This content was originally published at: https://www.freeagent.com/fieldguide/articles/how-to-plan-your-cash-flow-for-holidays-and-long-breaks/
Written by Paddy Donnelly
Paddy Donnelly is an Irish illustrator & designer currently living in Belgium. He creates apps for kids with Wee Taps and has worked with clients such as dConstruct, Foursquare and Mobile Vikings.
Earlier this year, Paddy took three months off from his freelance design work to travel around South America, and he’s also taken small sabbaticals from his design business to work on his range of kid's apps, Wee Taps. Here’s how he does it.
Long breaks don’t have to break your business
Hiking through the Amazon jungle. Climbing to the top of a volcano in Chile. Standing in the middle of the world’s largest salt flat in Bolivia. These are the things that spring to mind when I think of my three-month trip around South America - what I don’t think about is how much money it cost me to miss so much work as a freelancer. Why? Because I planned the finances well in advance, so while I was in South America I was able to focus on having an amazing experience.
How to plan for a long break
As a freelancer, taking time off work is a big deal - if you’re not working, you’re not earning. Nobody tells you that you have x days of vacation to take this year. You’re in charge of your time off, so you need to plan it well. I’ve taken breaks from work before, but my three-month trip around South America was by far the longest I’ve had.
I learned a lot planning this trip, and I’m going to walk you through the various steps you should consider if you’re planning a long break.
- Review your annual revenue for the past few years First, you need to know how much money you earn each year. To find this, look in your Profit and Loss report for the past few years - it will be called either “Sales” or “Revenue”. Based on those figures and what you know about your business, you can work out a number that you’ll need for the upcoming year. For this example, let’s say that your annual revenue is on average £50,000, and that’s what you’re working towards again this year.
- Re-calculate the required revenue for the months you’ll be away Now that you have the annual revenue target, you can divide it out by the normal twelve months that you would normally work, so: £50,000 / 12 = £4,167 monthly revenue in a normal year. But if you need to remove three working months from that year, your calculation would become: £50,000 / (12-3) = £5,555 monthly revenue with a sabbatical. Now you have a starting point. So far, you need to earn £1,388 extra every month to cover the cost of your sabbatical. But this is just the start - there are a few other things to consider.
- Build in buffers When taking a long sabbatical from your work, you need to build in a buffer before and after your break. The buffer before you actually leave on your break lets you deal with last minute requests from clients squeezing in more work, to deal with unexpected delays, and of course to plan for your trip! This will allow you to wrap up your work stress-free for both you and your clients. So, let’s say that’s another month off to add into the equation. £50,000 / (12-4) = £6,250 monthly revenue It’s also a good idea to plan for a buffer after your return. You can’t expect to return from a long break and immediately start back to work - it takes a while to get back into the swing of things, and if you’ve been away for a long time, it may also take some time to build back up your list of potential clients. In my case, I took another month off before I started client work again. I used this month to work on our own kid's apps, ease myself back into designing and find some new client projects. So, in reality there were five months in the year where I wasn’t bringing in any money instead of just three. The length of time you’re actually not earning is very easy to overlook. Adding both buffers into the equation gives us: £50,000 / (12-5) = £7,143 monthly revenue
- Add in the cost of living while on the break This will depend on what you’re doing in your sabbatical. If you’re spending three months working on a pet project at home, then your living costs will be built into this equation already. But if you’re travelling around the world then your living costs may be significantly higher when it comes to flights, accommodation, tours, visas etc. Let’s estimate that you’ll need an extra £2,000 a month to cover the cost of living in the three months you’re on your trip. £50,000 + £6,000 / (12-5) = £8,000 monthly revenue
- Consider any other financial implications One thing I had to take into account while I was off travelling was that the world didn’t stop for anyone else, especially for my clients and their projects. I had a pool of regular clients who provided me with steady work, however as I was jetting off for three months they would need a designer to replace me, so I had to face the fact that I would most likely lose these clients for good. Keeping in mind that my regular income wouldn’t be at the same level once I returned, I accepted that I would need to grow my pool of regular clients again. This would take time, so I had to plan that my revenue would also take a hit initially when I returned. If we estimate that my revenue would be cut in half for the first two months after returning, then we can take another month off our equation: £50,000 + £6,000 / (12-6) = £9,333 monthly revenue
The result, and how to earn it
£9,333 new monthly revenue - £4,167 normal revenue = £5,166 extra needed per month
Based on the calculation you’re going to need to bring in over £5,000 extra per month this year in order to account for your three month trip. This may sound scary at first, but it’s perfectly doable with plenty of planning, and it’s much better to face reality upfront before your extended break, rather than realising your bank account is empty when you’re on the Inca Trail.
Ways to earn the extra money
Now, how are you going to do this? First, evaluate how much you’re charging clients. Has your price remained the same for months, even years? After each project, you should consider the new skills and knowledge you’ve learned and build that into your price for the next project.
- If your price doesn’t change, then the amount of work you take on needs to. Extend your working hours to evenings and weekends. This isn’t fun at the time, but you’ll appreciate it once you’re on the beach sipping on a Margarita.
- Communicate early with your existing clients about your break and ask them if they have future projects which could be moved up earlier. They may not have considered starting their future projects earlier because of your usual availability. If you’re combining this with increasing your working hours, then you may be able to significantly increase your income from your existing clients without the stress of searching for new ones.
- Put a little extra away each month. Don’t put it off until closer to the time. Start putting some money away as soon as possible.
- Consider new revenue streams. Take this opportunity to think of alternative ways to make money with your skills. Could you teach students in your industry with tutorial videos or a paid master class? Ship that side project you’ve been working on and get it out there to make you some passive income. How about writing an ebook or consulting?
- Planning a long break can be a nerve-racking experience, but following these steps and facing the real numbers can help reduce the stress. Over-estimate how much money you’ll need, build in buffers, communicate early and honestly with your clients and most importantly, enjoy your break.
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