CHAPTER 6: FINANCIAL ASSESSMENT
Task: contact your tax office; then, with various timelines and client types in mind, investigate what your earnings, savings and liabilities might be.
Learning goal: to ensure you are realistic about the viability of your editorial business in your planned time frame.
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Your business plan should include a financial assessment: what you need to earn, what you think you can earn realistically, and over what period. Bear in mind that it takes time to build up a portfolio of regular clients in a market where you will be competing with established and experienced colleagues. It took me two years to get to the point where I had a bank of regulars who ensured I was booked up six to eight weeks in advance.
6.1 Talk to your tax office
An essential first step at the business-planning stage is to get in touch with HMRC (or your national/regional tax office if you’re outside the UK). In the first instance, visit hmrc.gov.uk/startingup. There’s a huge amount of useful information available, including advice on how and when you need to tell HMRC that you have actually started self-employment, self-assessment, tax thresholds, National Insurance contributions and record keeping.
HMRC has kept up with the times! The website has links to free online webinars, e-learning tutorials and YouTube clips to guide you through the process. If you want to speak to a human being, call them. I found their advisors to be extremely helpful, reassuring and patient on the phone.
Your tax office will tell you not only what your liabilities are but also what aspects of your editorial business you can offset (examples might include rates, heating, fuel, mileage, stationery, trade membership subscription fees, software, hardware, training and books). See the Resources section at the end of the guide for a link to HMRC’s guidance on tax deduction for home workers.
Understanding what your liabilities are at the business-planning stage will also enable you to start thinking about how to organize your accounts so that you don’t get the shock of an unexpected lump-sum request from the tax office.
Investigate a range of setting-aside options. You could choose a dedicated savings account that gives you the flexibility of instant access to your money, but that offers a reasonable rate of interest (quite a challenge in the current economic climate). You might also consider paying your tax office a set monthly amount via direct debit, thereby clearing your tax debt as you go. In the latter case, though, you’ve covered your liabilities but your money is sitting in the tax office’s bank account.
One of my favourite cases of how the freelancer can make their money work for them, while taking a financially responsible approach to their tax liabilities, is that of a colleague who invests a portion of her monthly earnings in the UK’s National Savings & Investments Premium Bonds programme. She doesn’t earn interest but has the chance to win tax-free prizes every month, ranging from £25 to the million-pound jackpot. She hasn’t won the ‘big one’ yet, but my fingers are crossed for her!
6.2 Be realistic
There’s no sure way of telling how quickly your work stream will start to flow, so be realistic about how long it will be before you are turning down work opportunities because you’re so busy! I’ve seen too many online advertisements giving the impression that once you’ve bought X book or completed Y course, the work offers will pour into your email inbox. It’s simply not true. As with any new business start-up – whether you’re trading in baked beans, computer software, tree surgery or editorial services – it’s hard work, it takes time and there’s lots of competition. The harsh reality is that it will require a lot of graft, and the results won’t come overnight, not by any stretch of the imagination.
6.3 Consider your personal situation
Your personal circumstances will determine your financial needs and therefore the financial viability of your editorial freelance business. Use your business plan to consider the following:
~ If you are the primary wage earner in your family, your needs may be different to those of someone taking the same journey as you but who provides a second or top-up income.
~ If you are in receipt of benefits it will be important to speak to your benefits officer to ensure that you will not be jeopardizing these critical sources of income until you are confident that you can bring in regular work. Make sure the officer understands the nature of editorial freelance work and the time it takes to build a regular income stream.
~ If you secure work from clients who are in a position to offer you regular work (such as publishers and project management agencies) or if you have an established list of contacts that you can access with confidence, you may decide to be less conservative about future financial projections.
~ Consider running your new business alongside your current job when you’re starting out. That way you have a financial safety net during the client-building stage.
Nick worked in-house for Yell for six years. He built his freelance business up in his spare time, leaving Yell in 2010 to concentrate on Full Proof. This strategic way of thinking allowed him to plan and manage his editorial business at a pace that suited his particular financial commitments. By operating in this way, the growth of his company was driven by customer focus and market awareness rather than the pressures of monthly bank statements.
Louise’s approach was different and based on her particular circumstances. She was on a formal career break, looking after her first child, when she embarked on her editorial freelancing journey. Her family had already adapted to living without her income. Like Nick, however, her situation meant that she set up her business in a non-pressurized environment, thus enabling her to plan strategically rather than with her finger hovering above a panic button.
6.4 What can you earn?
There is no straight answer to this. Your earning power may be determined by your client type – those with legal, technical or scientific editorial skills often have higher earning power than those working for trade publishers. Developmental editing may pay better than copy-editing, and copy-editing usually commands higher rates than proofreading. Business clients may pay better than publishers, students or independent authors. It will come down to the client’s budget, and these vary hugely. However, as the example below from Liz demonstrates, there are no rules!
In Liz’s experience, while the hourly rates publishers quote reflect the summary I outlined above as an approximate guideline, flat rates for proofreading can be more lucrative than extensive editing work in terms of how the hourly rate works out. However, she gives the following caveat: ‘These kinds of jobs are shorter in terms of overall hours, so you have to do more of them.’
