How To Make a Financial Plan: Guide For Freelancers & Agencies

If you don’t have a financial plan for your business, then you don’t have a direction. And that’s very dangerous if you want to succeed in the long run.

Having a plan lets you track your income, control your expenses, and achieve your financial goals. In this guide, I’ll walk you through the steps that you need to go through in order to create a plan that works for you.

Quick Note: As with my other posts, my assumption in writing this is that you’re in the US, running a freelance or small agency operation. You’re probably a sole proprietor or single-member LLC. The vast majority of this will still apply even if that doesn’t describe you.

11 Steps To Make a Financial Plan

If you want to do some serious financial planning, you can’t just Google “best personal budget for freelancers” and hope for the best. You need a clear path, and one that comes with multiple steps. That’s why I’m seeking to provide here – each step builds on the previous one.

1. Assess your financial situation.

To start, take a clear look at your current financial situation. List all your sources of income, including freelance gigs, agency projects, and other earnings. Then, make a list of your monthly business expenses, including rent, utilities, software, and other essentials. Don’t forget to include irregular expenses like taxes.

Calculate your net income by subtracting your total expenses from your total income. This will give you a clear picture of where you stand financially and help you identify areas where you can save money or increase income. 

I know this sounds incredibly basic, but it’s so important. You can’t make a meaningful financial plan unless you can calculate your bottom line right now.

Easy Step 1: Download our revenue tracker and make a list of all income and expenses.

2. Set up a tracking system so you can easily get financial reports.

Expense tracking can be a real pain. Many people get into freelancing or agency work to avoid bureaucracy, arbitrary rules, and irritating processes. Accounting, even on a small scale, can feel like the very thing you set out to avoid in the first place!

But not tracking finances is asking for trouble. You need accounting software, preferably that connects to your bank accounts. And you need to log into it and categorize expenses on a regular basis. Otherwise, you can’t see how much you make, know how much you owe in taxes, or create a budget.

You know this, of course – I’m preaching to the choir! The trick is to make it as easy as possible. Spend a day getting as much automated as possible so that you can spend 15 or 30 minutes per week categorizing expenses. That way, you can get the reports you need when you need them, and otherwise not have to think much about it.

Easy Step 1: Read our guide on How To Track Business Expenses For Freelancers & Agencies.

3. Choose financial goals that work for you.

Once you have a sense of what your finances look like right now, as well as a system to track your finances over time, the next step is to set financial goals. This will help you know whether or not you are succeeding.

On a deeper level, though, setting financial goals will help you understand why you are working so hard in the first place. And knowing that can keep you motivated.

If you need some inspiration, here is a guide containing a list of financial goals you can pursue. But if you don’t have time to go through that, just know that there are three basic types of financial goals:

  • Growth goals such as increasing your revenues.
  • Security goals such as building an emergency fund, retirement planning, or evening out monthly cash flow.
  • Lifestyle goals such as working less or traveling more.

When you take the time to think about your financial goals, you will probably end up writing down a mix of these three types of goals.

Easy Step 1: Read this guide on How To Set Financial Goals: Guide For Freelancers & Agencies.

4. Create a budget.

Creating a budget is so important that many people think of budgeting as financial planning, full stop. And it’s certainly a big part of it, since creating a budget helps you control your spending and save money.

When you have a good accounting system in place, you can quickly create a budget by running an income statement. Then you can go through it line by line, category by category and write down an acceptable amount of money to spend for each expense category. You can also budget for revenues as well, setting targets that you want to meet.

This is not a particularly complex process, but it does involve making some judgment calls based on what is reasonable in your line of work. More important than getting everything right on the first try is making a habit of regularly reviewing and adjusting your budget.

Easy Step 1: Read this guide on How To Make A Budget: Guide For Freelancers & Agencies.

5. Build your emergency fund.

If you’re freelancing or running a small agency, you need an emergency fund – full stop. Right after setting a budget, this needs to be your most high priority financial goal.

In 2023, CNBC reported that 63% of American workers are unable to pay a $500 emergency expense. Behind that heartbreaking statistic, there are a lot of things to unpack, not the least of which is questions about how wages should be set and the appropriate role of a social safety net.

