FreshBooks Classroom Material

FreshBooks Classroom

Material

Includes everything you need to

get a class up and running in no time

FreshBooks for Education

Introduction

Today’s students are tomorrow’s business leaders. The FreshBooks for Education ini-

tiative enables educators to better prepare their students with the real-world business

skills and basic accounting knowledge needed to thrive in an entrepreneurial economy.

The Classroom Material is broken up into four learning modules: Starting A Business,

Project Management, Invoicing and Getting Paid, Cash Flow and Expenses. Each

learning module includes in-class activities, plus assignments that are paired with the

FreshBooks software. The Classroom Material is completely free to use.

Whether you’re already using FreshBooks, or still evaluating whether it’s a good ﬁt, this

document is full of real-world business insights. In addition to this material all educa-

tors and students qualify for a Free FreshBooks account. The FreshBooks software

provides a hands-on approach to learning and students love it.

Questions? Need a hand in getting up and running with FreshBooks? Reach out to our

dedicated Education Team at educat[email protected].

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Table of Contents

Introduction 2

Table of Contents 3

Module One – Starting a Business 4

Module Two – Project Management 14

Module Three – Cash Flow and Expenses 24

Module Four – Invoicing and Getting Paid 33

Supporting Material 41

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Module One –

Starting a Business

This module walks you through the ﬁrst steps to

consider before starting a business, steps to becoming

self-employed, and how to start acquiring clients.

The learning outcomes of this module are:

• What to consider before starting a business

• The basic principles of starting a business and ﬁnding clients

Topical overview:

1 Introduction

2 Making the decision to start a business

3 First steps in starting a business

4 Finding clients

5 Conclusion

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Module One – Starting A Business

Classroom Material

1 Introduction

Students in industries such as graphic design, photography, and trades frequently end

up doing freelance work after school. In fact, self-employment is on the rise and it’s

expected that today’s millennial generation will be the most entrepreneurial group in

recent history. In the United States, it is estimated that self-employed and contract

workers represent close to 15% of the workforce. It is anticipated that the number will

climb to 20% by 2020.

This module will introduce you to what you need to think about before starting a busi-

ness, steps to take to being self-employed, things to consider about being an entrepre-

neur, and how to ﬁnd clients.

2 Making the decision to start a business

Let’s ﬁrst start with determining what being self-employed actually means. The Merri-

am-Webster dictionary deﬁnes self-employment as “earning income directly from one’s

own business, trade, or profession rather than as a speciﬁed salary or wages from an

employer.” Self-employed also means that you:

• Control how your work is done

• Can hire other people

• Freely negotiate pay

• Own your own tools/equipment

• Take full proﬁt or loss

Making the decision to start a business is no small feat. Before running out to start a

business you should take the time to research the following:

Exploring why you want to start a business: Entrepreneurship is demanding but can

come with high rewards. If you are looking for a challenge, have the motivation to work

hard for what you want, and have determined there is a need for the service you can

provide then starting a business could be for you. Before committing to starting a busi-

ness, consider the reasons you are interested in entrepreneurship and measure those

against your skills and abilities.

Carol Roth, writer for Entrepreneur, identiﬁed ﬁve personality traits suited to starting

a business. Roth considers someone who is able to complete a variety of tasks, has

good money sense, is okay with the potential of the unknown, is a strong executor, and

has been thinking of starting a small business for awhile, to be a solid candidate for

entrepreneurship.

Determine what service you are providing: This may seem obvious but it should be rec-

ognized as the most important element to consider before starting a business. Deter-

mining what service you are going to sell should be based on an analysis of your areas

of expertise, your strengths, previous experience, necessary skills to succeed in the in-

dustry, along with researching if there is a need for this service in your geographic area.

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Module One – Starting A Business

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Take a moment to consider if you have passion for the service you are selling. You

will need to work extremely hard to achieve success, there really isn’t such a thing as

being off the clock when working for yourself. This passion goes a long way to keeping

you motivated and moving forward in growing your business! Passion takes you a long

way in starting a business but it doesn’t guarantee success, it needs to be paired with

expertise and execution to transform an idea into a viable business.

Cash ﬂow considerations: One of the more challenging parts of working for yourself is

the availability of required cash to start your business but also for day-to-day living ex-

penses. Before starting a business it is prudent to determine if you can access enough

money to cover your cost of living and simultaneously invest in the business venture.

Sometimes you need funds to be able to purchase the equipment or space needed to

provide your service. There are different ways that you can access money to start your

business:

• Savings – These are personal funds that you have been putting aside.

• Debt – Debt ﬁnancing is a loan of money that needs to be paid back along with

interest payments. The lender (usually a bank or the government) will look at the

earning potential and assets of the business in order to issue ﬁnancing.

• Equity – Investors that provide equity funding get a share in the ownership of your

business and in your proﬁts in return for their contribution.

• Grants – Applying to a government or local business centers can yield additional

ﬁnancing that does not need to be repaid. Some states/provinces, and even cit-

ies and regions, offer grants for young entrepreneurs or for individuals to start a

business that provides a service that is needed within the community.

Analyze your small business skills: In addition to determining if you have the necessary

expertise in your profession, you need to consider your business skills and abilities. To

be success at self-employment you need to be able to:

• Manage ﬁnances and budgeting

• Make and execute on business and project decisions

• Market and sell your services

• Manage yourself and others, including vendors, clients and potentially employees

Many local colleges and business centers offer courses and resources to help you

develop these skills. If you are planning to start a business on your own you need to be

ready to tackle the administrative side of your business alongside providing service to

your clients.

Consider your appetite and understanding of risk: Whether you are planning to leave

your current job (and a steady salary) or start your career by working for yourself, there

is risk involved in starting a new business. Some of the risks include:

• The ability to repay debt and/or earn enough money to cover your living expenses

• Not being able to secure clients

• The business ultimately not succeeding

PROFESSOR NOTE: Stay tuned for

Module Three, it covers cash ﬂow

and expenses in greater detail.

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The main point of consideration is understanding your personal comfort level with risk.

For entrepreneurs, risk and success go hand in hand. Those who take risks have the

most to gain from their work.

3 First steps in starting a business

Starting a business is no easy feat but there are several key steps that will help an

entrepreneur start their business on a solid foundation.

Deﬁne your service: As previously discussed, you need to determine what service you

are going to provide before starting a business. Part of that process is deﬁning exactly

what you will provide, and just as importantly, the services you won’t provide. This will

help you target the right clients and focus your expertise.

Determine type of business: There are different types of business structures to con-

sider. You may be interested in partnering with someone or operating on your own. You

may decide to work freelance or in addition to an existing job.

• Sole proprietor – This is the simplest way to set up a business. As a sole propri-

etor you are fully responsible for all debts and obligations related to your busi-

ness. A sole proprietor is said to be self-employed. A sole proprietorship is not

heavily regulated but there is unlimited personal risk, since all personal assets

are exposed to creditors of the business.

• Part-time freelancing – Working off-hours in addition to your full-time position;

can involve partnering with other professionals. You will still need to report this

income to the government and pay appropriate taxes. Freelancers often set-up as

sole proprietors to manage their business costs and revenue.

• Partnership – An agreement in which you and one or more people combine re-

sources in a business with a view to making a proﬁt. Each partner is personally

liable for all debts and obligations incurred. You share in the proﬁts according

to the terms of the partnership agreement which should be drawn up before

ofﬁcially creating the business. Similar to sole proprietorship, there is unlimited

personal risk as all personal assets of the partners are exposed to creditors of

the business.

• Silent partnership – This is the same as the partnership deﬁnition but involves

one or more partners being limited to providing capital to start the business. They

are not involved in the day-to-day operations but will pull proﬁt as outlined in your

partnership agreement. These partnerships occur more frequently when there is

a large start-up expense.

Classroom activity: Provide students with sticky notes and ask them to

write down their thoughts on the key considerations before going out

and starting a business. Students should post their notes at the front of

the room. Once they are posted, group similar thoughts and then discuss

them as a class.

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• Corporation – A corporation differs most signiﬁcantly from sole proprietorship

and partnership in that it is a distinct legal entity separate from the individuals

who hold shares in the company. There are signiﬁcant regulations to follow and

is expensive to form but there is limited personal risk and additional tax beneﬁts.

