in the same way that depreciation is calculated. Both of these accounting methods exist to spread out the cost of assets over their useful lives and provide a more accurate picture of a company’s expenses and profits.

  • Net profit

Net profit is the final assessment of actual profit and it’s calculated by subtracting all fixed and variable expenses, plus taxes, amortization and depreciation, from your total revenue. Net profit illustrates the overall health and profitability of the entity. It is the final word and is found on the bottom line of your P&L Statement. You can calculate net profit by using this equation:

Net Profit = Gross Profit – Total Expenses – Taxes– Depreciation – Amortization

Differences between revenue and profit

These very similar values are calculated in different ways and each tells a somewhat different story. Revenue reflects your company’s sales and market share growth. Profit is the company’s indicator of financial health. Another difference between these two values is the potential for fluctuation throughout the year. Revenue is prone to fluctuate from month to month because it is subject to marketplace demand which, for example, can be seasonal. In contrast, profit tends to remain more stable over time.

Finally, net profit earnings may also be known as net income or net earnings. Net earnings may be the most important number on your P&L Statement not only because it comprehensively shows the company’s total earnings performance but also, the value is carried over to your company’s Balance Sheet and Cash-Flow Statement.

Thanks for reading,

Kim

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Navigating Difficult Business Conditions

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As business conditions in the US and the world continue to deteriorate, it becomes increasingly important for business owners to devise and implement strategies to shield their entity as much as possible from the economic fallout. When the going gets tough, the smart start planning. In general, encouraging sales revenue and figuring out which expenses can be trimmed are primary ingredients of your business survival recipe. There are other actions you are also advised to consider.

Review financials

Reviewing and interpreting your financial data enables you to make wise decisions that will protect your company. To understand which protective strategies may be sensible and possible for your entity, the planning process begins by first consulting your financial data. Refer to the overview of the big three financial statements in the April 18 post. Trust the story the data tells you and plan accordingly.

The Cash–flow Statement shows the ebb and flow of money through your business and allows you to predict when the most cash will be available and when cash will be at a low point. The tidal flow of money is critical to surviving a business slowdown. The Income (Profit & Loss) Statement reveals which products, services and other activities are most lucrative and you’ll want that information, too, as you construct the plan. On the Balance Sheet, you’ll find company assets, liabilities and outstanding debts or loans. Now you can determine where the business stands financially and how the possibility of decreased revenue could affect you. Your survival plan will start to take shape.

Study the previous 24-36 months of business performance history and use that information to project 24-36 months into a future that will be colored by a degree of turbulence. Each month, monitor relevant KPI (key performance indicator) values that reflect income and expenses, including:

  • top line revenues (gross sales)
  • accounts receivable (outstanding invoices)
  • accounts payable (bills owed by the business)
  • payroll (W2 and 1099NEC)
  • rent
  • utilities
  • software subscriptions
  • taxes

It is imperative that you’ll be able to cover accounts payable obligations and payroll for employees and/or Freelance outsourced help. You do that by doing whatever possible to ensure that accounts receivable are paid on schedule. Invoice on time and include a line that states payment is due upon its receipt. In reality, an invoice that is 45 or fewer days old isn’t past due. However it’s always in your interest, particularly when business is slow, to collect receivables quickly, to promote the timely payment of what’s payable.

Create action plan

Planning for an expected economic slowdown is how to prepare your business for survival. Don’t wait until you’re underwater. To power difficult a difficult business climate, business owners are advised to take a view from 30,000 feet look at the operation. See the suggestions below for tried-and-true recommendations that could help you save the day. If you have the money, it’s also a very smart idea to create an emergency fund and purchase business interruption insurance, to cushion the blow if disaster strikes. Who could have predicted either the events of September 11, 2001, or the arrival of the coronavirus and the subsequent months-long shutdown?

Trim operating expenses

Trimming operating expenses is an obvious and effective way to soften the impact of a sluggish economy. Examine your budget and reduce or eliminate paying for what you don’t need. Also, pick up the phone and attempt to negotiate lower credit card and/ or loan interest payments, cell phone rate and more favorable vendor contract terms (if your payment record is good). Marketing automation and other software as a service subscriptions might also be lowered by a modest amount each month.

