Is budgeting worthwhile for a software development freelancer or contractor?

Question

As a software freelancer (contractor) does it pay out to budget for things such as marketing and advertisement, training, tools (i.e. business related expenditure) or just buy them ad hoc? Obviously you need to set some money aside for holidays, sickness, etc; anything that goes under “social security” expenses category, but advertisement and training? Since, commonly being on your own, you can pretty much make decisions on the spot, you pay as you go.

Are there any less obvious benefits to the budgeting apart from not going over the limit? Apart from keeping risks under control?

What is your advice based on personal experience?

Answer 1

In a very old and very overused quote: "Those who fail to plan, plan to fail". While you may not need to do financial breakdowns as detailed, or as painstakingly as a company, you are still a company of one. If you want to succeed monetarily, planning is always a good thing. I do recommend you take some time, do at least a cursory budget and track what you spend.

Answer 2

You should be proactive and not reactive. That's my advice. If you want to succeed with your 'business' then you need to manage it - all aspects, especially when it comes to money. You don't have to get crazy and overboard with your budgeting, but you should have a plan. We budget and reevaluate it periodically to make sure it is working for us. Paying as you go can lead in many cases to poor decisions based on spur of the moment "I need it!" thoughts rather than having a road map.

Answer 3

I do not use budgets (either personally or for my business) in any formal sense. However, I always have a good sense of how much money I have in each of my accounts, of any outstanding invoices I expect to receive, of any upcoming expenses, and of how these all interact, which I can use to make informed decisions about what to buy or not buy as needed. This could be viewed as a loose, informal "budget" if you wish, although I don't see it as such.

Answer 4

I personally set a budget for those types of expenses with my business, as a freelance/consultant we have many expenses to run our businesses. Software is incredibly expensive but obviously a necesssary evil.

I find that it is very helpful to set limits on spending X on Advertising, Y on software, Z on training etc. Doing this I find that I can then project, minimum revenue levels that are needed to support those budget values, thus allowing me to gauge business performance.

With that in mind, I personally treat the budget as a "good idea", and if things come up I will go over budget, or re-allocate funds, but ideally, YES, I would say that budgeting is a vital part of any business.

Answer 5

I highly recommend at least some form of planning. A friend of mine did this when going indie and I highly recommend it: Map out your basic expenses and come up with two numbers:

Number of hours needed to work to barely scrape by. Number of hours needed to work to be able to put some away and have discretionary income (for buying gadgets and other "useless" things).

She had this all in a spreadsheet and could adjust her rates to see how many hours she needed to work if she lowered or raised them, etc.