Freelancers, how well did you do in 2021, and can you improve in 2022?
The end of a year is when many of us reflect on the 12 months that have just gone: the highs and lows; the things we got right and the things we could have done better.
Downtime over Christmas and New Year can provide the time, space and opportunity to do this, as well as come up with ways to be more successful in the year to come. So, where do you begin?
How to judge your performance
You may not know how well your business performed in 2021. You may think you have an idea, but you could be overly optimistic or pessimistic to a greater or lesser degree. Accuracy matters. You need a more reliable way to judge performance, which is where ‘KPIs’ can really help.
You may or may not be familiar with the term KPI; it stands for Key Performance Indicator. Admittedly, ‘KPI’ sounds like something that’s more relevant to large corporations, but it simply means, in effect, important numbers that enable you to judge how well your business is doing.
You can compare them to figures from previous years or to other times in the same year, so you can more reliably assess whether you’re performing well, and if so, where or when, and if not, where/when you need to up your game, so that your business can improve and grow.
Choose and use the right KPIs
It’s better to pick a few of the right indicators (maybe three or four to start). Whether weekly or monthly, gross profit (i.e. turnover/total sales minus cost of sales and direct costs) and net profit (i.e. gross profit minus indirect costs and expenses) are common, sensible choices. Others include sales growth, clients, new clients, repeat/new commissions, unit or product sales.
Other common indicators relate to costs, and failure to manage these also impacts financial performance and profitability. Some indicators are more common in certain sectors, but you have to pick the right ones for your business-type and size, so that you’re measuring and monitoring the right things. Keeping it simple is recommended when deciding your KPIs!
A good starting point is this -- go back over your 2021 financial records. What were your average monthly sales and costs? How do these compare month-to-month, quarter-to-quarter, year-on-year? Did your turnover increase or decrease in 2021? Did you attract more or fewer clients? Did your costs as a freelancer increase or fall and if so, when? Crucially, consider why these things happened and how you can address any problems and make more of any opportunities.
Be more successful in 2022
Using reputable cloud-based accounting software and updating it regularly makes it much easier and quicker to assess your outfit’s financial performance. If you’re not already using cloud-based accounting software, maybe it’s time you did, because it could help you to better control your business’s financial health and wellbeing in 2022 and beyond.
The trick is to set aside time each month to look at your KPIs and figure out what they’re telling you. If it’s anything worrying, such as an alarming rise in costs or a drop-off in sales, you cannot afford to do nothing. Hopefully, your indicators show that your business is performing well and is growing. If need be, get help from an experienced accountant to assess your financial records and business performance. Talking through the issue with such an adviser can be enormously helpful, and is an absolute ‘must’ if you’ve tended to take the ‘head in the sand’ approach in the past!
Also, with January’s tax deadline looming, make completing and filing your Self-Assessment form much less stressful in 2022. Again, if you have good accounting software, completing your self-assessment tax return should be much quicker and easier. If you want to really modernise and tailor your approach to your numbers, you can also consider using Self-Assessment filing software. Similarly, this makes the task of self-assessing even easier, while helping to minimise the risk of making mistakes.
Reach out for support
Away from the world of software, do keep in mind you can get a living, breathing, human being who is an expert on sole trader accountancy issues to fill out your tax return for you! Or even advise you on what he or she makes of your KPIs!
Crucially, to be tax-efficient, make sure you’re claiming all HMRC reliefs and allowances available to sole traders and freelancers. Again, an experienced accountant or other tax professional can provide valuable tax-saving advice -- which can be especially useful in January, when bills all seem to come in at once!
If you prefer to take things at your own pace, check out HMRC’s recently published and pretty comprehensive selection of free Self-Assessment guidance, including YouTube Self-Assessment videos and webinars. In addition, you can call HMRC’s Self-Assessment helpline (0300 200 3310 – Monday to Friday: 8am to 6pm) if you have any specific queries. And rather than wait for the January 2023 online filing deadline, why not get your Self-Assessment done and dusted soon after the 2021/22 tax year ends on April 5th 2022! It might sound super pro-active, we know, but that could free you up to get on with winning more business and becoming even more successful in 2022!
3rd December 2021