Business travel, maintaining membership in certain business or professional organizations and attending certain conferences and trade shows may be expenses that you should continue, if possible, if the ROI is good. Don’t bite your nose off to spite your face. If you can cut even $50/ month your accounts payable tab, it’s a victory.

 Prioritize customer retention

It’s been convincingly demonstrated that it costs 5x more of your valuable time and money to bring in a new client than it does to retain the client you already have. Your relationship with existing clients will be an important asset during turbulent times. Keep them coming back by not only offering the products and services that deliver the solutions they need, but also by providing the customer experience they value.

Invite feedback, sometimes by finding opportunities where conversation with your clients can take place or by sending out a quick survey, maybe with your next invoice, so that you can learn how clients feel about doing business with your organization. Client feedback may alert you to problems that need your attention, information that is crucial. Inviting feedback also demonstrates that customer satisfaction is a priority at your company and it further enhances the customer experience.

Focus on best-sellers

In an economic downturn, promoting your best-selling products and services is a prudent strategy for both attracting new clients and maintaining current clients. Let the top line revenue on your P&L be your guide. Furthermore, support your top line by ramping up your customer retention strategy (or create one). Next, evaluate and optimize the customer experience your company provides as well, including after-sale support. Make the most of every touch point.

Revamp leadgen marketing

Don’t let tough economic times diminish your brand’s success. Instead, reassess your marketing strategies to stay ahead of the competition. If you’re working with a tighter budget, narrow marketing focus to enhance customer loyalty and encourage retention. Energize social media presence and digital marketing solutions to increase your brand’s visibility. Keep your finger on the pulse of the latest trends in marketing to tap into what’s capturing the attention of your target audience.

If you or a friend are adept at shooting and editing visually-engaging short videos, revitalize your marketing on YouTube (if your A/V skills are good), TikTok, or Instagram. They key is getting creative in your marketing messages to stand apart from competitors. By all means necessary, during the adverse economic conditions (and also when things improve), stay visible, watch your financials, be agile, look viable stay relevant and be cautiously optimistic.

Thanks for reading,

Kim

Image © Susan Doyle (pictured), founder and owner of Go Paddle in County Wexford, Ireland is an avid kayaker, coach, outdoor educator and a paddling ambassador for Canoeing Ireland through the Bridge the Gap program.

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Getting Started With Financial Projections

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Whether you are starting a new business, expanding or scaling an existing venture, or searching for investors, creating realistic financial projections is a vital component of the process. You’ll rely on those projections to make informed decisions as you execute the plans for your business. It’s imperative that you have a very good idea of the amount of money you’ll need to move forward with your intentions and how much money you can expect to earn as a result—-and also about when the expected revenues will arrive.

So, what is involved and where can you begin when your goal is to create financial projections for your business? The answer is—- surprise!—-do some homework first. Below are factors to research and help yourself create financial projections that help define the path to success that will work for your organization.

Your financial projections will be detailed in the basic financial documents—the Profit & Loss (Income) Statement, the Balance Sheet and the Cash-flow Statement. The Break-Even Statement will help you predict how much revenue the venture must generate to break even in terms of revenues versus expenses and when that’s likely to occur.

Something to keep in mind when you contemplate the need for financial projections is the distinction between projecting versus budgeting. Think of financial projections as a prediction, and budgeting as your plan. When you do a financial projection, you see what direction your business is headed in, based on past performance and other factors and use that to anticipate the future.

When you create a budget, you plan how you’re going to spend money based on what you expect your finances to look like in the future (your projections).

How big is your target market?

Start-up costs

This is the beginning in terms of your research and big question to answer. Understanding how to build a profitable business starts with determining the size and revenue (sales) potential of your market; if there aren’t enough buyers available, you’ll be unable to succeed. Most industry associations publish research regarding the size of their industry. Identifying three or four close competitors is also useful. Competition is a good sign, confirming that there is money to be made. You need to understand the annual sales volume expectations of your venture.