Every geographic region has speciﬁc documentation on the responsibilities, consider-

ations, and regulations on these business structures. Do your research to ensure that

you can adhere to government standards and that they align with what you plan to do

and the services you plan to offer.

Business name: Did you know that Google was initially called BackRub? Founders Larry

Page and Sergey Brin were looking for a name that represented the function of their

product, an online engine that searched through backlinks. Thankfully, they soon real-

ized that BackRub didn’t work and went with the suggestion from their friend of ‘goo-

gol’, the name used by mathematicians to reference 10 to the power of 100. This same

friend misspelled the word when searching to see if the domain was available and Page

and Brin decided they liked the invented word ‘Google’ even more.

When determining a name for your business consider the balance between needing a

name that represents your service or product but is also memorable and unique. You

want your name to stand out when potential clients are looking for a new service pro-

vider. Once you have a name you like do some research with friends and family to see

if the name makes sense and is appropriate to avoid a “BackRub” situation.

The United States Patent and Trademark Ofﬁce (USPTO) deﬁnes a trademark as “a

word, phrase, symbol, and/or design that identiﬁes and distinguishes the source of the

goods of one party from those of others.” Consider registering your trademark to claim

ownership. The USPTO has resources that outline the basic facts about trademarking.

would like to run, it is time to ofﬁcially register your business. Research which body you

need to register with in your city to become a legally recognized business. Beware of

third-party organizations that suggest you can process your registration through them.

It is better to work directly with ofﬁcial municipal and governmental bodies.

Generally, you will need the following to proceed with a business registration for a sole

proprietorship or partnership:

• Name and address of the business

• Description of the business activity

• Your name

• Home address

• Telephone number

Market research: Market research is the process of collecting information on the envi-

ronment your business operates within. It usually includes an analysis of competition,

clients, aligned businesses, and what is happening in the industry. Through your re-

search you can answer important questions such as:

• Are there organizations looking for the service I provide?

• Who else is providing this service?

• How should I target potential clients?

• What are the problem areas in my industry?

RESOURCE: Answers to the top

questions on incorporating a small or

solo business and choosing the best

business structure for your needs.

TIP: Run your potential business

name through an internet domain

search to see if you are able to

purchase a domain that aligns with

your business idea.

RESOURCE: Additional tips and

tricks for choosing a business name.

If you are stuck on a name, try this

business name generator.

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The answers to these questions will provide you with important information to help

determine how you should develop your business. Many people jump in without doing

research beforehand leading to issues with securing clients and positioning the busi-

ness within an existing market.

Administrative setup: Most small businesses are sole proprietorships with only one

person who takes care of securing new business, executing the work, and delivering

the end product, as well as running the business overall. That’s a lot to manage. It is

important to set-up processes to help minimize the time spent on business admin-

istration and more time providing great services that keep your clients coming back

for more.

Before you get too far into soliciting business, consider setting up the following admin-

istrative systems:

• Accounting – Setting up an accounting process from day one will help you get and

stay organized. You need to keep track of who has paid you, who owes you money,

and all of your business expenses. Accounting can seem like an overwhelming

task at ﬁrst but technology has made it easier to keep track of things. Software like

FreshBooks makes accounting easy, enabling business owners to spend more time

on their services and less time on accounting.

• Client log – Create a system for capturing information on your current and former

clients along with information on potential clients. Note important facts like the key

contact person, address, preferences, and history of services. It is better to write

this information down than rely on memory alone.

• File management – Taking the time to set-up a ﬁle management system before you

have a large number of ﬁles to manage will save you a lot of time down the road.

Determine where you will store the ﬁles and the naming convention you want to use.

This will minimize the amount of time you spend hunting down the ﬁles you need.

Promote your business: You have a name and you are registered business, now what?

The next step is to create a way for potential clients to ﬁnd you. Recommended ﬁrst

steps for promotion are to purchase a domain and build a website. Make sure you are

buying a top-level domain (that’s the sufﬁx at the end of the URL, for example, .com,

.ca, .net) that is relevant and appropriate to where you live and what you do. Align your

domain name with your company name. Stay away from abbreviations that don’t make

sense or spell something unrelated to your business.

Having a logo or wordmark that represents your business goes a long way to in estab-

lishing a professional presence. Using your logo on all materials and platforms (such

as business cards, social media and website) creates a visual identity that helps make

your business memorable.

Classroom activity: Discuss why research is an important step in setting

up a new business.

PROFESSOR NOTE: Invite your

students to participate in their Free

120-day FreshBooks Trial.

Classroom activity: Have students create an account through FreshBooks

and add their ﬁrst Client.

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Module One – Starting A Business

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Once you’ve got your brand sorted out you’re now ready to enter the market and pro-

mote your business.

4 Finding clients

The success of a business relies on the clients it secures. Securing clients, and man-

aging those relationships, is a necessary part of doing business. Here’s how to get

started.

The right kind of client: Before you start going out to procure clients, you should take

the time to determine who your ideal client is and where these people or organizations

are. You can ﬁnd out this information with some old fashioned internet sleuthing paired

with information interviews with colleagues, peers, and even some organizations that

ﬁt in your ‘ideal client’ parameters.

Promote your business wisely: All promotion is not created equal. By researching a po-

tential client base, you will ﬁnd out information on where your clients are located, what

communication channels they use, and what is important to them. Use this information

to tailor and focus your business promotion. It isn’t about reaching the largest number

of people, but it is about reaching the right people.

Reﬁning your pitch: Before you begin the search for clients reﬁne the value proposi-

tion of your business. What makes your business unique? Why should someone use

your services? Figure out how to communicate this to potential clients in a clear and

concise way.

Work on your ‘elevator pitch,’ which is a short introduction to your business that can be

given in the length of time it takes to ride an elevator with someone. Think of the eleva-

tor pitch like an executive summary of your business. Having a polished and cohesive

pitch that’s ready to go looks professional and allows you to pitch your business any-

where, anytime. Mentioning businesses that you already work with is a highly effective

marketing tactic. Have some testimonial soundbites from previous clients that you can

include across your business material.

Networking: Consider networking as the gateway to potential clients. Your networking

may involve direct contact with future clients or it may aid in getting your name in front

of people who can help open doors for you. Either way, networking is a key cornerstone

in procuring clients, especially for a new small business.

FreshBooks has a series of blog posts about the art of networking, you can ﬁnd those

links in the Supporting Material on page 41.

Classroom activity: Propose the following situation to the class and have

them discuss solutions. “Through your research you have identiﬁed that your

ideal client is male, 45-60, likes to stay healthy, and has an income of over

$100k.” How could you tailor your promotion to reach these clients?

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5 Conclusion

Throughout this module you have reviewed the considerations of starting a business,

the necessary steps in actually starting a business, and how to ﬁnd clients. This knowl-

edge provides you with the business fundamentals needed to get an idea off the

ground.

Classroom activity: At the end of the class, have your students ﬁll out a

quiz like the one found here to determine their aptitude for being self-

employed. Compare results to further discussion on self-employment.

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Module One – Starting A Business Assignments

Assignment One (introductory):

Cheryl and Steve want to start a business and they have come to you

asking for advice. Answer the following:

1. List ﬁve considerations Cheryl and Steve need to think about

before starting a business. Expand on your answers to include key

information on the considerations.

2. What are the steps Cheryl and Steve need to take now that they

have decided to start a business? Provide context around the steps.

3. Provide a list of four ways Cheryl and Steve could ﬁnd new clients.

Provide an example of each.

4. Cheryl and Steve are not sure they want to start a business

anymore. They are okay with risk, like big challenges, but have

limited access to money to start their business, and haven’t deﬁned

their service. What advice would you give them? (200-300 words).

Assignment Two (advanced):

Create the framework for starting a small business. Your business must

align with a skillset you and your partner currently have. Complete the

following:

1. Determine and deﬁne the service you are going to provide (100-

200 words).

2. Outline what cash ﬂow you need to start the business and how you

will procure those funds.

3. List the business skills each of you have, include examples

(hint – pull experiences from school and work).

4. Determine the type of business you would like to start. Provide

context on why this model is best for you.

PROFESSOR NOTE: Have students

work in partners or teams for this

assignment.