Regardless of your answers to those questions, though, it’s undeniable that you don’t want your business to be sunk by a medical bill, a car repair, or a household emergency. So to that end, aim to save up at least three months’ of living expenses in your personal bank account. Once you do that, set aside another 90 days of cash on hand to cover business expenses. It’s best to keep these funds in separate savings accounts – one for personal expenses and one for business expenses.

And at that point, I will again level with you – it feels like it takes forever to build up an emergency fund. Even if you earn a lot and even if you are dedicated. But it’s really important and once you do it, it’s a lot easier to maintain in the long run. And the peace of mind is so worth it.

Easy Step 1: Open a separate savings account and set up regular contributions.

6. Manage your debt wisely.

Debt is not necessarily bad. Taking out loans can make it much easier to access expensive things like housing or vehicles, as well as capital needed for startup costs. But there are two catches:

  1. You need to keep a good debt-to-income ratio.
  2. As quickly as possible, you need to pay off high-interest debt.

If you feel overleveraged, the number one thing you can do is start paying off high-interest debt. That applies to both personal and business finances, with credit cards often being the ugliest and most common culprits.

If you don’t have too much debt right now, don’t take a hardline stance against it. But be very smart about taking it on – you want to keep a good credit score and avoid high-interest debt if you can.

Easy Step 1: List all your debts in order of highest to lowest interest.

7. Plan for taxes.

When you run your own freelance or agency operation, no one will withhold taxes for you. That puts you in a tricky situation, because you need to be able to guess how much tax you’ll owe and set aside money for it so you don’t get caught by surprise.

To do this, learn how to calculate your taxable income. That will help you figure out your annual taxes. From there, you can take that figure and divide it up among the weeks in the year and make weekly contributions to a separate savings account.

Once you do this, make sure you submit quarterly payments to the IRS. The payments can go right out of your savings account, which already has the money set aside that you would need to pay.

And, of course, it’s really best practice to find a certified tax professional to help you with this. (You will probably end up saving money by working with one.)

Easy Step 1: Read How To Calculate Taxable Income: Guide For Freelancers & Agencies.

8. Save for retirement.

Even if you go into freelance or agency work, you still need to set aside money for when you’re old and gray. Luckily, you can still reap the same retirement benefits that traditional office workers do. All you have to do is open a retirement account, such as a SEP IRA or solo 401(k), and contribute regularly.

The earlier you start saving, the more your money will grow over time through compound interest. Plus, contributions often reduce your taxable income, which goes a long way toward decreasing your overall tax burden.

Easy Step 1: Open a tax-advantaged retirement account.

9. Build your safety net.

Emergency funds are great for protecting you against sudden emergencies and financial strain. But the right insurance policies can really go a long way toward extending your safety net.

At a minimum, you will want health and life insurance. Carefully research these policies and make sure they meet your needs. It’s also a good idea to consider short-term and long-term disability insurance too.

Easy Step 1: Find a health insurance policy that works for you.

10. Create a business that will run without you.

You could be making a ton of money and using it well. You could have a huge emergency fund and the right insurance coverage. And you could be a tax optimization wizard, never paying a cent more than you have to.

But if you can’t take a vacation, are you really successful?

A self-sustaining business can thrive even in your absence. To get to this point, you will need to document all processes and train your team to handle daily operations. Delegate tasks and responsibilities to trusted employees. Implement systems for continuous monitoring and improvement.

This is much easier said than done, and it’s often the last thing that successful entrepreneurs get right. But it’s so important to keep your eyes on the prize here.

Easy Step 1: Document and standardize a common business process.

11. Regularly review your finances and adjust your goals.

You cannot possibly forecast all your needs in advance. For that reason, you need to have a regular time where you review your finances and track your goals.

This will give you an opportunity to see where you’re succeeding and where you’re not. Plus, you can also change your goals and find other areas for improvement.

Staying proactive by doing regular reviews will help you maintain your financial health and keep you on-track to achieve your long-term objectives.

Easy Step 1: Schedule regular financial reviews.

Final Thoughts

If you want financial stability and success, you need a clear financial plan. By following the steps outlined in this guide, you can assess your financial situation, set and achieve goals, manage debt, plan for taxes, and save for the future.

The long-term goal of most business owners is to make a self-sustaining business. But you won’t get there overnight and you need to be intentional in your actions.

So start today by taking small, manageable steps towards a comprehensive financial plan. Your future self will be glad you did!

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