Expenses are much easier to predict than revenues. Start building your forecast model by outlining your fixed expenses, meaning rent, utilities and insurance. Next, consider the variable expenses, such as salaries, cost of goods sold (or the estimated value of the time it takes you to produce the service you offer). Business permits, required certifications and a marketing budget, for example, are other variable expenses to account for.

Also factor into your start-up costs your best estimate of site buildout and/or necessary equipment—coffee making machines, cash registers, computers, printers, online booking software, online payment or mobile payment plan, desks and chairs—in your financial projections.

Revenue projection

Thinking about how much revenue the venture will be able to generate, i.e., creating a sales forecast, attempts to predict what your monthly sales will be for up to 18 months after launching your business. Start-ups can make their predictions using industry trends, market analysis demonstrating the population of potential customers and consumer trends.

A pricing strategy is an integral component of a revenue projection. Research average industry pricing to ensure your prices are reasonable. Start by identifying the top players in your market. Then visit their locations or websites to determine how they price their products and services.

Cash-flow

A cash flow statement (or projection, for a new business) shows the flow of dollars moving in and out of the business. This is based on the sales forecast, your balance sheet and other assumptions you’ve used to create your expenses projection. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months.

Identify your assumptions

Any forecast requires you to make assumptions about possibilities that are outside of your control. The best way to manage these assumptions and avoid subconscious bias is by explicitly identifying and documenting them in writing.

The assumptions you should list include how much the market will grow or shrink, based on your research about the industry and local or national economy, changes in the number or activity of your principle competitors and/or technological advancements that will impact your business.

Break-even point

Together, your expenses budget and sales forecast paints a picture of your profitability. Your break-even projection is the date at which you believe your business will become profitable — when more money is earned than spent. Very few businesses are profitable in their first year. Most businesses take two to three years to become profitable. The Break-Even Statement will help you consider and plan for how long and how much revenue the venture must generate to break even in terms of revenues versus expenses and position the business for profitability. In other words, you’ll map out the scenario of pulling the business out of the red and into the black.

Thanks for reading,

Kim

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When to Hire, When to Outsource

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Increased sales and plans for expansion are a happy and exciting time for business owners . But as we discussed in last week’s post the bear market is in the house and caution is highly recommended. Along with confirming that customers will spend the way you need them to, you’ll also need to ramp up your operation in one way or another to meet the increased demand for what you’re selling.

Each of those scenarios requires a different type of staffing strategy—-maybe part-time, maybe full-time; temporary/ seasonal; possibly W2 and on the payroll or maybe 1099NEC Freelancer? There’s also the option to not hire anyone (unless your opening additional locations, for example). To figure that out, you’ll also need to make a realistic assessment of how much more work you can coax out of your current staff, without provoking a mutiny. Below are potential questions to ask yourself plus solutions for increased staffing needs at your growing organization.

Start your decision process by defining what “increased sales” means for your company. Is the plan to add e-commerce to your website so that you can sell products or provide services online? Or have you signed a new client and you’ll provide services on an ongoing basis—- or maybe the work will be completed in 4 months, but will keep you very busy? Maybe this is turning out to be a reality hot summer and the lines at your ice cream shop are halfway down the block? Below are practical questions to ask yourself as you figure out the best staffing solution for your company.

What function needs to be done?

HR, IT, bookkeeping and social media management are services that are often outsourced to a fellow Freelance expert or perhaps to a large company that operates nationally. Your company’s need for one or more specialized skills or labor may be ongoing, but the frequency of need may not require full- time work.

You can hire part-time help, but what kind of working relationship should you enter? Can you afford to make a commitment to pay someone maybe 10 or 20 hours per week, every week, as a W2 employee? Are you confident that your revenue will support the expense?

If it seems reasonable to assume that you’ll have the cash-flow and you have a good relationship with a particular vendor and you’d like to maintain that, then make a salary and time commitment offer. You might propose W2 status to someone who’s worked in your organization as a 1099NEC (who will be very happy to have taxes taken out during every pay period and eliminate at least one source of quarterly tax filing), or hire a newly recruited person.

Do you anticipate short-term or long-term deployment?