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Module One – Starting A Business Assignments

5. Establish a business name. Research the business name online

and identify its strengths and weaknesses compared to similar

search results. Provide a summary of this research (100-200

words).

6. Complete preliminary market research, answering the following

questions:

a. Who are your local competitors?

b. List ﬁve organizations you think would need your service.

Why?

c. What are the current trends in your industry?

7. Set-up an account in FreshBooks and create an invoice for your

ﬁrst client. This invoice should include your company information.

8. Identify three ways you could promote your business to build new

clientele.

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Module Two –

Project Management

This module walks students through the steps and

knowledge needed to properly manage a project.

The learning outcomes of this module are:

• Understanding the basic principles of project management

• How to effectively manage a project

• The approaches and tools used by project managers

Topical overview:

1 Introduction

2 Overview of project management

3 Key processes of project management

4 Project management tools

5 Conclusion

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Module Two – Project Management

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1 Introduction

Project management is a crucial skillset that enables you to produce optimal outcomes

for any given project. Project management shouldn’t be an afterthought, in fact the

“ability to plan, organize and prioritize work” are some of top 10 skills employers want

from graduates according to a Forbes survey

. Whether you are going to start your own

business or work for someone else, having an understanding of project management

fundamentals will help you work smarter.

2 Overview of project management

Deﬁning project management: The Project Management Institute deﬁnes project man-

agement as “the application of knowledge, skills, tools, and techniques to project ac-

tivities to meet the project requirements.”

In other words, project management is the

process of getting a project completed from start to ﬁnish.

Some organizations have a full-time project manager who is responsible for managing

multiple projects inside the organization. Project managers appreciate working with

people who have an understanding of the basic principles of project management.

These individuals are able to jump into the project management process faster and

provide additional support for the manager.

If you are working for yourself or a small business, you may ﬁnd that you need to simul-

taneously manage the project as well as produce the work. Understanding the project

management process and knowing how to use and apply the tools will help you effec-

tively manage your projects.

The beneﬁts of project management: The process focuses on what you are aiming to

accomplish and helps create a roadmap to getting you there as fast as possible. Client

satisfaction is usually enhanced through this process resulting in repeat business and

recommendations.

Using project management processes and tools add value to the project and organiza-

tion through:

• Assessing task priority

• Looking ahead at what needs to be completed

• Planning with other involved parties

• Allocating responsibility

• Managing time and resources appropriately

• Strategic budgeting and ﬁnancial management

• Creating repeatable processes for future use

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Poor project management or a lack of project management can result in sub-standard

service, or worst case, the inability to complete the job!

3 Key processes of project management

There are ﬁve main steps to successfully managing a project from start to ﬁnish. Below

is an overview of the ﬁve step process.

Initiating: The ﬁrst step to successful project management is creating a project charter

that outlines what you are aiming to achieve and why. It should involve meeting and

with the key individuals involved to establish a formal document that describes the

project in its entirety. Working through this process identiﬁes your project objectives,

stakeholders, and deliverables. The project charter becomes an important guiding tool

throughout the project, helping keep the team and deliverables on track and focused

on what is crucial to completing a successful project.

The Project Management Institute highlights that the “project initiation processes help

unify the team by deﬁning the path, purpose and parameters of the project. They clarify

the end goal from the beginning and get buy-in from everyone involved.”

The project

charter is usually a short document, approximately 1-2 pages, that deﬁnes the high-lev-

el requirements for the project and ties the project back to the organization’s business

goals and ongoing work. It often requires approval from the individual or company who

designated the project and is considered a semi-formal agreement.

The project charter should include:

• Project title

• Deﬁnition of the project

• Parties involved and an overview of their roles and project authority

• Project resources (this includes human, material and budgetary resources)

• Stakeholders

• Deliverables

• Objectives (if currently deﬁned)

• Project constraints

• Identiﬁed risks

• Approval requirements

Planning: After creating the project charter, the next step is to formulate the supporting

documents that will help you deliver the project. Whereas in the initiation stage you

were identifying the resources, deliverables, and responsibilities, this stage involves

documenting and planning the steps required to make things happen.

Classroom activity: Discuss the possible beneﬁts and challenges of project

management for a small business.

RESOURCE: Have a look at this

project charter template produced

by the Project Management Body of

Knowledge.

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Not all planning documents need to be created before the project can begin. Some

planning documents need to happen after other steps have occurred and others will

need to be constantly updated and revisited.

A key document is the Project Management Plan. The Project Management Plan is

referenced frequently throughout the life-cycle of the project as it captures critical in-

formation on the execution of the project.

The project plan should include the following:

• Stakeholder need analysis

• Project objectives

• Details of the project

• Project deliverables and deadlines

• Tasks and resources

• Risk management

• Resource allocation (time, people, budget)

When you are deﬁning your objectives, apply the SMART method to ensure your objec-

tives are reasonable. Each of your objectives should include the following ﬁve elements:

• Speciﬁc – Craft your objective to be detailed, focused and well-deﬁned.

• Measureable – Identify a measurement of success within the objective.

• Achievable – Ensure that your objective is attainable inside the timeframe and

restrictions identiﬁed.

• Realistic/relevant – Assess if the objective makes sense at this moment in time

with the resources you have.

• Timely – Each objective should have committed deadline.

Remember that your stakeholders aren’t just the people who hired you for the job or

the people you directly report to; stakeholders can be anyone who is impacted by the

results of the project. Keeping this deﬁnition in mind will help you create a more com-

prehensive and inclusive project plan.

Executing: The execution process is where you put your Project Management Plan into

action. Through the coordination of people and resources, the execution relies heavily

on the framework created in the ﬁrst two steps.

During execution, you will continuously be doing the following:

• Stakeholder management – From keeping your client in the loop to managing your

boss’ expectations, communications is a key function of project management.

• Resource allocation and management – Ensuring that there are enough human

and ﬁnancial resources to complete the tasks at hand is one of the more chal-

lenging parts of project management. Use the charter and Project Management

Plan to help keep you focused when things may seem out of control.

• Quality assurance – Throughout execution you want to do a series of tests and

trials to make sure that the project is delivering a quality product.

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• Team management – There is often a team of people involved in seeing the proj-

ect to completion. Throughout the project, the team needs to be monitored and

lead to get the highest value from their input. The “human” part of the project can

be impacted by situations such as day-to-day business impeding on project tasks,

interpersonal conﬂict, and time management issues.

• Communication – A successful project outcome relies heavily upon clear and

continuous communication. How and when to communicate with stakeholders,

team members, and clients, needs to be thought out beforehand to minimize the

issues that come with over or under-communicating.

• Risk management – During the course of a project certain elements of risk will

become apparent. How you manage these risk factors will determine whether the

project deliverables can be completed in time. Analyzing the areas of potential

risk ahead of time and identifying the proper corrective actions will save you time

and resources during the project.

Execution goes hand in hand with the next process which is monitoring and controlling.

Throughout the execution phase the project must be monitored and controlled to en-

sure you are on the right track to delivering a quality end product.

Monitoring and controlling: The monitoring and controlling process aims to track, review,

and manage changes. During this stage, the project manager is continuously reviewing

the progress and performance of the project to date and identifying any changes that

need to be made. This allows corrective action to be taken if tasks or deliverables are

not in alignment with the original intent of the project. It also helps identify if a task or

deliverable need to be shifted or modiﬁed from the initial plan.

During this process, the following should be monitored and/or controlled:

• Project scope

• Resource allocation

• Adherence to objectives

• Quality of the deliverable

• Budget

• Timeline

• Communication processes

• Stakeholder relations and management

Through the process of monitoring and controlling you identify the updates, both issues

and achievements, that need to be shared with the team, stakeholders, and the client.

Closing: Whether or not the project has ended with a successful outcome the project

needs to be closed. The process of closing involves reviewing what went well during the

project, and what didn’t, as well as the lessons learned that can be applied to projects

in the future.

Classroom activity: Discuss common issues that could disrupt a project.

Identify how you would manage these issues through planning, and

resource management.

