By Giovanna Lester
Being self-employed is not for everyone.
As self-employed professionals we must keep abreast of market conditions – pricing, demand, terminology changes, and technological developments, for example – and make sure we take full advantage of those that have a direct impact on our jobs. Also, we are our own secretaries, marketing directors, human resource department, and more. Wearing those many hats is the price we have to pay for the freedom of choosing our clients, our projects, our free time, and setting our wages.
This article focuses on the financial area of our entrepreneurial endeavors. More specifically, determining what your time is worth.
Data to keep in mind:
- Number of weeks in a year: 52
- Desired yearly net income: varies
- Desired number of work-hours a week: varies
- Total operating expenses: varies
The formula to calculate what your time is worth is simple:
[Desired Yearly Net Income/52] / [work-hours] = [hourly value]
That was easy. If you need to find the value of a smaller or greater unit of work measurement, such as words, characters, day, half-day, just divide or multiply that hourly-value figure by that unit.
Now come the important questions: Can the market bear that rate? How will you find clients willing to pay that price? Will that cover your overhead and allow you to make a good living?
The first two questions can be answered by gauging colleagues, agencies you work for, and thinking outside the box as concerns client procurement. The last question requires that you keep track of your expenses and understand what can and cannot be deducted from your income taxes.
My first suggestion is to find yourself a good accountant. Even if you do not hire one on an ongoing basis, consult on best practices for your new venture. Those of us in the United States can take advantage of the IRS website to learn about Social Security and Medicare contributions, self-employment tax deduction, self-employment health insurance tax deduction and more. You will find a list of sites in the References section at the end of this article.
It is very important to keep your business and personal funds separate. I recommend having two bank accounts: business and personal, with matching debit cards. Your clients’ payments go into your business account and from that account you can issue yourself payments to be deposited into your personal bank account. Your business account debit card will not be used for your weekly groceries. However, if you are giving a business dinner or buying a client some wine, those expenses can be paid for from your business account debit card. Likewise, your personal debit card should not be used to buy supplies for your office, for example. These procedures pay off at tax time when your bank statements make it easy to determine what went into your business and what went out.
The IRS offers information on what constitutes operating expenses and what you can legally claim as such. Did you know that you can deduct expenses for the business use of your home – even if only part of a room? The IRS also provides information on calculating expenses related to the business use of your car.
Programs such as Quicken, QuickBooks and online accounting sites such as FreshBooks are very helpful when it comes to generating financial reports, issuing invoices, and having a financial picture of your business.
Well, with so much available assistance, being self-employed doesn’t look that hard, does it? Help is definitely good, but the hardest parts of being self-employed are related to discipline and running an office. Each client is a new boss and their needs drive your schedule. Being responsible for performing the job while keeping the office organized, marketing yourself, staying up-to-date on market trends and developments demands a lot of time, time management skills, organization and determination. Have you got what it takes?
About the author: Brazilian-born Giovanna “Gio” Lester has worked in the translation and interpreting fields since 1980. Gio is very active in her profession and in the associations she is affiliated with: ATA, NBCMI, IMIA, NAJIT, IAPTI, and the new ATA Florida Chapter, ATIF, which she co-founded in 2009 and served as its first elected president (2011-2012). As an international conference interpreter, Gio has been the voice of government heads and officials, scientists, researchers, doctors, hairdressers, teachers, engineers, investors and more. She loves to teach and share her experience.
Online and other accounting software for the self-employed