Business expenses
Thread poster: Reed James

Reed James
Chile
Local time: 19:26
Member (2005)
Spanish to English
Sep 8, 2009

Hi. I was wondering if anyone out there had a rule of thumb for business expenses. I have set a fixed monthly amount, but sometimes I wonder if it should be fixed or a percentage of monthly earnings. Spending too little is bad because your business doesn't grow. Spending too much or too much on the wrong items is obviously bad too.

Thanks in advance for your input.

Reed


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Astrid Elke Witte  Identity Verified
Germany
Local time: 00:26
Member (2002)
German to English
+ ...
Ten per cent Sep 8, 2009

Hi Reed,

I heard that business expenses are supposed to be around 10% of the income, and that is the figure that I use.


Astrid


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Reed James
Chile
Local time: 19:26
Member (2005)
Spanish to English
TOPIC STARTER
Gross or net income? Sep 8, 2009

Astrid Elke Johnson wrote:

Hi Reed,

I heard that business expenses are supposed to be around 10% of the income, and that is the figure that I use.


Astrid


Hi Astrid,

Thanks for the input. Is that 10% of your gross or your net income? Do you apply this to each and every month's income or do you calculate an average income and use that percentage? Do you think a translator should suspend or severely cut back on business expenses if he or she has a bad month (supposing that he or she can afford to pay 10%)?

Thanks.

Reed


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Astrid Elke Witte  Identity Verified
Germany
Local time: 00:26
Member (2002)
German to English
+ ...
Gross income Sep 8, 2009

Dear Reed,

I budget for 10% of my gross annual income. It works out quite well. I base it on my established gross income for the last completed year for which I have figures. However, if the level of business increases or drops significantly, I naturally have to adjust it. The optimum gross annual income is a fairly fixed figure, though.

I would not necessarily cut back on expenditure during a temporary bad patch if (1) the optimum gross figure earned by the end of the year is stable; and (2) I have reserves to cover the bad patches. Freelancers ideally need to have significant reserves.

However, whether you cut back or not during a bad patch is also related to the nature of the expense. Conferences and training sessions are important, as are dictionaries. As I said, as long as the reserves are there, I would not cut back on any type of investment, opportunity for professional advancement or training, nor would I cut back on updating important software needed for the job. Naturally, however, you will need less paper for printing on, for example, during a bad patch. I guess you save on what you simply do not need.

I think it is a matter of getting gradually organised, to run your business in the optimum way.

Astrid

[Edited at 2009-09-08 23:40 GMT]


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Henry Hinds  Identity Verified
United States
Local time: 16:26
English to Spanish
+ ...
Why do you ask? Sep 9, 2009

If you are asking for tax purposes, then ask a qualified tax advisor in the country where you pay taxes.

If you are asking for business reasons, then ask yourself what kind of business expenses you need to keep going, and how much they might be by item. This is something that depends 100% ON YOU.


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RichardDeegan
Local time: 17:26
Spanish to English
10% for quasi-investment-development Sep 9, 2009

I use 10% (of rolling six months or projected year) for what I call investment/development expenses, although not so in a strictly accounting or tax sense. This are expenses that I expect to improve my quality and productivity. This would be anything dealing with the PCs (maintaining at least one fully backed-up reserve machine, adding memory, software, HDs, new scanners & printers and even consumables like ink and paper), memberships, dictionaries and the part of an assistant that adds to my productivity.
What might be considered "regular" business expenses (internet, phone, light and the other part of an assistant) go against a fixed monthly nut, which is separate from the 10% earmarked above.
If I were to add implied rent for the space occupied, all would come to around the amount "assumed" by local tax law (20%).
Naturally, if I had a super-swinging month (assuming it wasn't preceded by a few lemons), I'd be out shopping for dictionaries or similar in short order.


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Kevin Fulton  Identity Verified
United States
Local time: 18:26
German to English
Differentiate among types of expenses Sep 9, 2009

First, I should indicate that tax deductions can vary from country to country. My situation relates to the US.

For example, I have a number of fixed expenses, mainly relating to maintaining my office. These include a percentage of my mortgage for maintaining a home office, utility expenses, Internet, telephone etc. Other expenses can vary, such as office supplies, but these average about 3% of my gross income, generally less.

When it comes to discretionary expenses, I try to keep the expense below 5% for a job. This means that if I'm offered what appears to be a one-off job paying, for example $1500, and requiring the purchase of reference material, I try not to spend more than $75 (and usually less).

