An in-depth guide to annual planning for freelance businesses

(Part 1 of this post was originally published on here.)

As the end of the year comes into sight, many freelancers will spend some time reviewing how 2018 went and making plans for 2019. Whether you’ve been self-employed for decades or just a few months, end-of-year planning is a valuable tool for creating the business and the life that you want.

In just the last two years, my end-of-year planning has helped me:

  • Drop services that didn’t play to my strength and focus on the areas where I can deliver the most value for clients.
  • Drop clients that weren’t a good fit for my business — or that I didn’t enjoy working with.
  • More than double my profit margins.
  • Helped make me happier, healthier and wealthier.

In the corporate world, annual planning often starts months before the end of the year. But for freelancers and the self-employed, annual planning is faster and simpler. I’ve developed a three-step process that any freelancer, consultant, self-employed professional or microbusiness can use for end-of-year planning.

You could do all three steps in one long session, assuming your finances are fairly well organized. But I prefer to break it up into shorter sessions over the course of a couple of weeks. That allows more time for reflection and thinking in between the nitty-gritty of the planning process. And whether you do this in December or January is mostly a matter of personal preference and your available time.

Step 1: Financial review and planning

A freelance business is a business, and most of us have bills to pay. So having a strong grasp on your finances is a critical part of successful freelancing. A good way to start planning for next year is to review how this year went financially.

There may still be a few checks outstanding, but by mid-December you should have a pretty good grip on how your finances are going to turn out this year.

Evaluate your financial results

Here are some questions to ask yourself:

  • How much money did you make?
  • What were your expenses?
  • What was your total profit (revenues minus expenses) and your profit margin (profits divided by revenue)?
  • If you have this data from previous years, this is also a good time to compare these numbers to past years. When I run these numbers, I use a couple key pieces of software.

First, I generate a payments report from my invoicing software. That tells me how much money I actually received in 2018. I can also look at my outstanding invoices and estimate pretty accurately what I’ll likely still receive before year end.

Second, I generate an expense report from my accounting software. This tells me how much money I spent on everything from office supplies to paying contractors. Likewise, at this point, it’s pretty easy to add in whatever expenses I’ll incur that haven’ yet hit my accounting software.

With these two numbers in hand, I know my total revenue, expenses and profits.

If you have your accounting systems set up properly, you can also easily run these numbers on a month-to-month basis. Are there some months you did particularly well? Some months not so well?

Determine your biggest and smallest clients

The second set of numbers I look at is revenues and profits by client.

These numbers are similar to the first set, except now I break them down on a client-by-client basis. When calculating your profit per client, you should not include all of expenses, but just expenses related to serving that client.

So, if you hired a contractor to help you with a particular client project, that expense would be subtracted from the revenue for that client. But overhead expenses, such as the cost of new software or equipment you use across most or all of your clients, should not be included.

If you do a lot of hourly billing, or if you keep track of your hours spent on each client, this is also a good time to review which clients provided the most profit per hour for you. Even if you don’t bill hourly, there’s still value in tracking where your time is going and what the most profitable uses of your time are.

Now you can see who your biggest and most profitable clients are and who your smallest clients are. This will be valuable in step 2 of the planning process, as you consider what changes you might want to make next year.

This overall look at your 2018 financial results is also a time to celebrate, if you had a good year, or to reflect on things you might have done differently, if you had a not-so-good year.

Estimate your 2019 revenues

Finally, estimate your 2019 revenues. At this point, the best assumption is to assume that 2019 will be similar to 2018, unless know of something specific that will affect the results. But here’s how you can give your 2019 estimates more specificity and reliability.

  • Do you have clients that are on retainers or consistently do multiple projects with you throughout the year?
  • Do you expect each of those clients to give you about the same amount of work, more work or less work next year?

If you have good relationships with your clients, this is a good time to make some quick calls to confirm your estimates. Tell them you’re doing some planning and won’t hold them to any specific number, but just want a guesstimate about the level of work you’ll get next year.

  • How many one-off clients did you get work from this year?
  • As a group, how much revenue and profits did those clients provide?
  • If you approach your business the same way in 2019 — the same networking, same marketing activities — are you likely to get about the same overall amount of work, less or more?

This gives you a way to estimate revenues from those unpredictable projects that come along that may not be big revenue generators individually, but as a group might make up a significant part of your 2019 revenue.

