5 Ways To Crush Overhead in Your Freelance Business.

I abhor debt.  I said we’ve been rubes for accepting the premise that OPM was the way to go to build a business.  That we were stupid for using ‘our own,’ money.  95% of the time, using our own money is what we need to be doing.    We don’t need VC Funding.  We need sales and execution.   The debt+ life is an excuse that people use to sell more crap.  We tolerate debt, and it distorts our profitability.  The dollars we borrow aren’t really employees, they are a product of laziness.  Lazy is OK, once you earn it.

The siren’s song of an easy business is always calling: “For just $90 bucks a month, you can be insulated from THIS kind of work, and haven’t you earned it?  Wouldn’t you be stupid not to?”  That creeps in and creeps up.  Affiliate marketers get clever at selling recurring revenue products, not because it’s best for you, but because it’s best for them.   There is a constant creep up on overhead.  Everything is a promise, and nothing pays off.

Why Crush Overhead?

Keeping your overhead low is the key.  Personal and business.  Why?  Because it’s freedom.  I have low overhead, except for my big mistake with the IRS. But, I minimize what goes out.  That started when I left the mortgage business.  I cut everything and took Mark Cuban’s Advice: it’s OK to live like a Student.

As little financed as possible, and buy stuff only when its earned.  Fight monthly overhead with ferocity.  Have an extreme bias against it.  Have a bias against things that create more work, too.  More bills to manage, and a less leaking bucket.  I believe in most businesses online, overhead (not payroll) should be well under 10% of average monthly revenues.  I’m not qualified to talk about other types of business besides solo-prenuer enterprises.

Business Overhead:

• CavTel (Internet Service) $61 (incl. taxes)
• Aweber: $20
• Paypal Merch. Services : $60
• Rent: $500
• Electric: $140
• Skype: $2.50
• InfusionSoft (CRM that damn well better work) $299
• Hosting: $15/month.
• Water:  $40
• E-junkie: $5
  

Total:  $1132.50

That’s everything that I pay for.  Water is high in Westerville for whatever reason.  I have payroll that goes out that’s usually cost of sale type stuff.  That payroll is generally around 20%-30% of gross revenue.  I don’t know if that’s good or bad, it’s all 1099 stuff and easy enough to keep the books on.

My personal expenses are here:

• Rent: $775/month (Sold houses in 2006 which was smart in retrospect)
  
• Car Insurance: $51.00/month
• Medication/Contacts/Copays: $150/month.
• Gas: $81
• Electric: $130
• Health Insurance: $245/month
• Cell Phones: $150 (both H and I have a line, some could be added to the biz but we’ll keep it here)
  
• Car (is current debt to pay off in August.) $204/month
• Food: $500/month
• IRS: $100/month
• Internet: $34/month

Total: $2420/month.

Business and Personal Total: $3552

Now, I know that there are other expenses here,  but this is the ‘bare minimum’ for keeping the lights on and life going.  This isn’t debt service: I have $400 in student loan payments that need to get paid each month, and I have my IRS bill to contend with ($100).  But that’s debt–different from overhead.  The car payment also could be excluded, but it’s left in there for the sake of argument right now.

My office is within walking distance of my house.  It is negotiable–it keeps me from being a bad dad, but it doesn’t have to exist–it adds about $700 to the expenses, all told.   Doable, compared to many.  Infusionsoft is an experiment. I’m not committed to it–it’s 27% or whatever of my overhead.

Now, let’s recall: I’m $35,000 in the hole to the IRS at the moment.  That’s a ton of money.  That debt WILL be 100% gone by 31 January 2010.  Get it?  Good.

5 Steps For Cutting Overhead:

1. Druckerize: Write it down, post it publicly.  It improves if it gets measured.  Be 100% honest about it.  Put it on a wall in front of you.
2. Systematize.  I learned recently that file folders kicked more ass than basecamp.  Find low tech systems and don’t be in love with the high tech pseudo automation.
3. Share: I don’t know if it’s permissible, but most times, a couple of freelancers could share an account with each other; most businesses run small enough that an aweber or hosting account could be split a couple of ways…saving bucks. (I will be renting my office out to an appropriate tenant shortly)
4. Cancel: If you have done #1 and posted everything publicly, you’ve got the ability to cancel non performing things.  Don’t hesitate to charge back if the process is too opaque.
5. Obsess. Every day I wake up I have to earn $150 or I don’t survive.  I need that number to get smaller both in terms of automatic recurring revenue and in terms of expenses.  IF you don’t obsess a little over the bottom line (like Jamie Dimon does), you’re gonna bleed out fast.

So this puts a long term goal of (a) cutting the hell out of overhead.  and (B) covering it with recurring revenue right now.

So we have some other link outs to give:

Jason And Mark Talk about Startups.

Related posts:

1. Time Debt & Time Overhead: How To Manage Your Schedule
2. Super Basic Expense List
3. 10 Ways I Survived My Cash Crunch As a Freelancer (And You Can, Too)
4. 15k cash position.
5. How Does Time Debt Impact Your Business?

Tagged as: happiness, overhead