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During the closing process, the following tasks should be completed:

• Document challenges and lessons learned

• Capture ﬁnal sign-off on the project

• Provide ﬁnal deliverables

• Provide ﬁnal update to all appropriate stakeholders

• Measure success against the Project Management Plan

• Archive all project documentation

It may be tempting to skip elements of the closing process but it is important to review

and document the project as reference. This will save you time and resources on your

next project.

Small projects: The ﬁve step process outlined above are more often applied to large

scale projects or projects that involve a lot of stakeholders and contributors. If you are

responsible for managing a small project, or if you own a small business, adapt and

scale down the steps to a point that makes sense. For instance, if you are the sole

contributor to a project you don’t need to create a formal Project Management Plan.

Drawing up a timeline and project budget may be enough to keep your project on track.

If you’re the owner of a small business it may not be cost effective to spend a large

amount of time managing a project if the scope of the project doesn’t require it. It is

useful to have an understanding of the processes of project management so that you

can adapt them as needed.

Have a look at the Supporting Material on page 41 for additional project management

resources.

4 Project management tools

The following tools are common to most project management methodologies and are

most associated with the process of project management. For more information on spe-

ciﬁc methodologies, read this beginner’s guide to project management methodologies.

Timeline (Gantt Chart): Having deadlines and speciﬁc milestones keeps a project on

track and collaborators responsible for their input. Without a timeline it is hard to iden-

tify when tasks need to be ﬁnished and how individual tasks will impact the completion

of an end product. The timeline tool most used in project management is the Gantt

Chart. This form of time management plots activities/tasks against a time scale to

identify when they need to be completed and the dependencies between tasks.

Activities or tasks run along the left side of the chart. A suitable timeframe for the proj-

ect is on the top of the chart. For each activity you create a bar that covers the length of

time that the activity will take. The length of the bar then represents the start, duration

and end of the activity.

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Here is an example of a Gantt Chart:

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7

Identify project scope

Concept creation

Concept approval

First draft

At a glance, the Gantt Chart lets you see:

• What the various activities are

• When each activity begins and ends

• How long each activity is scheduled to last

• Where activities overlap with other activities, and by how much

• The start and end date of the whole project

Using different colored bars, you can easily identify on the chart which activities or

tasks are on track, falling behind, or completed. You can also associate colors or sym-

bols to contributing partners to help with resource management. Gantt Charts are

meant to provide a depth of information in a simple visual format.

Budget: Most projects have a predetermined budget that is meant to see the project

to completion. If you have been hired to work on a project you may need to create a

budget to outline the costs involved in executing your portion of the work, or depending

on your role you may be responsible for coming up with the total project budget. If you

are working on behalf of a larger organization, your budget may reﬂect the total costs

associated to seeing the project from start to ﬁnish such as operational expenses, ad-

ministrative costs, or human resource costs.

Before the project begins, identify all of the items or tasks that will cost money. Re-

search the items and tasks to create an estimated cost for each one. Tabulate the total

cost to determine the projected spend. If the amount surpasses the budget you have

for the project you need to go back and ﬁgure out where you can reduce costs. You may

decide that there are elements of the project that aren’t necessary or you may need to

ﬁnd a less expensive way of completing a task.

Have a look at the Supporting Material on page 41 if you want to learn more about

project budgeting.

Responsibility assignment matrix: Projects often require many people and teams work-

ing together. To help manage all of the involved parties and ensure that the right people

Classroom activity: Have students prepare a Gantt Chart and budget for

a ﬁctional project speciﬁc to your industry. After students have mocked

up their versions, solve at the front of the class with students providing

answers and suggestions.

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have the right responsibilities, you should create a responsibility matrix (also known as

the RACI matrix). This matrix allows you to establish who is involved in the project and

what their individual responsibilities are. Use this tool before the project begins to get

everyone on the same page and to ﬂag any gaps or potential issues.

The matrix identiﬁes the following individuals:

• The person who does the work to achieve the task. They have responsibility for

getting the work done or decision made (responsible).

• The person who is accountable for the correct and thorough completion of the

task (accountable).

• The people who provide information for the project and with whom there is two-

way communication (consulted).

• The people kept informed of progress and with whom there is one-way com-

munication. These are people that are affected by the outcome of the tasks, so

need to be kept up-to-date (informed).

To create a responsibility assignment matrix, you identify all the tasks that need to

happen to complete the project. List these in the order of completion on the left hand

side of your chart. Next, determine all the project roles, such as project executive, and

project manager, and list them along the top of the chart. Using the identiﬁers of R (re-

sponsible), A (accountable), C (consulted), and I (informed), populate the chart, task

by task, assigning levels of participation to your project team. It is recommended that

you have one person identiﬁed as A (accountable) for each task.

Task Project Executive Project Manager Graphic Design Lead Copywriter

Determine brochure content C R/A I I

Design brochure mock-up C C R/A I

Write brochure copy C I C R/A

Collaboration tools: There are a number of tools and services you can use to help with

project collaboration. From a timeline program that the whole project team can access

to a way to track the amount of time tasks are taking to complete, to platforms to col-

lect and store information, there are many tools available to help make your project go

smoothly.

Here are a few examples:

• Online project management – Programs like Asana allow you to assign tasks

and deadlines to teammates online so that everyone can see how the project is

progressing and what tasks are due. Tools like this are useful for small or remote

groups who aren’t able to designate resources for a project manager.

• Resource management – For projects that require project resource tracking you

can use a tool like FreshBooks which allows team members to monitor and re-

cord the time it takes to complete a task as well as capture project expenses.

• File sharing – Attaching ﬁles to emails can create issues, whether that be miss-

ing edits or revisions from all involved parties, or ﬁles that are too large to email.

Using a tool that allows you to easily organize, share, and comment on project

material is extremely valuable. Some of the well-known options include Google

Drive, Dropbox, and OneDrive.

PROFESSOR NOTE: Invite your

students to participate in their Free

120-day FreshBooks trial.

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Module Two – Project Management

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• Instant messaging – Email overload is another problem that plagues projects. To

streamline conversations and reduce project hold-up, ﬁnd an instant messaging

tool that works for your team. This is especially vital for teams working remotely.

Some email servers offer this option or there are available products like Skype,

Google Hangouts, and Slack.

5 Conclusion

Throughout this module you have been introduced to an overview of project manage-

ment, basic principles and processes, as well as foundational tools used to run a suc-

cessful project. This knowledge has provided you with an introductory understanding

of project management which will help you manage projects more efﬁciently and effec-

tively throughout your career.

FreshBooks 23

Module Two – Project Management Assignments

Assignment One (introductory):

Beth has just been handed a large project that she is responsible for.

She is feeling overwhelmed and is looking for advice on how to manage

the project. Answer the following:

1. What are the beneﬁts of project management?

2. What is the ﬁve step process for project management? Provide

context around the ﬁve steps.

3. What should be included in a Project Management Plan?

4. What are some of the project management tools Beth should use

in her given industry (align the industry with the given classroom)?

Assignment Two (advanced):

Review the project charter and complete the following:

1. Write three objectives for the project following the SMART

guidelines.

2. Create a Gantt Chart outlining all the tasks needed to complete

the project and how long each task will take to complete.

3. Estimate the amount of time and money needed to complete

the project. Build these costs into an invoice in FreshBooks with

human hours being captured at an hourly rate and project costs as

expenses.

4. Identify who would be working on the project and create a

responsibility matrix.

5. Determine areas of risk and brieﬂy outline how you may prepare

for or manage the risk during the project.

FreshBooks 24

Module Three –

Cash Flow and Expenses

This module introduces students to the principles

of cash ﬂow and expenses as it applies to small

businesses. The learning outcomes of this module are:

• Understanding the basic principles of cash ﬂow

• How to recognize and categorize different types of expenses

• Introductory knowledge of commonly used accounting terms

Topical overview:

1 Introduction

2 Overview of cash ﬂow and expenses

3 Cash ﬂow

4 Expenses

5 Conclusion

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Module Three – Cash Flow and Expenses

Classroom Material

1 Introduction

Understanding and practicing cash ﬂow management is vital to the survival of a small

business. Businesses can operate with limited revenue but a company can’t survive

extended periods of time without enough cash to cover the cost of doing business.

A lack of available cash ﬂow to ﬂoat the cost of expenses can limit the amount of work

a small business can take on before receiving payment from their previous clients. One

in three companies across the Americas have accounts that are 90 days past due,

meaning that over 30% of businesses ﬁnd themselves carrying expenses for more than

a quarter of the year

. This can be a big ﬁnancial burden for businesses that don’t have

a lot of cash on hand.

Recording, allocating, and managing expenses are all part of maintaining a healthy

cash ﬂow. Knowing where money is going and what it is being used for is crucial to

managing a business’ bookkeeping.

2 Overview of Cash Flow and Expenses

Common accounting terms are often thrown around so it’s important for any business

owner to ﬁrst understand the basics. This a list of terms mostly commonly used in

small business accounting:

• Accounts payable – Money you owe to other businesses or individuals for ser-

vices and/or goods they provided.

• Accounts receivable – Money owed to your company by clients for provided ser-

vices and/or goods.

• Assets – Anything of value, tangible or intangible, that has monetary value. The

most common categories of assets are cash, accounts receivable, inventory, sup-

plies, and prepaid expenses.

• Balance sheet – A balance sheet is a ﬁnancial document that reviews the assets,

liabilities and equity of a company at a single point in time.

• Bookkeeping – Keeping records of the ﬁnancial transactions and information of

the business.

• Breakeven – The breakeven point is where revenue covers expenses. Money is

not being made or being lost.

• Debt – Something that is owed or due to an individual or organization. Debt can be

used broadly to describe all liabilities (money you’re on the hook for), but for small

business accounting it typically refers to borrowed money you need to pay back.

• Expense – Costs associated with doing business.

• Fiscal year – The period of time a company uses for accounting purposes and

creating ﬁnancial reports. A company can align their ﬁscal year with the calendar,

running January to December, or set a start and end month that better align with

the purpose of their business.

• Liability – Company’s legal debt or obligation to another person or company.

• Loss – When total revenue for the ﬁnancial period measured comes in below the

breakeven point. More money has been spent or is owed than has been earned.

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• Proﬁt – When total revenue income for the ﬁnancial period measured comes in

over the breakeven point.

• Revenue – Money received for services and/or goods provided.

Deﬁning cash ﬂow: Cash ﬂow is the movement of money in and out of your business.

Cash comes into the business through revenue generated from the sale of services or

goods. Cash goes out when you pay expenses and salaries. Your business could be

turning a proﬁt but have negative cash ﬂow (where more money is going out then com-

ing in) because clients haven’t paid yet. The reverse is also true. Your business may be

at a loss but you could have enough money available to pay recent expenses.

Why cash ﬂow matters: Simply put, if you don’t have access to money to pay for day-to-

day expenses, a business could fail even if it’s generating a proﬁt. Depending on your

ﬁnancial position and the type of business you have set up, you may be able to work for

months at a time with a negative cash ﬂow. This would mean you are going into debt to

provide your services and/or goods. Other small businesses run very lean and could be

in serious trouble if they see a period of negative cash ﬂow longer than a few weeks.

3 Cash ow

The age old saying “cash is king” is very relevant here. Without positive cash ﬂow, a compa-

ny cannot operate long-term even if it has a solid business model and potential for proﬁt.

There are various strategies that small businesses can undertake to manage their cash ﬂow:

Organize ﬁnancial information: It is a misconception that due to their size, small busi-

nesses don’t need to monitor their ﬁnances as closely as large corporations. In fact, the

opposite is true. Because small business owners usually have less access to quick cash or

additional funds through loans, they need to be more aware of where their cash is coming

from and going compared to large businesses who have more ﬁnancial ﬂexibility.

Small businesses should build strict ﬁnancial guidelines early on and stick to them. Track-

ing where revenue is coming from and what expenses are being paid and need to be paid

is the bare minimum, that can be thought of as simple bookkeeping.

Separate personal and business money: When starting a business it’s best practice

to open up a business bank account that is separate from your personal account. This

makes it easier to track what money is being generated by the business and monitor

business expenses without having to sift through all of your personal day-to-day charges.

Keeping your revenue in the same account as your personal funds can create confusion

and make managing your cash ﬂow very difﬁcult.

Collect on accounts receivable: Set aside time monthly or semi-monthly to review your

outstanding invoices and follow-up with clients. The faster you can send a reminder

Classroom activity: Quiz your class using the above accounting terms.

Have groups compete for the most correct answers.

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after a late invoice the more likely you are to receive payment. If a client has missed an

invoice due date the chances of them remembering without a reminder are slim. Stay

on top of who owes you money and track deadlines.

Identify reasons for loss: If you are experiencing negative cash ﬂow take the time to ﬁg-

ure out where you are losing money and why. Is your product or service priced too low?

Are your expenses too high? Are you getting enough clients to reach your breakeven

point? Address the issue as soon as possible and continue to monitor the situation to

ensure you get back on track.

Determine breakeven point: Once you have established the rate for your service or product

determine what your projected expenses are going to be for the year. Calculate the number

of projects or products you need to sell in order to cover your expenses. Use your breakeven

point to inform business decisions going forward. Recalculate whenever you change your

price or absorb new expenses. You should ﬁgure out the breakeven point on individual proj-

ects to make sure you are charging enough to cover expenses and make a proﬁt.

Surviving shortfalls: Small businesses are bound to have slow periods. If your income

is derived solely from revenue generated from your business these down times can feel

additionally unnerving.

Taking the time to forecast cash ﬂow helps identify when slow periods are likely to happen

so that you can better prepare. It is good practice to leave a certain amount of cash in your

business account instead of draining it for income as soon as a business’ revenue comes

in. If you are able to build up a cash reserve it can help carry you during the slow periods.

Banks are also more likely to offer assistance if you approach them in anticipation of a

need instead of scrambling for a last minute loan.

There are steps you can take to prepare for the unforeseen, such as a recession or unex-

pected global events, to minimize the risk to your business:

• Diversify your client base – As the saying goes “don’t put all of your eggs in one

basket.” Build up a number of clients so that you aren’t completely dependent on a

single client. If your clients are primarily small businesses consider ﬁnding clients

who are established companies. If most of your clients are in one industry, consider

looking for clients in another industry or ﬁeld.

• Keep an eye on market trends – Track what is happening in your city, state, and

country that could impact your business. Keep tabs on your competitors and watch

for industry trends that could adversely impact your business.

• Maintain liquidity – Don’t tie all of your cash up in investments or equipment if you

don’t need to. Ensure that you always have some cash on hand or other assets that

can be quickly turned into cash.

• Reduce overhead – If you foresee a period of decreased business or are in need of

cash, look for ways that you can reduce overhead. Reconsider your major expenses

and identiﬁes way you could incrementally save money every month.

• Use down time to build new business – If funds are tight because you are light on

clients, use the down time to research new opportunities, network, and put together

pitches and proposals.

Classroom activity: Discuss how small businesses can prepare and

manage through cash ﬂow issues.

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4 Expenses

Expenses signiﬁcantly impact the day-to-day cash ﬂow of a business and they have

signiﬁcant implications when ﬁling taxes.

Types of expenses: There are four types of expenses: ﬁxed, variable, accrued, and oper-

ational. Each expense type has a different impact on cash ﬂow and taxes:

• Fixed expenses – These are expenses that are consistent from day-to-day or

month-to-month. They include expenses such as rent, an internet bill, and util-

ities. Because of their consistency it is easier to forecast ﬁxed expenses. These

expenses usually stay the same regardless of how much work is being done.

• Variable expenses – These are expenses that go up and down depending on the

type of project you are working on or changes to your service or product. These

include costs such as the materials needed to produce your product, travel, and

credit card transaction fees. These expenses are usually lower when business is

slower.

• Accrued expenses – These are costs that have been captured as an expense but

not yet been paid for. Since expenses need to be captured in the accounting peri-

od in which they were incurred, there are times that you will have an expense that

is recorded but payment is still outstanding. An example would be if you pre-order

monthly ofﬁce supplies and receive a bill from the company every three months.

If ﬁnancial reporting is pulled before payment is due on the supplies, you would

consider these accrued expenses. Usually a small business does not have many

accrued expenses at one time.

• Operational expenses – These are expenses that are incurred through activities

not directly related to the production of goods and services. Examples include

insurance costs, property tax, and advertising costs.