Obviously, if you need labor or a skill set—-grant writing, meeting facilitation, website developer, or seasonal help (Christmas rush or summer help?)—-for just a few weeks or months, you hire 1099 NEC workers. The labor or skill set may be mission- critical because a lot is riding on its fulfillment, but you need it only for a special project or defined time.

But if sales at your bakery are up and the line for coffee and muffins is noticeably longer, then you’d be wise to hire one or more W2 employees to shorten the wait time, avoid over- working and frustrating your current employees (which could lead someone to unexpectedly quit and leave you in a bind) and maintain the positive customer experience.

Which costs more–1099NEC or W2?

There are costs and other downsides associated with both outsourcing and hiring permanent employees. Sometimes, calculating the costs, of dollars and other factors, can help you reach the most favorable. or least onerous, decision. Your HR/ payroll and benefits management service (which may be in-house or outsourced) can research the expenses associated with bringing in a W2 employee. A visit to indeed. com or Upwork can let you see the ballpark range of hourly or project Freelancer rates.

The bottom-line cost of hiring a 1099NEC Freelancer will be lower than the cost of hiring a W2 employee, but there are sometimes persuasive reasons to do the latter.

Calculate the time needed to get each choice up and running (onboarded)

The answer to this question has big impact. While you may have the money to hire a W2 employee and even prefer to install a permanent team member into a mission-oriented position, you may realize that hiring an experienced Freelance consultant to do the job will allow you to get things done much faster.

Your Freelancer will be a hired gun who possesses deep expertise, a pro who needs minimal onboarding and training to successfully produce the deliverables. Because your Freelancer probably concentrates his/ her work on just three or four related competencies, the quality of the work and knowledge brought to the table will be deeper and more specific. Going immediately to a Freelancer means you bypass the potentially time-consuming hiring process and obtain the skills or labor you need ASAP.

Do you want a boss-employee relationship?

Working with a permanent (well, more or less) team is a different dance. it’s a longer-,term relationship and it demands a different kind of leadership—more intense. If you enjoy this kind of stuff, you’ll get to help someone grow professionally nurtured by the training opportunities that you provide, through a combination of assignments that you initiate, skills building workshops that you make available and career development pep talks that you give.

Thanks for reading,

Kim

Image: The Stone Breakers (1849) Gustave Courbet (France, June 1819 – December 1877). The painting was destroyed along with 154 other paintings in February 1945, when a transport vehicle moving the art to the castle at Konigstein, near Dresden, Germany was hit by Allied forces (“friendly fire”).

Business Strategy , Leave a comment

10 Strategies for Surviving a Bear Market

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Step right up folks. Welcome to the bear market. Wasn’t this the party you were looking for? Probably not. But the bear market bus has left the station and you have no choice but to hang on for the ride. Get used to it—bear markets are stubborn. The bear market known as the Great Depression technically lasted for 3 years (1929-1932). The Dot.com Bubble bear market lasted 2 years (2000-2002).

However, the negative effects of bear markets—-high unemployment, inflation (higher prices paid for essential items) and downward pressure on business revenue (resulting from lower disposal income that limits discretionary purchases and higher interest rates on business loans)—-usually doubles the real-time negative effects of bear markets on the population.

So what is a bear market anyway? Economists declare a bear market when there are sustained declines of 20% or more in (recent) prices of stocks, bonds, mutual funds and commodities across several market indexes and exchanges —Standard & Poor”s (S&P 500), Moody’s, the New York Stock Exchange (Wall Street) , NASDAQ, and the Chicago Mercantile Exchange are among the well-known economic benchmark sources. Bear markets usually occur in tandem with a weak economy.

You may notice that stock and other securities prices demonstrate investor confidence and optimism. The high prices typical of a bull market, polar opposite of the bear market, indicate an expectation that big institutional investors are expecting growth and expansion of the economy. But in a bear market, it’s all about avoiding risk and conserving cash.

