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Power Hour 17 | Demystifying Finance for Freelancers and Sole Traders

Understand your financial performance and manage your time efficiently to achieve your financial goals.

We all recognise that ‘time is money’ but when you’re under pressure to deliver and you have to do it all, it’s easy to lose focus. You can’t see the wood for the trees! Sound familiar – this session will provide you with some insights and some tips to stay in control of your finances, know whether you’re doing well or badly and pay the right amount of tax.

By following some simple steps, you will be better placed to make your finances work for you and not the other way round. Say goodbye to working all the hours you can only to be told 3, 6 or even 12 months later by your accountant that you didn’t make enough money or that you have a tax bill you weren’t expecting!

This session will help you to understand:
1. Context | Why is finance important and what you need to focus on
2. Purpose | Link your finances to your goals
3. Success | Define what success means for you
4. Plan | Map out the performance you want
5. Focus | Ensure that you do the things that contribute to your success
6. Measure | Keep track of the right things
7. Review | Monitor results and take appropriate action to achieve your goals

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Power Hour 17 | Demystifying Finance for Freelancers and Sole Traders

  1. 1. Demystifying Finance for Freelancers and Sole Traders Understand your financial performance and manage your time efficiently to achieve your financial goals
  2. 2. The EPS Partnership enhancing profits through strategy Azim Karimjee • engineer by training • MBA from the London Business School • strategy consultant with Bain & Company • strategy and business development with Bass plc • Finance Director with Prolojik Ltd More details on Linked In – see www.linkedin.com/in/azimkarimjee © The EPS Partnership 2020 230 July 2020
  3. 3. Why is finance important? • To keep track of your income and expenditure • Ensure that you have enough cash to meet your debts as they fall due • Pay the right amount of tax Plan ahead © The EPS Partnership 2020 330 July 2020
  4. 4. Align your finances with your goals • Define your goals - If you don’t know where you’re going, how do you know which way to go and how will you know when you get there? - Make your goals specific (write them down) – simplifies planning • Plan how to use your resources • Have targets (budgets) that are milestones on the way to success • Finance is how you keep score © The EPS Partnership 2020 430 July 2020
  5. 5. Plan for success “If you fail to plan, you are planning to fail” • What do you have to do for you to have the success you’ve just defined - Understand what your customers want - Do what you need to in order to deliver what they want - Make sure that this combination is viable © The EPS Partnership 2020 530 July 2020
  6. 6. Viability • Turnover / revenue / income (money coming in) - Number of customers * spend per customer • Costs / expenses (money going out) - Fixed (incurred whether you sell anything or not) - Variable (incurred each time you sell something) • Breakeven - How many customers do you need each month to make money Annual income £20, annual expenditure £19 19s 6d Annual income £20, annual expenditure £20 0s 6d happiness misery © The EPS Partnership 2020 630 July 2020
  7. 7. Hypothetical Business • Provides a bespoke service to each customer • Typical project takes 8 hours to deliver for which the fee is £400 • Principal wants to earn £2,000/month • Each project requires goods/services worth £60 to be purchased • Regular outgoings (costs) are £350/month © The EPS Partnership 2020 730 July 2020
  8. 8. Turnover • Number of customers - Let’s assume 8 customers/month • Spend is £400/customer • Turnover is £3,200/month © The EPS Partnership 2020 830 July 2020 Costs • Fixed costs are £2,350/month - £350 costs - £2,000 salary • Variable costs are £480/month - 8 projects at £60/project • Total cost is £2,830/month
  9. 9. Breakeven • For every project sold, the business earns £340 - Turnover of £400 less variable cost of £60 • The fixed costs of the business are £2,350 • The breakeven point for the business is therefore 7 projects/month - £2,350/340 = 6.91, rounded up to 7 So to break even, you need 7 customers/month and for every extra one, you will make £340 more © The EPS Partnership 2020 930 July 2020
  10. 10. Customers • What does it take to get one more customer? - How many prospects do you need to see to get one customer? - How much time does it take to deal with each prospect? o preparation and selling • This is all time required to acquire an extra customer in addition to the time needed to deliver the project © The EPS Partnership 2020 1030 July 2020
  11. 11. Customers - 2 • Let’s assume that you can convert 1 in 3 prospects • Let’s assume it take 4 hours to prepare for each prospect • That means each prospect takes 12 hours to win in addition to the 8 hours to deliver • So each project actually takes 2.5 days to complete • So in a typical 20 day month, you can do 8 projects © The EPS Partnership 2020 1130 July 2020
  12. 12. Hypothetical Business - 2 • Our business is doing OK • The principal is earning their target of £2,000/month • And there’s £370 surplus each month • But there’s no time for everything else that needs to get done In the real world, that’s not true: • If we have more/less customers, then we earn more/less that month • And if we need more time, there’s always evenings and/or weekends © The EPS Partnership 2020 1230 July 2020
  13. 13. Managing your time - your scarcest resource • Customers - Marketing – making them aware of you and getting enquiries - Selling – making proposals and converting prospects into customers • Suppliers - managing them, making sure you get what you and your customers need • Delivering the work • Administration - Keeping records (including finance) © The EPS Partnership 2020 1330 July 2020
  14. 14. Focus on Cash • A business bank account is all you need • Make sure you can recognise transactions on your bank statement from the description of the payment or the income (although I do recommend keeping a separate record of your transactions in Excel) • You can even pay your taxes on a cash basis Turnover is vanity Profit is sanity Cash is reality © The EPS Partnership 2020 1430 July 2020
  15. 15. Managing Your Cash • Keep your business cash separate from your personal cash • Invoice immediately you have completed work • Try to draw a fixed amount from the business each month • Where bills (e.g. phone, broadband) are in your name, charge a %age of the cost to the business each month • If you work from home and use your own computer and software, it is legitimate to claim for some of these costs from the business. You must take specific advice, because everyone’s circumstances are different © The EPS Partnership 2020 1530 July 2020
  16. 16. Summary • Write down your goals • Make a plan to achieve those goals • Manage your time carefully to maximise the value you get for your time – focus on customers (getting them and keeping them) • Keep your business finances separate from your personal finances • Focus on cash, keeping records in Excel to support the transactions in your business bank account © The EPS Partnership 2020 1630 July 2020
  17. 17. The EPS Partnership enhancing profits through strategy Azim Karimjee azim.karimjee@epsp.ltd.uk 07917 892620 www.linkedin.com/in/azimkarimjee Please email or call for a free initial conversation if you have specific queries. © The EPS Partnership 2020 1730 July 2020