Business vs. personal expenses: As a small business owner, you are only allowed to

deduct expenses for tax purposes if they are related to the cost of doing business.

The IRS mandates that a deductible business expense “…must be both ordinary and

necessary. An ordinary expense is one that is common and accepted in your industry.

A necessary expense is one that is helpful and appropriate for your trade or business.”

Ordinary means that these costs are related to working in your industry. For example,

a graphic designer would be able to deduct the use or purchase of design software

because it is common to working in their industry. Necessary means that these costs

are needed to run the business. To qualify as a tax deductible business expense the

cost must be both ordinary and necessary.

Trying to claim personal expenses as business expenses can get you into trouble at tax

time. If it is found that you are incorrectly claiming expenses against your business you

can be audited. Inﬂated business expenses are a red ﬂag for the tax man. If the audit

ﬁnds inaccurate reporting then you can be ﬁned penalties.

There are some expenses that are shared between business and personal use. If you

run your business out of your home then part of your utilities qualify for tax deductions.

This expense sharing applies to items like your computer and cell phone as well. You

determine how much of the time you use these items for business and deduct the

corresponding amount of expense for your business. For example, if you used your cell

phone for business 60% of the time, then 60% of the costs of using your cell phone

would be tax deductible. The remaining 40% would not.

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Module Three – Cash Flow and Expenses

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Run each expense through the ordinary-necessary ﬁlter to determine if it meets the

criteria. If it checks both boxes then capture it as a business expense.

Categories of expenses: The IRS and CRA (Canadian equivalent of the IRS) both have

accessible lists of business expense categories on their websites. If your expense nat-

urally falls into one of the categories listed then it most likely fulﬁls the ordinary/nec-

essary requirements.

The sample lists provided by the IRS and CRA are fairly exhaustive though you may

have industry speciﬁc categories not captured on the list. It is a good idea to organize

your expenses based on the categories provided by your local tax body so you have less

work to do come tax time.

Categories include but are not limited to:

• Advertising

• Business start-up costs

• Business taxes, fees, licences, dues, memberships, and subscriptions

• Business-use-of-home expenses

• Fuel costs

• Insurance

• Interest

• Legal, accounting, and other professional fees

• Maintenance and repairs

• Meals and entertainment

• Motor vehicle expenses (automobile)

• Ofﬁce expenses

• Rent

• Supplies

• Telephone and utilities

• Travel

You may have expenses that don’t seem to ﬁt in any category and are difﬁcult to mea-

sure against the ordinary/necessary principle. If you come across an expense that is

ambiguous reach out to an accountant to see if it should be recorded as a personal or

business expense.

Managing expenses: If you leave all expense ﬁling until tax time there is a high prob-

ability that you will misremember what the expense was for and consequently cause

problems for yourself. This do-it-all-once approach often takes much longer than if you

stay on top of expenses as they come in. Here are some best practices to help manage

expenses:

• Capture the expense right away – Don’t wait until end of the month or year to

record an expense, it should be done as soon as possible. Record your expenses

all in the same place using the same format.

• Categorize – When you record an expense be sure to also categorize it so that it’s

ready for tax ﬁling.

• Make notes – If the receipt is not explicit or if you have incurred the expense

working on something speciﬁc, jot down information on the back of the expense

or leave a note in your ﬁles providing more context. This will be very handy if an

accountant asks for more information or if you are audited.

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• Client or project expenses – Track expenses that are speciﬁc to clients or proj-

ects. If you are charging the expense back to your client make sure you clearly

state the expense on an invoice. If you need to submit the original receipt to the

client keep a copy for your records as well. If the client is paying for the expense

then you are not able to deduct the expense for tax purposes. Tracking expenses

speciﬁc to each project helps you determine if you are charging enough for your

service to make a proﬁt.

• Record cash expenses – If you make a payment in cash, record and categorize

the payment immediately. Your bank records will show a withdrawal for the cash

but unless you document what you spent the money on you won’t able to prove

how that cash was used when ﬁling taxes.

• Keep your receipts – You should keep your receipts for three years in case you

are audited. The IRS accepts electronic receipts but they must meet certain crite-

ria to be eligible. Even if you are recording your expenses electronically it is a good

idea to keep the hardcopy receipts as well.

Expenses and taxes: If you have good expense management throughout the year there

should not be a lot of additional work come tax time. It is a good idea to ﬁnd an ac-

countant when you start your business both as a resource to help set-up bookkeeping

systems and also for ﬁling your taxes. As a small business, it may be tempting to ﬁle

your own taxes to save money but in the long run it is more time and cost effective to

hire a good accountant. An accountant who specializes in small businesses will have a

better understanding of what can and cannot be expensed and other ways to save on

taxes. Here are ﬁve questions to ask your accountant at tax time and information on

determining if you need an accountant.

Misconceptions about expenses: There seems to be a lot of confusion and misun-

derstanding around expenses. Here are some common misconceptions and how to

remedy them:

• “I’ll remember what that was for.” – In the moment, people often think that

they will remember what the expense was for come tax time but multiply that by

100 and you can run into issues. Make a quick note on the back of the receipt

or in your accounting software so that you remember what project or client the

expense was for. This will come in handy if you are ever audited.

• “Meals and drinks are deductible so lunch is on me!” – Meals and drinks can

be expensed if they follow the ordinary/necessary rule but are usually only de-

ductible at 50% of the cost. This category of expenses if a red ﬂag for an audit if

it looks like it is being abused. Take the time to write who you met with, what was

discussed, and how the conversation helps/impacts your business on the back

of the receipt to protect yourself in case of audit.

• Dollar-for-dollar return – Expenses for independent business owners are usually

captured as tax write-offs against personal income. This means that your total

expenses are used to lower the amount of income recorded to determine taxes.

This is different than tax credits which are applied directly to the amount of tax

owning. What this boils down to is that you are not receiving dollar-for-dollar ben-

eﬁt come tax time.

• Better to expense everything – While capturing and submitting expenses is ben-

eﬁcial it is not good to assume that everything can be expensed. If you hire an

accountant at tax time, chances are they will need to spend a lot of time sift-

ing through the expenses to determine what is deductible which could cost you

more money. Worst case, over-expensing becomes a red ﬂag that increases your

chance of being audited.

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• No point in expensing – The ﬂip side to over-expensing is not expensing anything.

Capturing expenses is the only way to understand the cost of doing business,

without this it would be impossible to accurately calculate the breakeven point.

5 Conclusion

Throughout this module you have been introduced to an overview of cash ﬂow, basic

accounting terminology, expense types, and how to effectively manage expenses.

Classroom activity: List expenses relevant to your industry and have your

students identify them by type and category.

FreshBooks 32

Module Three – Cash Flow and Expenses Assignments

Assignment One (introductory):

Mary-Ann is getting ready to start a consulting services business. What

should she know about cash ﬂow and expenses? Answer the following:

1. Why is cash ﬂow important for a small business?

2. How can Mary-Ann manage her cash ﬂow effectively?

3. What are the four types of expenses Mary-Ann can expect to incur

as a marketing consultant? Provide context around each answer.

4. What are some expense management tips for Mary-Ann?

Assignment Two (advanced):

Review the project brief and complete the following:

1. Create a cash ﬂow plan for the small business. Highlight how you

are going to organize information, what strategies you are going to

use to manage your money, and how you plan to survive shortfalls.

2. Determine your breakeven point for the project. Provide context on

how you came up with the number.

3. Using FreshBooks, capture all of the project expenses. Include

appropriate notes. Invoice your client for the expenses agreed to in

the project brief.

4. Classify each expense by type and category. Which expenses will

be deductible at tax time?

PROFESSOR NOTE: Provide a

project brief unique to your class.

Have students work in pairs or small

groups to complete the assignment.

FreshBooks 33

Module Four –

Invoicing and Getting Paid

This module introduces students to the principles

of invoicing and getting paid as that relates to small

service-based businesses. The learning outcomes of

this module are:

• Ability to create an effective invoice

• Understanding of different pricing models

• Tips for getting paid faster, and on time

Topical overview:

1 Introduction

2 Overview of invoicing and getting paid

3 Invoicing

4 Getting paid

5 Conclusion

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Module Four – Invoicing and Getting Paid

Classroom Material

1 Introduction

Getting paid is a necessary part of doing business, it’s single handedly the most im-

portant factor in getting a business off the ground. In fact, 25% percent of small busi-

nesses fail in the ﬁrst year and 50% are gone by their ﬁfth year.