So, too, for Freelancers. Pulling back and going on the defense is the smartest bear market strategy. Conserve cash by trimming expenses that do not demonstrably contribute to customer acquisition, customer retention and the customer experience. Manage expenses to preserve your cash-flow. If you are able to save money on a regular basis, so much the better, so that you’ll have funds available to cover business and living expenses if revenues take a serious dip,

Be very cautious about plans to grow, expand, or scale your business and remember that business expansion costs money, a resource that is more expensive to obtain during high-interest bear markets. You can go out of business in a blink if you start drinking from the fire hose and expand too much and too fast.

You can run out of money because you can’t bring in customers fast enough to cover operating expenses. You can also be caught off guard by factors outside of your control—-like a pandemic lockdowns, a boat turned sideways in the Suez Canal, another war or assassination—- that deflates your once/ reasonable sales projections.

Furthermore, customer acquisition and retention are usually more difficult to sustain when disposable income drops and potential customers pull back on spending. Still, with the right strategy you might make money, or at least avoid big losses. Below are actions to help you minimize the bite of the bear.

  1. Open a cash reserve account and aim to deposit 5%-10% of weekly net revenues. If you encounter ether an emergency or an opportunity, you will have waiting for you an interest-free line of credit, so to speak, to carry you through an unexpected cash-flow glitch.
  2. If you sell products rather than services, find back-up supply chain resources so that your shelves will remain stocked even if your usual supplier experiences delays. You must have products to sell when customers want to buy.
  3. Be cautious about plans to expand your venture, unless trustworthy research shows the ROI the time and money required.
  4. Cut excess operating (selling, general & administrative) expenses.
  5. Boost AOV (average order value) by bundling products together to increase sales revenue. Make it attractive to buy from you.
  6. Minimize or eliminate perks —-offsite retreats, meals, travel and the like—- unless you’re spending on customer acquisition or productivity-enhancing skills development.
  7. Raise prices in response to the impact of inflation on the rising cost of goods sold, to maintain profit margins.
  8. Consider investing in long-term opportunities or capital improvements that might now be discounted significantly. Who knows, if the financial prospects are good, maybe you can buy out a competitor who has good market share, but doesn’t have the money to overcome the bear market—/and you do.
  9. Focus marketing in the top three performing channels only and drop those that don’t add much to your sales/ mart pipeline.
  10. Use cash-flow and higher operating margins( (obtained by raising prices) to provide the working capital you need. Remember that the interest you pay on borrowed money from your bank is now higher with rising interest rates.

Thanks for reading,

Kim

Image: © The New York Times The Bear struts his stuff in the Boston Ballet production of The Nutcracker.

Administrative , , , Leave a comment

Talking Tax Year 2021

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The new year is just one month old and it’s already time to think about filing taxes. Ugh! Then again business owners, including Freelance consultants, must usually file quarterly taxes so we often have our minds on the subject. As we know, planning is key (for all of life and business!) and the purpose of this post is to support your tax planning.

Let’s start with the question of whether or not you’ll file a 2021 tax return. If any one client paid you at least $400 in total during the year, you must file a tax return. Why is $400 the filing trigger point and not $600, the well-known earnings threshold for paying income tax?Because Freelancers are required to pay self-employment taxes in addition to regular income tax on the revenue you generate (minus business expenses and a few other deductions). While you may not owe income tax on the $500 project you billed, you’ll pay self-employment taxes on that amount.

The Internal Revenue Service compels Freelancers to file taxes like a business owner. In addition to the standard income tax based on your tax bracket and filing status, you are obliged to pay the self-employment tax of 15.3%, which constitutes the Social Security and Medicare taxes that everyone who works must pay, and also pay the half that’s covered by a traditional employer (this requirement does not apply to Freelancers who have U. S. clients but are not U.S. citizens and do not reside in the U.S.).

Clients pay to you the entire amount of the agreed-upon project fee and do not withhold taxes. Total earnings received from each client are reported on a Form 1099-NEC that is sent to you by each client no later than January 31. Freelancers pay the self-employment tax directly to the IRS, on your own.

Now you probably have business expenses to factor into your revenue earned, so if you’re a part-time, occasional Freelance moonlighter, you might not owe either income or self-employment taxes. File Schedule C or Schedule C-EZ to calculate and report business expenses to your state’s Department of Revenue and the IRS.

