Freelance Series — Business Expenses
When I worked for a large organization, I always thought that it must be nice to be in charge and use the company resources on a whim; dinners with clients for free, flights and other travel expenses paid for, and so on. However, once I started my own business, I soon discovered that it wasn't just all fun and games. I won't go into the specific tax laws in this article, but I will talk about the decision-making process when considering incurring business-related expenses.
In this article, I'm going to talk about two business-related expenses I recently had to incur — business insurance, yeah, I know sexy, and booking a trip to Las Vegas for an upcoming conference.
I recently was approached by a previous client who hired me to teach them a class on Adobe Captivate but now needed me to develop an eLearning course for their organization. One of their requirements for any contractors was that they produce proof of liability insurance. I've always gotten away with not having insurance. Typically, I work in my own home office, and the types of eLearning courses I've designed haven't had any liability associated with them. You know, respect in the workplace type courses.
This decision is straightforward. I merely look at the cost of the insurance versus the revenue I expect to earn from the client. The insurance isn’t a small expense. It represents about 10 percent of the revenue I expect to earn. That said, if I don’t get the insurance the revenue would be $0. To me, it's a no-brainer. I can also use the insurance to cover me for other clients during the following year since I need to purchase an entire year’s worth. After a year, I can decide if I want to continue to have this type of insurance. Again, I could probably live without it, but if I have more work of a similar nature, I may hang on to it.
One scenario that's more challenging is speaking at conferences and the expenses associated with travel. First, there are many expenses associated with speaking at a conference that is difficult to calculate when you are first submitting a proposal to speak at a conference. I speak at conferences because it promotes my name out in the industry and my hope is that it will lead to paid work from clients. There is obviously a risk that I will spend this undetermined amount of money and not see a return on my investment. Figuring out if speaking at a conference is worth it is a little more complicated than the previous example. Here is a rough breakdown of what conference expenses include:
Airport shuttle to the airport from my home and back at the end of the trip
Flights to and from the conference cities
Cab ride from the airport to the hotel and then back to the airport at the end of the conference
Hotel stays usually in the same hotel as the conference
Food expenses such as dining out or room service
The government has all these rules, especially around food, when it comes to what is an allowable expense. Regardless of that, I need to figure all of the expenses into my costs regardless of if I can write off these expenses as business expenses. Let's say a trip to Las Vegas will cost me $1,500. I need to not only generate that same amount in incremental revenue but I also need to consider that while I'm in Vegas I'm not earning regular income either, so I need to really double it just to break even. An ideal situation is to gain about $4,500 in revenue for it to be worth the lost time, lost business and expense of going.
Another challenge is attributing any revenue to one promotional activity over another. I always try to ask my clients where they heard about me. Most usually say my YouTube channel but sometimes they saw my name at a conference or better, yet they attended one of my sessions. I have to be honest; I really don’t know if conferences have helped my business or not. Here is a scenario that I can easily imagine. Someone attends the conference in question and is exposed to my name but doesn’t necessarily attend my session. Later, once they are home and wish to learn something about Adobe Captivate, they google Adobe Captivate plus whatever other search terms are related to their interest. My name pops up in the results and they decide to click one of the links to my articles or videos. They don’t know me from any other links in the search results but somewhere in the back of their mind I seem familiar. They watch some of my videos and as a result of those videos decided to hire me to help with their eLearning development. I may never know if the conference had that effect on them or not, but I don’t discount the possibility.
It's up to you if you decide to take on an expense associated with running your business but certainly looking at what you expect to earn is a good indicator if the expense is worthwhile. Remember that you may not see that return on investment for some time to come, like in my case with the conferences. A big part of incurring these expenses has to do with past success as well. For example, if I was having a bad year and simply didn’t have the cash flow to put the money up for an expense, I may back out of a particular opportunity. As it stands, I had a good year and even if the conference I intend to attend later this year in Las Vegas doesn’t earn me any revenue, I will still go. I can afford it (presently). Hopefully, I can continue to say the same thing next year and the year after that.