I like to do these estimates at a fairly high level of detail, so I usually forecast specific numbers for my 10 or 12 biggest clients, and that wrap up all the smaller clients into a single “one-offs” number.

Depending on how these 2019 projections turn out, you’ll go into 2019 feeling pretty good, so-so or maybe really worried. But in any case, at least now you have some financial estimates to form the basis of 2019 planning.

Step 2: Assessing your freelance business and choosing annual goals

(Part 2 of this post was originally published on here.)

Once you’ve done a financial analysis of your freelance business (see previous post) you can start to think holistically. Financial success is important for freelancers, but it’s just one component of success. Chances are that when you got into freelancing you also dreamed about things like having more free time or being able to pursue creative work that you love.

Now’s the time to assess those nonfinancial aspects of your freelancing. The point of this exercise is to determine the answers to four questions:

  1. What do you want to do less of?
  2. What do you want to stop entirely?
  3. What do you want to do more of?
  4. What do you want to start?

Measure money and meaning

I like to start by charting out my clients in a “money and meaning” matrix.

For the financial portion of this, low and high profit should be pretty self-explanatory. You should already have this information from your financial analysis, so it should be easy to determine. Meaning refers to the nonfinancial satisfaction you get from work. This will vary from person to person, but it might include one or more of the following characteristics:

  • People you like and enjoy collaborating with. If you have a client that you love spending time with, even for work, then that’s a “high meaning” client.
  • A particular purpose that aligns with your personal values. For example, if you provide services for a nonprofit whose mission you strongly support — work you might even consider doing on a pro bono basis — then that’s a high meaning client.
  • Creatively challenging work you really enjoy. This might include work where you get to stretch your creative abilities, are constantly learning new things or that’s simply fun to do.

By charting out each of the clients in the money and meaning matrix you can assess how different clients contribute to both your financial wellbeing and your overall professional happiness. Many freelance businesses will have clients in each of the four quadrants — and that’s OK.

If you have a lot of repeat and retainer clients, you can simply identify them and put them into this matrix in the appropriate quadrant. If you mostly work with one-off clients, then you might want to break them into groups — perhaps by industry (financial services clients vs. manufacturing clients) or company type (small businesses vs. large corporations vs. nonprofit organizations).

This matrix will help you get clearer about where your income and professional satisfaction are coming from.

You may find, for example, that you have some clients in the Quadrant IV — low profit and low meaning — that it makes sense to drop. Or you may find that you have too many clients in Quadrant II or Quadrant III, and that you’ve ended up trading away too much money in exchange for higher meaning, or vice versa.

Or, you may find one or two clients in quadrant I. These are clients that you enjoy working with and who pay you well. How can you find more clients just like these or do more work with these clients?

Assess the business environment

Once you’ve assessed your current client base, it’s time to take a quick look at the overall state of your business and the business environment you operate in. One of the best tools for this is a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities and threats. It’s probably one of the most commonly used tools for strategic planning in corporate America, and it can be helpful for freelancers and microbusinesses, too.

The top two quadrants — strengths and weaknesses — are focused on the attributes of your business and you. A strength could be “strong Javascript skills” or “extensive professional network.” A weakness might be things like “poor time management skills” or “very little money in savings account.”

The bottom two boxes — opportunities and threats — represent the business environment you operate in. A threat might be something like economic conditions that could hurt one or more of your clients or increasing competition from agencies. An opportunity, for a web developer or SEO consultant, might be Google making a big change to its search algorithm that requires companies to change their websites.

While the SWOT analysis may not lead you to any immediate changes, it’s important to remind yourself of your own strengths and weaknesses as well as business environment when you’re doing planning for the following year.

Dream a little bit

Now the fun starts. At this point you should have a good bit of information in hand:

  • How you did financially last year.
  • Your financial outlook for this year.
  • Your best and worse clients.
  • Your own strengths and weaknesses.
  • What the overall business environment looks like.

With all this in hand, you can answer those four questions we considered above. Here they are again:

  • What do you want to do less of?
  • What do you want to stop entirely?
  • What do you want to do more of?
  • What do you want to start?