Freelancers and other business owners who expect to owe $1000 in taxes in a given year must also pay an estimated quarterly tax because, again, no portion of Freelance income is withheld by clients and applied to taxes that are presumably due. IRS Form 1040-ES will help you calculate how much you’ll owe in estimated taxes each quarter. It’s beneficial to you when your estimated quarterly tax is close to reality because if you underpay, you’ll owe the IRS the remaining balance when you file the annual tax return (by April 15). Habitual underpayment of quarterly taxes can cause you to be penalized and compelled to pay a fine, along with taxes owed.

Finally, heads up if you use services such as PayPal or Square to accept invoice or other client payments. Be advised that new tax reporting changes affecting these platforms are now in effect. A new tax ruling gives the IRS information on income that Freelancers and other small businesses proprietors receive via transactions on payment applications.

As of January 1, 2022, businesses that receive payment of $600 or more per year for goods and services purchased through payment apps such as Venmo, Square, PayPal and Cash App will receive Form 1099-K so that the IRS can be assured that you will include those payments in your taxable revenue. In an effort to reduce the amount of unreported taxable income flowing through these payment platforms, the IRS now requires payment app businesses to report on Form 1099-K each of their user’s business transactions (defined as a payment for a good or service). The threshold for reporting was previously 200 transactions per year amounting to a combined total gross payments of at least $20,000.

By lowering the reporting threshold, peer-to-peer payment applications must now report income if a user earns more than $600 from the sale of goods or services in one year. This change applies only to “income received from goods and services,” meaning it does not apply to gifts and other personal transactions, such as reimbursing friends and relatives for rent, dinner, or other social expenses.

If you use payment apps for non-business transactions and you receive a 1099–K. from one of these platforms, examine it carefully and be prepared to clarify your activities with the IRS. There may be a chance that some of your transactions will be reported twice or somehow inaccurately, since these reporting requirements are new. Check carefully the 1099–Ks you receive from your payment apps as well as the statements you receive from clients who use the apps to pay you. Again, be prepared to explain to the IRS that the two 1099-Ks are for the same transaction.

Let’s finish up with a peek at important 2022 tax filing dates to remember:

· January 31, 2022 – Deadline for clients to send Form 1099–NEC to Freelance consultants

· March 15, 2022 – Deadline for partnership tax returns (and LLCs taxed as a partnership) and S-corporation tax returns

· April 18, 2022 – Deadline for 2022 Q1 estimated tax payments. It’s also the deadline for C-corporation, sole proprietor (businesses you report on a schedule C) and individual tax returns. If you file an extension for the deadline, the Individual Tax Return Extension Form is due on April 18.

· June 15, 2022 – Deadline for 2022 Q2 estimated tax payments

· September 15, 2022 – Deadline for 2022 Q3 estimated tax payments

· October 17, 2022 – Deadline for 2021 individual tax returns that received a filing extension

. January 15, 2023 – Deadline for 2022 Q4 estimated tax payments

Thanks for reading,

Kim

Image: Mohamed El Korchi as Matthew, a tax collector who, after a monumental pivot and rebrand, would go on to become a saint, in the Lumo Project, an educational resource designed for anyone interested in the Bible’s four books of the Gospel.

Administrative , , , , Leave a comment

Cash-Flow Cures

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Cash-flow is the beating heart of every for-profit (and also not-for-profit) enterprise and it is imperative that business owners keep a finger on the pulse of revenues that flow in and expenses that flow out of the coffers and constantly monitor the venture’s fiscal health. Your ability to pay recurring bills, invest in the business and maintain operations depend on it.

There are several Key Performance Indicator metrics that reveal the strength (or weakness) of aspects of the business—the number of active clients, the number of subscribers to your blog and/or newsletter, the conversion rate of sales leads and the percentage of clients who give you repeat business, for example, and each tells an important story. But in the end it’s about the money, how much comes into the business (accounts receivable and whatever additional income) and how much goes out (accounts payable, plus interest payments and taxes).

