Lots of evidence suggests that a well-earned break can actually increase your productivity, but many freelancers and small business owners are often put off from taking a holiday because they don’t think their cash flow position is healthy enough.
However, if you’ve found yourself wanting to take a break but you’ve been worried that your business can’t afford it, it’s important to stop and consider just how much one week is really worth to you and your business? How much money would you be missing out on if you took a week away?
Emily Coltman FCA, Chief Accountant to FreeAgent – who provide an award-winning online accounting system for small businesses and freelancers – takes a look at how to find out what a week’s holiday is worth to your business, so you can consider whether you can still take a well-earned break during the last few months of 2013.
What’s on the horizon?
Before you dive into any numbers, take a moment to look at your work plan for the upcoming weeks – what’s in the pipeline? Do you have any new projects scheduled to start, or are you expecting a potential client to come back to you about a quote that you’ve sent out? It may be that they’re on holiday too, and a quick call could help you understand what’s realistically on your plate for the coming weeks.
The worst case scenario is that a potential – or existing – client may go elsewhere if you’re not available at the right time. But you may equally well find that the client is happy to wait until you’re back, so you’ll just have some catching up to do!
The other thing to consider is your business’s seasonality – if you’ve been in business for over a year, look at your records and see what happened last summer. Did everything go quiet, or was it a busy time for you? If summer and autumn is your busy season, then these upcoming weeks are potentially more valuable than weeks in the winter, and you could plan a break to look forward to in November or December.
What are your potential earnings?
If you’d like to take a week off, then how much money would you be missing out on earning?
Be ruthless in working this out – don’t multiply your hourly charge-out rate by the number of working hours in a week! That’s not how much you do earn, it’s how much you could earn in an ideal week!
Instead, look at your work plan and sales pipeline to understand the work that you’ve got planned for the next few weeks. You could also look at the last few months’ worth of invoices (or invoices from the same time last year) and work out, on average, how much you actually earn in a week.
What are your potential savings?
Many people stop at just thinking about their potential earnings, but how much money are you potentially saving by not working a week?
To understand this figure, think about your direct costs – these are the costs that relate to particular sales, such as money to buy raw materials to make your goods, or postage to send them to your customers.
If you’re not making sales, these costs will drop. How much will you save by taking a week away?
How will your overall cash position change?
Now that you have an idea of how much less you’d earn and any costs you’d save, look at your cashflow plan, and map these figures into it. If you don’t have a cashflow plan already, now is a great time to start one.
With a potential week off, how does your cash position change at the end of the month? Looking further ahead, what effect will that week off have in a month or two’s time when you have a big VAT or tax bill to pay?
Once you understand what a week is truly worth to you and your business, you can hopefully make a more informed decision about whether now is a good time to take a holiday or not. If it’s not now, make sure you find some weeks in the year that are potentially worth less and get some time off in the diary!
Emily Coltman FCA is Chief Accountant to FreeAgent, who provide an award-winning online accounting system designed to meet the needs of freelancers and small businesses. Try it for free at www.freeagent.com