Liz’s point demonstrates that it’s not just about thinking about earning X or Y per hour. For many of us, it’s the amount of cash in the bank at the end of the month that counts. Now consider Louise’s experience in the proofreading market to see a more holistic approach to assessing the viability of different rates.
One of Louise’s publisher clients pays £14 per hour for proofreading. They offer her one or two projects a month that regularly bring in a total income of around £600, payment of which always takes place within 30 days. Another non-publisher client pays her £9 per 1000 words, typically generating a rate of between £24 and £30 per hour. The projects for this client are much smaller and provide a total monthly income of around £20 to £70. Their payment terms are 60 days. The second client pays a better rate than the first, but the first plays a bigger part in the sustainability of Louise’s proofreading business.
What the example above demonstrates is that whether a rate seems fair or acceptable may depend on factors beyond mere statistics. It’s certainly worthwhile setting up a client/job-tracking spread sheet (see the Resources for a link to a free template) so that you can compare different projects over time, but I’d advise not getting too obsessed with the numbers. Instead, focus on the wider proposition; make choices based on what you feel comfortable with and on how projects contribute to the sustainability of your business in the longer term.
There are various suggested and recommended minimum rates for editorial freelancing (for example, the NUJ and the SfEP offer UK guidance, while the EFA and the EAC suggest minimum rates for US and Canadian editorial freelancers, respectively). Don’t be fooled into thinking that just because these rates are suggested, all client types will pay them.
Consider, too, the following:
~ You may not be able to command high rates at the beginning of your freelancing career as you are still building your reputation.
~ Publisher work doesn’t always bring in the highest rates, but this has to be offset against the benefit of a potentially regular work stream.
~ Many publishers set their own rates, whereas you can control the price when dealing with, say, students, businesses or independent authors.
~ Some clients set fixed fees; others offer hourly rates. In the case of the former, your experience and confidence, along with any efficiency tools you use, will affect the speed at which you work and thus what you end up earning per hour. You might also be asked to quote on a per-page or per-word basis.
Trawl the internet to see what other editorial freelancers are charging per word or per hour. Not everyone posts their rates online, but enough do to enable you to see the range of fees being offered.
Here are some examples of how our practitioners organize their fee structures based on the markets in which they specialize.
Marcus works with independent authors. His clients are primarily based in the US and he specializes in editing genre fiction. He controls the prices and posts per-word rates on his website. He chooses to be transparent about his pricing structure so that clients know exactly how much they are going to have to pay before they commission him.
Nick proofreads for students and businesses and charges per word. His rate for students is around twenty per cent cheaper than for businesses, but the students must pay up front. This helps avoid non-payment issues, improves cash flow and provides students with that all-important discount.
Kate, too, is accustomed to setting fees with her business clients, and enjoys the freedom of being able to adjust her rates as she sees fit within the more price-sensitive student market. Because of these adjustments she prefers not to advertise a specific rate structure and assesses the terms of her contracts on a project-by-project basis.
While Kate, Nick and Marcus take different approaches regarding publication of their rates scales, they all control what they charge. Compare this to Louise, who works in the main for publishers.
Louise proofreads primarily for social science and trade publishers. In most cases the clients determine the price. Some publishers offer a rate per hour and a budgeted number of hours she must not exceed; others offer a fixed fee for the job. It is not unusual for the hourly rate offered to be several pounds below the suggested minimum rates issued by the Society for Editors and Proofreaders. Because of her target client base, Louise chooses not to advertise particular rates on her website, but rather to discuss rates with individual publishers.
6.5 Set-up costs
Set-up costs for editorial freelancing are lower than for many businesses, but you’ll still need desk space, a comfortable chair, a computer, a phone, an internet connection, various reference books (online or in print), appropriate stationery, relevant software for working on Word files and PDFs and a website. Some of the tools you need are freely available, some are relatively cheap and some (like hardware) are comparatively expensive. Some you will already own; others you will need to buy. Use your business plan to start listing what you’ve got and what you need so that you can budget for any expenditure.
6.6 Saving money
Because you are doing your planning at the outset you’ll have the time to investigate money-saving options, thus enabling you to avoid unnecessary expenses. The following are just a few ideas you might like to consider.
6.6.1 PDF-editing software
Many of us use the free PDF readers available on the market, but some of us want the higher spec that comes with the paid-for (pro) versions. Acrobat is the market-leading brand, but for the purposes of proofreading or editing PDFs you can get the same functionality with alternative products at a fraction of the price.
I use Tracker Software’s excellent PDF-XChange Viewer Pro, following the recommendation of several SfEP colleagues. This is around one-fifth of the price of Acrobat Pro. (Note: if you’re a Mac user you’ll need to be running conversion software, such as Parallels or VMware Fusion, to use XChange.)