Follow your cash-flow

If you send only a few invoices each month and generate them yourself, why not create an Excel spreadsheet and enter your receivables and payables data there, at no charge? You can monitor invoices (accounts receivable) and update as payments are received. Each month, you can easily calculate revenue. Monthly bank and credit card statements, PayPal emails and updates from online payments, made or received, will verify your accounts payable activity and confirm receiveables that are paid.

You can record it all in Excel (and label it your Profit & Lost Statement) and understand whether you’re making money, breaking even, or losing money when you view the bottom line. With that knowledge, you can create strategies to capitalize on your financial situation or correct it.

If you’d rather pay for an invoicing and accounting service, there are several good options available, including Fresh Books, HoneyBook, Invoice2Go, Oracle’s NetSuite, QuickBooks, VCita, ZarMoney and Zoho Books. The platforms make it easier to send invoices, reconcile accounts, generate reports , track time spent on project work and more.

Evaluate expenses

Examine your company’s recurring monthly, quarterly, or annual expenses. Can you trim the cost of utilities, renegotiate commercial space rent or insurance payments? Why not terminate premium services or other subscriptions that don’t deliver as you anticipated? Ditto for organization memberships that you can’t find the time to utilize.

The work from home phenomenon should help you lower your rent for office or other commercial space. If your landlord balks at dropping the price, consider asking for more space, if you’ll find it helpful, or ask for perks such as a discounted maintenance fee.

If you have a history of paying bills on time, call your insurance, credit card and loan companies and ask for a lower interest or premium rate.

Demand a deposit

When a project fee reaches a mid 4-figure sum, request a 10% – 20% up-front payment at the contract signing. Link subsequent payments to the completion of project milestones. Aim to leave no more than 25% of the fee payable at project completion. In other words, help your monthly cash-flow and revenue by scheduling most payments before the client has what s/he wants. If the client is unethical and “forgets” to make the final payment, you’ll have most of the money in your pocket.

Invoice on time

The thing about being a Freelance consultant is that unless you are a big-league player, invoicing, proposal preparation and other administrative tasks are done on your time. Remember that when negotiating project fees and try to roll it in.

I find invoicing to be a chore, but that’s how I get paid. Within two weeks of the completion of whatever client work you’ve done, train yourself to invoice. On your invoice, state that payment is due upon its receipt.

No-problem payments

If you sell products or provide services at your clients’ homes or offices, enable on-the-spot invoice payments with mobile apps that use your smartphone or tablet to accept credit or debit cards. Investigate mobile payment platforms such as Helcim, Payment Depot, Square, Stax and Stripe.

Credit cushion

A business line of credit is a good insurance policy against cash-flow droughts. Talk to the manager at your bank and s/he will be happy to discuss options with you. Most likely, you’ll receive a business credit card, which will be very helpful as you track business expenses, whether you take a prospect out to breakfast, attend a professional development or networking event, or buy a new computer.

As well, if your credit score is good you may be able to more quickly collect receivables from good clients who are, unfortunately, slow payers, by applying for a NOWaccount. Both your company and the client’s company must be approved. You invoice the client as usual and NOWaccount pays you within 30 days, minus a fee. Client checks are made out to you, but mailed to a post office box belonging to NOWaccount. If you have a good client who is a 60 + day payer, you can be well-served with this option.

Thanks for reading,

Kim

Image: Leonardo DiCaprio in Catch Me if You Can (2002) directed by Stephen Spielberg

Marketing , , Leave a comment

Strategy: Win a Business Award

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One often-overlooked business strategy that brings many benefits to a company is competing for (and winning!) a business award. Competing for a business award and being named a finalist, that is, eligible to win first, second, or third prize, is a big vote of confidence for the chosen organizations. The recognition sets your business apart from competitors, implies credibility and expertise, enhances your company’s brand and stature and is almost certain to increase the number and quality of prospects, clients and referral sources your business receives.

There are more ways to win than you might think. Sponsoring organizations are typically generous with the number of awards and categories they choose to honor. More awards and more categories are an incentive for business owners and leaders to become contestants because there will be more opportunities to win. More contestants means more entry applications received by the sponsor and more tickets sold to the awards banquet (when those activities resume), since every finalist will buy at least one ticket and some will buy a table.