Some answers to these questions have probably already occurred to you. You might decide, for example, that you want to stop serving those low profit/low meaning clients, or that you want a few more clients that pay better — or that provide more personal satisfaction. Remember those clients in quadrants II and III of the money and meaning matrix? Can move any of them into quadrant I?

You may also see, from your SWOT analysis, where you could make improvements in your current business, take advantage of your strengths or seize new opportunities.

At this point, you can write down some business goals for the coming year. At a minimum, I’d recommend those goals include:

  • At least one goal related to revenues and profits. How much money do you want to make this year and what’s an ambitious, but reasonable target?
  • At least one goal related to the meaning you get from your business. This might mean starting a new initiative or choosing to focus more on a particular type of client.
  • At least one goal related to strengthening your business in some way. This could be learning a new skill, improving the way you do something or eliminating unnecessary expenses.

If you’ve been freelancing a few years and have some confidence in your ability to sustain the business this year, this is also a good time to consider other big life or business goals. This might range from launching a new side project (such as a blog or podcast) to taking a month-long vacation to travel the world.

How many business goals you choose to pursue for the year is up to you, but I think the sweet spot for most freelancers is probably somewhere between three and six. Some of those goals, like hitting a certain revenue target, may take the entire year. Others you might achieve in the first three months and not have to think about again for the remaining nine months of the year.

Step 3: Assessing your freelance business and choosing annual goals

(Part 3 of this post was originally published on here.)

You should now have a good grip on the state of your freelancing business and some goals for the coming year. This time of year there is lots of discussion about “resolutions,” and I suppose you can think of setting annual goals as deciding on resolutions.

But, most of us aren’t very good at sticking with our resolutions. That’s not what you want when it comes to your business. In this post, I’m going to lay out a step-by-step process for making a practical, realistic plan to achieve your freelance business goals.

What makes a good goal?

Before we leap into the nitty-gritty of goal planning, let’s consider what makes a good goal vs. a poor goal. There’s a classic formula for this — the SMART goal. The original SMART goal framework (specific, measurable, assignable, realistic, time-related) was designed for a corporate framework, so I’m going to suggest a slight modification that’s more appropriate for freelancers and microbusinesses. (I’m not the first to suggest this change, but I couldn’t tell you who should get the credit.)

As you look at your goals, consider if they meet these criteria. If they don’t, rework them until they do. A good goal should be:

Specific. You should be able to clearly explain to yourself and others precisely what the goal means. A vague goal like “Grow my business” isn’t specific enough. “Grow revenues,” however, is more precise and gives you something specific to shoot for.

Measurable. At the end of the year, you’ll want to be able to definitively know whether you achieved your goal. If you’ve grown your revenues by 2%, will you feel that you achieved your goal? And will you be happy with that? A measurable goal might be something like “Grow annual revenues by 10%.” Even goals that aren’t numerical can still be made measurable. Are there one or more yes/no questions you can ask yourself to determine if you’ve achieved your goal? That makes it measurable.

Achievable. Can you realistically achieve your goal in the coming year? For example, if you’re a graphic designer and you’d like to do more web design work, do you have the technical skills you’ll need? If not, you might consider changing your goal to something like “Learn HTML and Javascript so I can do website design.” If you’re a little more ambitious, you might turn that goal into “Learn HTML and Javascript and complete two client web projects before the end of the year.”

Relevant. I like to use this as a quick check on whether I’m pursuing the right goals. Is the goal I’ve set relevant to my larger vision for my life and my business, or am I just pursuing more something for the sake of growth? If the goal is not relevant to you and your business, you’ll probably struggle to maintain the focus and energy required to achieve it. And even if you do, you’ll end up wondering why you bothered. Another way to think about this is to ask yourself why you want to pursue a specific goal.

“Be clear that your ladder is leaning against the right building.”
— Brené Brown

Time-bound. Finally, a good goal has a deadline. If you never achieve your goals, what’s the point of having them? For annual goals your default may be “by the end of the year.” And for goals related to things like annual revenues or goals that will require a lot of time, that’s fine. It may make sense for other goals to have different deadlines — by the end of a certain month or quarter. If your goal is to redesign your website, you shouldn’t have to spend the whole year doing that.

Breaking down your goals

Once you’ve selected a handful of annual business goals to focus on, it’s time to develop a plan for each of those. For each of your goals, do the following:

1. Brainstorm obstacles that might prevent you from reaching that goal. Reviewing the SWOT exercise you did earlier will help you here. The important thing is to recognize that challenges will arise throughout the year that could throw you off course so you can plan for them.