6.6.2 Online dictionaries and reference resources
Check with your local/regional library system to see what freebies are on offer. For example, the UK library system has a deal with Oxford University Press, enabling free access to Oxford Dictionaries Pro. This gives you online access to a range of OUP’s excellent dictionaries, thesauri, New Hart’s Rules, Garner’s Modern American Usage, Garner’s Dictionary of Legal Usage, New Oxford Dictionary for Writers and Editors (ODWE), New Oxford Dictionary for Scientific Writers and Editors (ODSWE) and Pocket Fowler’s Modern English Usage. Contact your library for more information. My own library system in Norfolk offers a range of additional online resources that are free at the point of delivery but that I’d not realized I had access to. These are funded by my local authority through taxpayers’ contributions so it’s good to know I’m making the most of them.
Merriam-Webster Online is another excellent resource. The online version is based on the eleventh edition of Merriam-Webster’s Collegiate Dictionary, one of the most popular college resources in the USA.
6.6.3 Efficiency tools – macros and add-ins
There are some fabulous free editing and proofreading tools available. Some are not free but still offer great value for money, not only because they are reasonably inexpensive to purchase but also because of the time they save the freelancer, thus enabling them to improve their hourly rate. Two of my favourite paid-for tools are ReferenceChecker and PerfectIt, both of which come in at under £50 for the standard versions. Editors Rich Adin in the US and Paul Beverley in the UK have both created suites of Word macros to help editorial professionals work more efficiently. See the Resources section at the end of the book for more information.
6.6.4 Software upgrades
If you want to upgrade, say, MS Office, research what offers you might qualify for. HotUKDeals is a super community-based website where users share the latest online deals. Ask your colleagues what versions they are using and where they bought them. There are some fabulous deals to be had on legitimate software if you take the time to find them.
6.6.5 Hardware considerations
Adding on a large second monitor is a much cheaper option than upgrading your laptop or desktop computer, especially if you think you’ll be doing a lot of work onscreen. For the purposes of onscreen proofreading and editing you can pick up a perfectly suitable 24-inch monitor for under £120. Not only will you have the benefits of a larger screen on which to work but you’ll also be able to increase your efficiency by reducing the amount of toggling you do between programs. If you’re looking for a new computer, make sure you’ve explored all the online deals first and asked colleagues if they know about any special offers available and what software/anti-virus protection is included.
Mac users will not like me for suggesting this but you could (and it’s a tentative suggestion only!) consider buying a PC rather than a Mac if you are looking to buy a dedicated business computer or your old one has bitten the dust. PCs are much, much cheaper, and you won’t have to deal with compatibility issues or fork out for conversion software.
6.6.6 Society and training deals
Consider what deals your national/regional editing and proofreading society is offering. Keep a look out for early-bird registration discounts on training courses, too. Your local chapter may also offer valuable informal training sessions covering technical and business-building elements of editorial freelancing, none of which will cost you anything more than the petrol to attend.
Societies are worth joining because your colleagues hold a wealth of experience regarding tools, resources and working methods.
If you join the UK’s Society for Editors and Proofreaders in January, you get fourteen months’ membership for the price of twelve.
6.6.7 Free online learning resources
There are also free online learning tools that you might consider exploring – visit the online Hewlett-Packard Learning Center for one example of free classes related to the home office. Even if these give you only an introductory flavour they may indicate where the gaps in your knowledge are, thus enabling you to make strategic decisions about which professionally run courses you should invest in. Microsoft also provides a number of free video tutorials covering its most popular programs.
6.6.8 Savings through networking
Make the most of online professional networking through media such as Facebook, Twitter and LinkedIn. These are superb for connecting with like-minded professionals willing to share their knowledge freely through informal chat, blogging and organized discussion groups.
6.6.9 International money transfers
PayPal, or even your own bank, might not be giving you the best deal on exchange rates and international transfer fees. Ask your colleagues if they are using alternative payment options when working for international clients. An example is CurrencyFair, a peer-to-peer marketplace that offers savings on international transfers.
6.6.10 Website
You don’t have to pay for a website – there are some great self-build options that are free to set up: WordPress and Weebly, for instance, offer pre-designed templates and the ability to customize, depending on whether you’re a complete beginner or a pro.
KEY POINTS
~ Realism and honesty are key. It’s better to err on the side of pessimism when thinking about how long it will take you to develop a regular work stream and what the rates of pay might be, especially in the early days of your business – that way there won’t be any shocks further down the line.
~ Take advantage of special offers and deals on training and resources where you can.
~ Search online – you may be surprised at what you can get for free.
~ Invest wisely. Deals are great, but don’t necessarily go for the cheapest – go for what you need in order to do the job. By planning ahead you can save up if money is tight.
~ Don’t forget your tax and National Insurance liabilities. Consider ways in which you might set aside money once you start earning so that you don’t suffer the shock of lump-sum bills.
~ Don’t rush to give up your day job. Consider running your editorial business part time until you have an established work stream and client base.
~ Take a holistic view to assessing clients and projects rather than obsessing over X rate per hour or Y rate per 1000 words. Focus on longer-run sustainability when evaluating fairness.