In addition to its role as a revenue enhancer, sponsoring awards is good PR for the organization, which could include the bank where you keep your business account. The awards not only distinguish the group as a prominent member of the business community, but also attract and help to retain members (or customers). In the best of American traditions, business awards are a way for many to make money. That could mean you, too.

Full disclosure—-as a result of the destabilizing impact of the coronavirus shutdown, I declined to accept an invitation to return as a preliminary round judge in The Stevie Awards/ Women in Business category (there are eight in all), an honor I’ve been happy to receive for six of the past eight years. Judges are neither paid, nor do we pay to participate. I do it because I enjoy experience and it looks good in my bio. https://stevieawards.com

Be advised that as with any marketing campaign, there are expenses involved. You’ll be required to join the sponsoring organization. You must pay the award entry fee for every award category that your company pursues—-best new product launch, business of the year, best workplace, social responsibility award and so on. You must buy one or more tickets to the ceremony (even when it’s virtual). The awards process could represent the entirety of your outfit’s annual marketing budget.

The time needed to prepare your award entry and determine which supporting documents will best communicate who you, your team (if applicable) and your company is another cost. Creating an impressive and persuasive entry application can be a laborious and time-consuming undertaking.

Furthermore, an assessment of your company’s readiness to pursue an award may reveal that it would be advantageous to build for 12-24 months before your organization is prepared to compete for an award. But that’s OK. Taking steps to analyze the strengths, weaknesses, opportunities and threats of your organization (are not most of us facing the threat of the COVID economy?) will pay dividends in and of itself. Just be objective about your company’s chance of winning and understand the time and money likely to be involved.

Choose a target award

Potential contestants are advised to do some homework and discover awards that are sponsored by local, regional and national organizations, whether business networking organizations (chambers of commerce), industry-specific associations (such as the Bar Association for attorneys), or your business bank. I recommend that your initial forays into awards campaigns focus on local sponsors, particularly for those of you who are Freelance consultants and small business owners generating less than $500,000 in annual gross revenue.

After compiling a draft list of possibilities, check the award entry criteria. It’s likely that candidates must join the organization in order to compete for an award and that will be your first expense. Annual dues may run from a few hundred dollars to $1000 or more, depending on the sponsor. Confirm also when new members will be eligible to compete for an award. Next, investigate other entry facts—-the entry application deadline, the fees and whether candidates must be nominated to compete for the award.

Read the specs and select the categories in which you can expect to do well—-excellence in your field, customer service, new product or service launch, community outreach, environmentally-friendly, for example. Within the categories offered, where might your company step to the front of the pack?

Finalize your choices and prepare to compete, being sure to give yourself ample time to collect, evaluate, or create the supporting resources you’ll need to enter. The good news is that if you plan to enter more than one category, most of the content developed can be used in multiple entry forms.

Tell a compelling story

On nearly every award entry, there’s a section that asks for more details about your business, your team and you. Be sure to provide all of the information that is requested and as well, tell a story beyond the statistics. Let the judges feel your personality and understand what makes your business stand out. Here, you can share unique information that might not fit elsewhere in the entry application. Customize your message by sharing relevant success stories and achievements that address the award category you are entering.

Construct a strong beginning, middle and end for your story. Reveal how you overcame challenges to reach new heights and back up your claims with hard evidence. Feel welcome to include good visuals like charts and graphs, or the persuasive appeal of client testimonials. Keep your application punchy and concise, using short sentences and statistics to underline key points. Bullet points are an effective way to ensure that judges can absorb your performance metrics quickly.

Describe what motivated you to launch the company. Detail the company’s vision, mission, guiding principles and values and what you and your team are passionate about and which accomplishments make you most proud. Tell your story from your heart. Before hitting the send button, or sealing the envelope for a hard-copy mailing if required, add a personal note and thank the sponsoring organization and the judges for their consideration of your entry. Then conjure up some positive thoughts!

Thanks for reading,

Kim

Image: The inimitable Academy Award, Golden Globe Award and Grammy Award winning actress-singer-dancer Judy Garland in A Star is Born (1954), for which she won the 1955 Golden Globe Award for Best Actress in a Musical