That was a real answer from a colleague with whom I talked about financial planning. My answer: A financial plan is essential when we are running our own business. Let’s start for the basics…
What is a financial plan?
«A financial plan is a comprehensive evaluation of someone’s current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans».
As we all know, freelancers, unlike in-house employees, do not earn a fixed income at the end of the month. «Would I earn enough money by being a full-time freelance translator? How do I know if I will be able to pay my rent by going freelance? I prefer to be an in-house translator as I know I will make it to the end of the month». Does it sound familiar to you? This means uncertainty.
A financial plan will help us to analyse our current financial situation, so we can establish our short, medium and long term goals and implement a series of steps to reach them. This planning will be aimed to reduce that uncertainty as much as possible, so we can develop our business with peace of mind by forecasting any issue that can stand in the way of our businesses.
Why do freelancers need a financial plan?
- To manage income more effectively. Thanks to a solid financial plan, you will be aware of your income and expenses, so you will be able how to manage your income to keep developing your business.
- To planning a strategy to increase your cash flow. Once you know your financial position and your goals, you will be able to implement and step-to-step plan to increase your cash flow and achieve your goals.
- To provide security to your business and your life. Your financial plan will provide all the information that you need to know what you have to do to reach the life standard that you want.
- Financial understanding is essential to prevent as many unexpected situations as possible.
- To take control of your savings and expenses and act accordingly.
- To get rid of that uncertainty that something stops us and gain confidence towards your business. And this leads us to…
- Reduce the stress of overthinking about your finances.
- In conclusion, to have the total control of your business and implement a development plan with peace of mind.
Let’s start for the basics…
I am talking about the goals you want to achieve. Where do you want to go with your business? I am not only talking about goals toward your business but what you want to achieve in life.
We are going to focus on three different goals:
- Short term goals: what do you want to achieve within one year?
- Medium term goals: what do you want to achieve between 2 and 5 years?
- Long term goals: where do you want to be in five years?
Of course, we can split every goal in small goals and steps to implement a strategy. I have prepared a worksheet to make thing easier. Just take your time and fill it in, things will be much clear afterwards: