Wearing My “Manager Hat”

I went into business for myself because I wanted to write and be my own boss. It was a long-time dream; the timing was right; and I was sooo ready. So, I took the plunge, having absolutely no idea what I was doing. That was a mistake. If I had it to do over again, I would know what I was doing before I found myself doing it.

Here are some of things I didn’t know:

• For every dollar that came in I had to put aside a certain percentage of for taxes. My accountant told me the amount could range from 30 to 50 percent, depending on my tax bracket. That meant for every three dollars I earned, I could spend two or possibly only one and a half. Those taxes had to be sent to the IRS every quarter before the fifteenth of the appropriate month.
• I already knew I was supposed to keep track of every expense, but I had no system for doing that. I either needed to create such a system or have my accountant do it. For years, I paid my accountant the extra money to do bookkeeping I could easily have done myself, if I had bothered to learn how.
• There was also, of course, the matter of tracking the time I spent on each client’s job and being sure I charged the correct amount. That meant deciding on an hourly rate, making sure the client knew what it was and agreed to pay it, buying and learning to use a time and billing program, and remembering to send invoices regularly and follow up when they weren’t paid. Every item on that list was its own individual nightmare.
• Then there were contracts, which I had no idea how to negotiate, write, or enforce. Consequently, there were holes in my contracts big enough to drive a jeep through. As for enforcing them — well, that was a joke. I tried Small Claims Court a few times before I found out it was an even bigger joke. (See Small Claims Court Revisited)
  
• Finally, there was the whole matter of determining whether or not I was making a profit and, if so, how much. To this day, I have no idea how to calculate that, so I never have.

The bottom line is this: I “went into business,” if you could call it that, like a kindergartner enrolling in college. I didn’t ask the right questions because I had no idea what questions to ask. I learned every lesson the hard way, often the very hard way. Some lessons I did not learn at all because, once again, I didn’t know there were lessons. Don’t ask me how; but, somehow, I have survived for 20 years. Much as I love what I do, though, managing the business has always been the toughest part for me.

What would I do differently if I could start over? In terms of wearing my manager’s hat, just about everything. The very first thing I would do is sign up for a small business course at the community college or one of the local universities. There are many such courses available, and I should have taken at least one. Learning to manage a one-person business is not like learning quantum physics. It doesn’t have to be the very hard way. It doesn’t have to be a mysterious or frightening. From what I hear, it could actually be challenging, growth promoting, profitable, and fun.

I have a little trouble with the fun part, but it’s possible, I guess.

Biz Basics for Writers

I just found some notes from a presentation I did a while ago for a group of aspiring writers. I shared the stage with my accountant, Jonathan Becker, CPA. The notes, taken in my particular brand of shorthand, are filled with great advice for owners of “creative” small businesses. That definitely includes freelance writers. The suggestions are still relevant, so I’m going to pass them along without embellishment.

• Bill by the hour. Bill for every single hour you put into your business.
• If a client isn’t willing to pay you for what you do, you probably don’t want that client anyway.
• When you raise your rates, don’t grandfather your old clients. If you do, you will begin the resent them.
• There’s a rule in accounting that every three years you should dump the bottom 20 percent of your client list.
• When you figure your hourly rate make it three times your expected or hoped-for income. Add to that 40 percent for what it costs to run the business. Divide that figure by 2,080 hours (working hours in a year), and that is what your hourly rate should be.
• Set up your books. Get help from your accountant if you need it.
• Creative people need to know how to reconcile a checkbook.
• Creative people should have a feel for what’s going on inside your business.
• If you’ve been business for two or three years and are going nowhere, it may be time to look for a job.

How to set up your business entity:

• Sole proprietor (on your own and doing business)
• LLC (Limited Liability Corporation limits your personal and family exposure) Set up your LLC with an attorney, and register with the Missouri Dept. of Revenue.
• Add umbrella protection to your homeowner’s policy.

Income tax:

• Fifty percent of incomes goes to taxes.
  
• Deduct anything that pertains to your business: Internet access, website, magazine subscriptions, supplies, equipment, consultants, accountants, attorneys, and so on.
• Any items deducted reduce taxes by 50 percent.
  
• Work with your accountant on what to deduct.
  
• The IRS does very little auditing at the small business level.

Marketing:

• Get on TV or radio to talk about what you know.
• Follow up on every lead.
• Return phone calls that day.
• Respond to e-mails.
• Identify your market. Network. Join groups.

Basic? Yes? Important to your financial success? Also yes.