One of the biggest

pain points for these small businesses is ﬁguring out how to properly charge for their

services, and successfully collecting payment for said work.

Small businesses generally have a tight revenue and expense ratio which means that

waiting extended periods of time for clients to pay can cause ﬁnancial distress. Learn-

ing how to effectively charge for your time, invoice effectively, and receive payment

quickly is absolutely crucial to the success of a business.

2 Overview of invoicing and getting paid

The average time for small businesses to receive payment for a completed job is 30-40

days.

If your business has the capacity to work only a few projects at once, this means

that you can have long periods of time without revenue coming into your business. This

period of time is extended if invoicing is delayed or if your client doesn’t pay promptly.

Cash ﬂow for new businesses: The typical cycle of securing a client, completing the

project, and receiving payment can take a few months or longer depending on the size

of the project. For a new business this can delay the availability of funds and create

challenges for paying income to employee(s) or being able to pay for business expens-

es. Considering 50% of small businesses struggle with unpaid invoices the challenge

of keeping cash coming into the business can be signiﬁcant.

There are strategies you

can undertake to help streamline the invoicing process as well as tips for triggering

faster payment. These strategies will be discussed in section 4 of this module.

The impact of what you charge for services: If you charge too much for your services,

you may have a hard time acquiring clients who can get the same service for less (and

possibly from someone with more experience). If you charge too little, you may run into

the problem of not being able to bring in enough funds to your business. Taking the

time to ﬁgure out how much you should charge, taking into consideration what the mar-

ket will bear, and what your competitors are charging, is an important step in starting

a new business. This sentiment is true for freelancers as well. Researching and under-

standing the rationale behind your rate as opposed to randomly picking an amount will

also give you conﬁdence in explaining your rate to a client.

Why is collecting payment important: Small businesses require positive cash ﬂow to

survive. If you don’t have money coming in then you are unable to cover the cost of do-

ing business. A small business cannot operate for an extended period of time without

money coming in even if it has a solid business model and potential for long-term proﬁt.

Unlike when you work as an employee for a company, payment does not automatically

get deposited in your account on a predictable basis. As a small business owner, you

need to take steps to ensure you are receiving payment and stay on top of who owes

FreshBooks

Module Four – Invoicing and Getting Paid

Classroom Material

you money. An invoice represents payment for you but it means money leaving the

hands of your client so there isn’t the same urgency to pay.

3 Invoicing

Using proper invoicing techniques can help you get paid faster and reduce the time

spent on administration. It also makes tax time easier because you have documented

income generated and collected taxes throughout the year.

What is an invoice? An invoice is a document you send to a client for the services or

products you are providing. You can send an invoice for the full payment, for a deposit,

or for a recurring payment.

Invoicing basics: Invoices should include the following information:

• Your company name

• Company logo (if you have one)

• Billing address

• Name and address of the company you are invoicing

• Contact name at the company

• Date

• A unique invoice reference number that applies to this invoice only

• List of the products or services you are providing

• Total amount for the invoice

• Tax collected (speciﬁc to your state or municipal taxation rates)

• Taxation registration number (if applicable)

• Terms of payment

• Details on how to pay

If an invoice is incomplete, unclear, or inaccurate then this will delay the payment pro-

cess. It’s important to be upfront and consistent with your clients if you wish to avoid

time consuming conversations.

Invoice numbers: Each invoice you create should have a unique reference number. This

number has two purposes: to help you track and organize your invoices for accounting

purposes, and provide a way for clients to ﬁnd the invoice quickly and track it through

their bookkeeping cycle. If you are receiving payment by check or if the client sends a

conﬁrmation of payment, the invoice number is usually referenced.

When starting a new business, you do not have to start with invoice number 001. You

can determine what numbering system works for you, but it’s helpful to have sequential

numbers that you use in chronological order. For example, the ﬁrst invoice you send

could be invoice number 1000. The next invoice you send would be number 1001. This

makes it easier to organize, ﬁnd, and categorize your invoices.

You can add a second level of organization by assigning a customer number that is

included as part of the invoicing number. If Agency Awesome is client number 2356,

then the ﬁrst invoice you create for them would be invoice number 2356-01 and the

next time you invoice them it would be 2356-02.

TIP: If a client asks you to provide an

estimate for your service or product

before you come to an agreement

to work together, provide them with

an outline of the cost as a quote

instead of a formal invoice. This

reduces possible confusion later if

the amount needs to be adjusted

or if additional or fewer services are

required. Quotes should be kept

separate from your invoices so they

do not accidentally get lumped in

with your income at year end.

FreshBooks

Module Four – Invoicing and Getting Paid

Classroom Material

Terms of payment: The terms of payment section on your invoice outlines when pay-

ment is due and repercussions of late payment. FreshBooks has identiﬁed the follow-

ing best practices for terms of payment:

• Be polite – Using “please” and “thank you” in your terms of payment can in-

crease the likelihood that invoice is paid on time by 5%. Minding your manners is

also good for your professional image.

• Outline days to pay – “Payment upon receipt” seems to be interpreted differently

by everyone and terminology like “net 30” may be clear to some companies but

confusing to others. Be speciﬁc in your payment timeframe. If you want payment

inside of a month of the invoice state “payment is due within 30 days.” This tactic

gets you paid faster than asking for payment immediately.

• Charge interest on late payments – Charging interest may seem harsh but it’s a

standard practice that encourages invoices to be paid sooner rather than later.

This psychological exercise is only effective if you follow through with the terms,

be sure to charge interest when stated or else late payments are just as likely to

continue.

Charges on invoice: Separate the costs for your service or product line by line to in-

crease clarity and transparency on your costs. If you are charging for your time, include

your hourly rate, the number of hours worked to date, and the total cost for your labor.

If you are charging for expenses on the same invoice put the expense charges on a

separate line to clearly show the different type of costs. Ideally, each expense should

be on its own line. Have a look at this example:

Task Time Entry Notes Rate Hours Line Total

Research First Consultation 40.00 1 40.00

Graphic Design Logo Rebrand – Completed 80.00 10 800.00

Item Description Unit Cost Quantity Line Total

Expense [09/01/16] Gas, Seven Eleven: Gas

required for rst meeting

20.00 1 20.00

Expense [09/01/16] Restaurants/Dining: Din-

ner with Chris at Angelo’s

25.00 1 25.00

Total 885.00

Amount Paid 0.00

Balance Due (USD) $885.00

Terms: Payment is due within 30 days. Payment is accepted by check.

Your invoice should have a cost for each line and then a total at the bottom. If you are

charging tax, subtotal the amount of the invoice, add a line indicating the amount of

tax charged and then enter a total capturing both the subtotal and tax. Make sure you

subtract the deposit amount on the ﬁnal invoice if you collected one at the outset of

the project.

Setting a rate: We’ve reviewed what to include on an invoice and how to present the

costs, but how do you ﬁgure out what to charge? There are three recognized ways of

charging for your time:

FreshBooks

Module Four – Invoicing and Getting Paid

Classroom Material

• Hourly rate – Most small business owners start their career by establishing an

hourly rate for their services. This rate is determined by industry standard (some

professional associations provide guidelines), by using the “cost-plus” method, or

by using an online rate calculator. The “cost-plus” method involves tabulating all

your business and personal expenses and dividing them by the number of hours

you want to work in a year (factor in vacation and sick time). This will provide you

with your breakeven hourly rate. You then factor in the “plus” amount which is the

proﬁt margin. For example, if your expenses divided by hours comes to $50 an

hour and you want a 20% “plus” or proﬁt, you would charge $60 an hour.

• Flat rate – Depending on the project, you may decide to charge a ﬂat cost for

your service. This cost encompasses all expenses associated with providing the

service including the cost for your time and is the same regardless of the ﬁnal

hours you end up working. This method is more commonly used by people who

have experience with similar types of projects and can accurately estimate the

time and expenses required to provide the service.