Long-term investments are a different matter. An update of a critical reference work may cost $150, but its useful life may be 5 years. I usually spend at least $400 / year for reference books and journal subscriptions/society memberships. I generally replace my desktop computer every 4 years in order to keep up with technology while anticipating total breakdown of the current equipment. In the year of purchase, the replacement of the equipment may exceed my annual target, but amortized over several years, the cost is much less.

My point is: while maintaining expense targets is a great idea, there are frequently situations that call for extraordinary expenditures. Maintaining a 10% budget is not unrealistic, but it calls for serious discipline. A lot depends on your individual situation.


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Mara Ballarini  Identity Verified
Australia
Local time: 08:26
Member (2006)
English to Italian
+ ...
never actually thought of that Sep 9, 2009

I've never actually thought of that...Perhaps I should... However, usually, when I need to buy something for my business or when I think something could be useful for it and if I have the money, I just get it. My business is my life - well, not all of it of course, but a great part - and whatever I spend on it, I spend it for myself - I mean, if I decide to go to a conference, it's for professional development and because I'm interested in it, if I buy a book, it's the same, so if I did a different job, I would probably go there or buy it anyway, because I'm interested in it, so I see most of my business expenses as personal expenses too. Also, both my personal life and the rest of my family can often benefit of a lot of things that I get for my business, ie a new nice printer that I need for work, but which my mum can also use to print her photos, or a good computer that of course I need for work, but which my husband can also use to check his emails and stuff, an new bigger external hard disk where I can save all my work files, as well as more photos and family movies...etc etc... I think this should often be taken into account too...

It's alway a bit of whatever works better for you. Certainly, before spending on something, it's always better to make sure you can afford it, both presently, ie if you physically have the money at the moment you need it and in the long run, ie always forsee what your future needs will or may be and consider any extra unwanted expenses that may come up in your daily life to be able to take care of them too.


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Reed James
Chile
Local time: 19:26
Member (2005)
Spanish to English
TOPIC STARTER
Taxes are fine, want feedback Sep 9, 2009

Henry Hinds wrote:

If you are asking for tax purposes, then ask a qualified tax advisor in the country where you pay taxes.

If you are asking for business reasons, then ask yourself what kind of business expenses you need to keep going, and how much they might be by item. This is something that depends 100% ON YOU.


Hi Henry and thanks for your question. No, I've got all my taxes straightened out. Actually, Henry, I am following what you have said in the forums: freelance translating is not a job, it's a business. The problem is, some investments can lead to nothing, like some advertising campaigns I have signed up for. On the other hand, if you do not invest enough, you are missing out on potential profits.

I, for one favor separating business expenses from personal expenses. I have some ideas in mind as to how much to invest and what to invest in, but it is nice to hear from others to get a better feel for what is "right".

Reed


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Astrid Elke Witte  Identity Verified
Germany
Local time: 00:26
Member (2002)
German to English
+ ...
Advertising seems to me to be a very tricky subject Sep 9, 2009

You really need to know exactly what kind of clientele the advertising reaches before you place your advertisement.

You have to choose whether to target individuals or companies, and merely placing your advertisement in the wrong setting may constitute an open invitation to misunderstanding.

In my opinion, advertising is one expense to be kept very strictly within boundaries, especially as concerns your web site.

My own opinion on promotion is to take care of the quality of the translations, and try to obtain advertising, by word of mouth, through satisfied customers and a reputation. I am therefore, for example, extremely willing to invest in any CAT tool which assists in taking care of the quality, without the necessity of spending a disproportionate amount of time in relation to the earnings for a particular job.


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Henry Hinds  Identity Verified
United States
Local time: 16:26
English to Spanish
+ ...
Not a job, a business Sep 9, 2009

Very true, it's always a business. First, I would thoroughly agree that business expenses should be separated from personal expenses for tax reasons. What is difficult to assess, however, is what percentage of money should be allocated or whether it is even valid to think of it that way. We cannot expect to get ahead without investing, but first and foremost is the investment we make in OURSELVES as the number one asset for production. Other than that one big investment, which requires effort more than money, we are fortunate in that our business does not require much of an investment. In fact, we can actually start out with nothing and continue on for quite a while with very little.

I suppose it would be a matter of defining those areas in which you most wish to invest. Investing in asset No. 1 (yourself) could mean seminars, conferences and courses, for which you would want to have a budget, not to just spend it, but to spend it on what you think will really make a difference. Another could be for dictionaries or reference materials, but with the Net they are becoming less critical.

Advertising and promotion are another area, but a lot of money can be spent there without much in results. Contacts and word of mouth, often free, can often be much more valuable.

In my own case, my business expenses are very small, probably not much more than 1%-1.5% of total income. But the investment is continuing to improve asset No. 1 never stops, although very little money is expended.


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