2. Come up with a list of ways you might overcome these obstacles. What you want is a series of “If X happens that could prevent me from achieving my goal, then I’ll respond by doing Y to overcome it.” Here’s an example: Suppose one of your goals is to do more work for large corporations, which often pay better than smaller organizations. One obstacle you might run into is a lack of business liability insurance, which is often required by large companies for all vendors they work with. This doesn’t mean you should run out and get that insurance today (it’s not too expensive, but don’t spend money before you need to). But understanding this possibility ahead of time will help you respond quickly if this issue comes up.

3. Break your goals into quarterly objectives, with a special focus on the first quarter. You don’t need a comprehensive plan for the entire year for your goal, but you want to know what actions you’ll need to take over the next quarter to move you toward your goals. If you have some idea of what your actions will need to be in the second, third and fourth quarter, you can sketch those out, too. Taking our goal of doing more work for large corporations, a quarterly objective might be something like “Submit at least three proposals for corporate work.”

4. Break your quarterly objectives into monthly targets, again with a focus on the first month (January, if you’re doing this at the end of the year). What actions will you need to take and what will you need to accomplish in the next 30 days to move you toward your quarterly objective, which in turn should move you toward your annual goal. If you know you have a quarterly objective of submitting at least three corporate proposals, what are the things that you need to accomplish this month to move toward that? These might be activities like reaching out to corporate contacts you already have, becoming active in a professional association where you can meet new corporate contacts or asking others for referrals to corporate clients.

5. If appropriate, establish indicators you can track. In the daily hustle and bustle of our lives, staying on track even for a monthly target can still be challenging. Consider establishing weekly or monthly performance indicators you can track (weekly is better). If your target for this month is connecting with more corporate contacts, you might track the number of phone conversations and in-person meetings you have with those contacts each week. Tracking that should help remind you that you need to do things to make those contacts — networking, scouring your LinkedIn contacts, asking for introductions, etc. A simple spreadsheet that you update once a week can work wonders here.

Iterative process

Be realistic in your goal setting and planning process. If you haven’t achieved the goal before, it’s difficult to be certain that you’ve taken into account all of the activities and contingencies necessary. Asking others for advice on this is helpful — you can learn from their successes and mistakes. But your experience will never be identical to someone else’s, and the future is never identical to the past. There will always be some uncertainty.

Because of that uncertainty, I like to take an iterative approach to planning goals. Each month I consider my monthly targets — did I hit them? If not, why not? If so, do I think I’m still on track to achieve my quarterly objective?

Every quarter, you can repeat those questions on a bigger scale. Did you achieve your quarterly objectives? Why or why not? Are you on track to for your annual goals?

If your goals are the least bit challenging, I can almost guarantee that you’ll miss some of your weekly indicators, monthly targets and quarterly objectives. That’s OK. In fact, you should view those “failures” as learning opportunities that will improve your odds of success. Those failures will help you identify areas where you need to change your strategy or tactics, or where you need to do a better job of executing your plan.

Of course, if you repeatedly fail — week after week, month after month, quarter after quarter — then you probably need to reconsider whether your goals are the right ones for your business this year. During your quarterly reviews — and especially at the end of the second and third quarters — re-evaluate any goals that you’re not making steady progress toward.

Maybe that ambitious annual revenue growth goal isn’t going to work out this year and you should consider adjusting the goal downward to something that’s still challenging, but is more achievable given what you’ve learned so far.

You decide on your year

You may find yourself reading this at a different time of year. That’s OK. If you haven’t done annual planning, you can do it anytime. You may choose to shorten your time frame — focusing on goals between now and the end of the year, for example. Or you may simply choose to have a different 12-month period that you plan for.

The annual planning process I’ve outlined here will probably take you a fair bit of time. And the planning process itself may raise questions you haven’t thought about. But this investment of time and energy in planning makes it much more likely that you’ll end up where you want to be 12 months from now — or that you’ll at least have moved in the right direction.

Mark Tosczak has been freelancing full-time for more than five years and publishes, a blog devoted to helping freelancers, consultants and other self-employed knowledge workers become more successful in business and in life.