• Value add – This method of setting a rate looks beyond hourly and project costs

and instead focuses on the value you can contribute to a client’s business. Pricing

is based on the anticipated return on investment that your services will generate

for the business, this method captures the value of your skills, knowledge, talent,

creativity, etc. FreshBooks Co-Founder and CEO, Michael McDerment, wrote an

e-book, Breaking the Time Barrier, on the difference between billable hours and

providing value to your clients.

Invoicing software: Invoicing can feel overwhelming when you start a business. The

time spent creating invoices and chasing payments ends up cannibalizing billable

hours. There are numerous tools likes FreshBooks that are designed to help business-

es invoice and collect payment more efﬁciently.

4 Getting paid

Fifty percent of small businesses struggle with receiving payment from their clients.

Applying the following strategies will shorten the time it takes to get paid and ultimately

enable businesses to make more money.

Ways to get paid faster: Not all methods of payment collection are considered equal.

Here are proven tips that help reduce the amount of time it takes money to get into your

hands and decreases the chance of unpaid invoices:

Classroom activity: Have students build an invoice in FreshBooks. Have

them invoice one another and then discuss the experience of being

invoiced like a client, and what elements may be confusing from the

client’s perspective.

FreshBooks

Module Four – Invoicing and Getting Paid

Classroom Material

• Invoice immediately – Sending an invoice as soon as the project is complete

minimizes the amount of time between your last contact with the company and

the request for payment. Processing your payment is more likely to happen quick-

ly as part of the project wrap-up immediately after than if you let weeks go by

before passing along an invoice. This also helps reduce the amount of time your

business has between project completion and ﬁnal payment.

• No end of month invoicing – On average, it takes 10-20 days longer to receive pay-

ment on invoices sent on the 30th and 31st of the month. People tend to bill and

pay based on calendar months so your invoice could get lost in the inﬂux of bills.

• Use contracts – Sign a contract with your client that outlines the cost of the proj-

ect and payment expectations, this goes a long way in helping get your invoice

paid faster. A contract is also considered legally binding if all parties agree on the

offer with one party presenting and another accepting, and if something of value

is exchanged for something else valuable. If you need to take a client to court

over a payment dispute then a contract can help protect you. Here is an article

on how contracts help you get paid.

• Pre-project communication – Even before you provide your client with a contract,

you should have a transparent conversation about the cost of your services, high-

lighting any scenarios where the cost could differ from the original quote and

how payment is structured. Clients are less likely to challenge your billing if they

already know what to expect from you.

• Secure a deposit – To help with cash ﬂow you can charge clients a deposit which

is usually 25-50% of the total project cost. Asking for a deposit minimizes the

chance of not getting paid anything for a project. If the project doesn’t go as

planned then at least you will have been paid something.

• Brand your invoice – A branded invoice sees on average a 10% higher rate of

being paid than an invoice without a logo.

Your brand adds professionalism and

legitimacy to your request for payment. It is harder to brush off a real company

than a name on a piece of paper.

• Transparent invoicing – Invoices with detailed descriptions are 15% more likely

to be paid on time.

Providing context and information on the costs included in

the invoice reduces the questions clients have. If a client has a strict accounts

payable process at their organization a detailed invoice can reduce the possibility

being rejected or questioned by their respective ﬁnance team. Including details

on the invoice will also help you keep track of what you charged a client, and why.

Collecting payments: Eighty percent of small businesses still rely on checks to receive

payment.

Requiring a physical check or cash in-hand can take time, you can help

facilitate faster payment collection by doing the following:

• Offering payment by credit cards – Accepting credit card payments online gets

you paid eight days faster than other methods of payment. Cash is deposited in

your account 24 - 72 hours after the client pays which is quick compared to the

90 days you could have to wait for a check to clear. Streamlining your payment

process elevates the client experience with a simpler way of paying. Explore how

accepting credit cards can help grow a business.

• Provide payment options on your invoice – If you have multiple ways of accepting

payment make sure they are outlined in your terms of payment on your invoice.

Let clients know how you can accept payment and your preferred method. This

minimizes the back and forth with the client on how to pay.

FreshBooks

Module Four – Invoicing and Getting Paid

Classroom Material

• Offer an early payment discount – If you are looking to increase the number of

invoices being paid before the due date, you can offer a small incentive to clients

who pay early. For example, clients who pay within ten days of receiving the in-

voice get a 1% deduction off the invoice total. The trick here is to ﬁnd an amount

that is enticing enough for the client but doesn’t signiﬁcantly decrease your proﬁt.

• Ensure your information is correct – Make sure that your billing address and pay-

ment name are clearly and accurately displayed on every invoice. If you need the

check to be written to you personally instead of your business name (in the cases

where you don’t have a business bank account) make sure that is highlighted so

that your client can draft a check correctly the ﬁrst time. This gets you paid faster

and is less disruptive for the client.

• Allocate time for bookkeeping – Set aside time monthly or semi-monthly to re-

view your outstanding invoices and follow-up with clients. The faster you can send

a reminder after a late invoice the more likely you are to receive payment.

5 Conclusion

Throughout this module you have reviewed how to create an invoice, multiple ways to

calculate your service rate, invoicing basics, and strategies to get you paid faster. This

knowledge will help you keep money coming into your business and reduce the time

spent following up with clients.

FreshBooks 40

Module Four – Invoicing and Getting Paid Assignments

Assignment One (introductory):

Felix has recently started a small business. He is looking for advice on

how to invoice and get paid on time. What advice do you have for Felix?

Answer the following:

1. What is an invoice and why are they important?

2. What are the basic components of an invoice?

3. What are some things that Felix can do to get paid faster? Provide

context around each answer.

4. How can Felix collect payment?

Assignment Two (advanced):

Review the project brief/contract and complete the following:

1. Determine a rate for your services. Follow one of the three

methods referenced in class and provide context on how you came

up with your rate.

2. Create a series of three invoices in FreshBooks that captures your

billings for this project in three phases:

a. Quote for services

b. Deposit invoice

c. Final invoice

3. Outline the strategies you will use to get paid faster and collect

payment. Provide context on the strategies.

4. Your client missed the ﬁnal invoice. How would you manage this

situation? Be speciﬁc about the logistical requirements and how

you would communicate this.

PROFESSOR NOTE: Provide stu-

dents with a project brief or client

contract speciﬁc to your industry.

Supporting Material

Educators and their students qualify for Free FreshBooks

accounts. Get in touch with our dedicated Education Team

at education@freshbooks.com to get started.

Module One: Starting A Business

Additional articles on how to network like a champ:

Freelancing 101: Professional Networking Made Easy

Networking is all about feelings

The introvert’s guide to local business networking

Networking tips for the small business owner

Module Two: Project Management

Have a look at this project charter template produced by the Project Management Body

of Knowledge.

This article on how to build a business budget can be adapted to help budget for any

project. It takes you through identifying ﬁxed and variable expenses and looking at

these against the income source or project funding.

Additional articles on how to manage projects:

Tips to increase productivity and proﬁtability

12 top tips for project management

Module Three: Cash Flow and Expenses

How to determine if you need an accountant and ﬁve questions to ask your accountant

at tax time.

Module Four: Invoicing and Getting Paid

Send a professional looking invoice in seconds using FreshBooks’ free invoice creator tool.

FreshBooks

Supporting Material

Endnotes

1. Globe and Mail http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/

freelance-economy-works-well-for-some-but-comes-with-pitfalls/article19826153/

2. Forbes http://www.forbes.com/sites/susanadams/2013/10/11/

the-10-skills-employers-most-want-in-20-something-employees/#6d011d3c752d

3. Project Management Institute http://www.pmi.org/About-Us/About-Us-What-is-Project-Management.aspx

4. Project Management Institution http://www.pmi.org/default.aspx

5. Gantt.com http://www.gantt.com/

6. Project Smart https://www.projectsmart.co.uk/raci-matrix.php

7. PYMNTS.com http://www.pymnts.com/in-depth/2015/data-digest-the-scary-stats-on-cash-ﬂow-management/

8. Entrepreneur Weekly, Small Business Development Center, Bradley Univ, University of Tennessee Research

9. FreshBooks data

10. FreshBooks data

11. FreshBooks data

12. FreshBooks data

13. FreshBooks data

14. FreshBooks data

FreshBooks 42

Endnotes