Translators and Money

By Roger Chriss,
Language Realm,
U.S.A.

rbchriss@languagerealm.com
www.languagerealm.com

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Life costs money. Despite my efforts, I have yet to find a way to exist without spending money. Translators, like all business professionals, have to be aware of the financial aspects of their livelihood. This I call the translator’s balance sheet. No one will ever get rich quick translating material from one language to another, but like any business, the most important thing is to come out ahead, to have the black exceed the red. Previous articles have discussed how to get and do translation jobs; in other words, how to make money to enter into the black side of the balance sheet. This article will show you how to make the black exceed the red by that much more.

The Translator’s Balance Sheet: The Black Side

Translators earn most of their income from translation work. Some translators also edit or proofread translations, write abstracts or language analyses, or provide other language-oriented services. Still others teach the languages they know or even translation itself. And doubtlessly some do work wholly unrelated to translation.

The easiest way to earn more money as a freelance translator is to do more work. This means not only more translation, but also other work, which in many cases serves to cover those times when not so much translation work comes in. Such secondary jobs have to be flexible so that you can take the translation assignments when they come, but having a secondary job is not a bad idea, unless you are so well established that translation assignments are spewing from your fax machine at all hours of the day.

Whether translators are paid for their translation work by the word, the page, or the project, the act of translating something from one language to another is how they earn their living. All of this money which is coming in sits on the black side of the balance sheet, and must exceed what is on the red side to represent a profit, and therefore a living. If your translation business is not showing a profit, if your expenses exceed your income, you are in trouble.

Cyril Parkinson observed that expenses rise to meet income. This is perfectly okay. However, translators have to be especially careful because they cannot predict their income the way Jo(e) Paycheck can. One good month does not necessarily lead to another, just as one bad month does not mean another is on the way. Remember, we say that the profession is feast or famine; so enjoy the feast and don’t panic over the famine. It is, after all, the way of the jungle.

There are numerous ways to increase what appears on the back side. The easiest is to do more work. This is a nice idea, but given that there are only 168 hours in a week and 1440 minutes in a day (8765.24 hours in a year, 525940 minutes, give or take for sidereal versus solar years), you can readily see that there is an upper limit to how much work you can do. Assuming you have as much work as you are capable of or willing to do, or something close to that level, the trick is to get as much money as possible for your work.

In other words: Learn to negotiate.

As discussed in the first article, annual income is the product of words translated by word rate. Increasing both is the key to greater financial success in translation. Thus negotiations are a vital aspect of your business relations with translation vendors. A little math makes this clear. For a 10,000 word translation, if you work at ten cents per word, you’ll make $1000; at eleven cents per word, you’ll make $1100, and so on. In other words, you should think of your word rate as your salary ratio. If the average word rate for your language combination drops by 10%, you’ll effectively take a 10% cut in salary. Of course, the opposite is also true.

As an aside, you should have a minimum fee for all jobs. In my experience, no job takes less than two hours to do, when all is said and done. Between the initial phone call and discussion of the job, receiving and checking the material, whether by fax or email, translating the words themselves, delivering the job, then submitting an invoice, noting payment in your records when the check comes, and finally depositing the check (and this list does not even include the inevitable but distant issue of doing taxes), ultimately all jobs consume roughly two hours of time, at least. Such mini-translations include materials such as inter-office memos, official documents such as driver’s licenses, passports, family registrations, business cards, snippets from Web sites, and so forth. If you were paid by the word, you’d make only a few dollars for the job and probably not cover the cost of printing and sending the finished job to the agency.

Translation vendors are aware of this problem because they are in the same position. If they take a very small job, they have to consider their fixed costs as well. Regardless of how small or large a job is, certain costs remain the same, and the agency knows this. Therefore, so should you. Sit down and figure out roughly how much it costs you to do a translation. Include the time and money spent on talking to the client, sending faxes or files, and printing the translation or the invoice. I won’t do a job for less than $30, and this has caused me little trouble. Also note, as I discussed previously, that sometimes doing these mini-translations for free is a great way to develop good will with a client. But I only do this for clients I really like, and only once in a while.

Rates

You should also know what word rate you are willing to accept for a job. Work this out ahead of time and stick to it. You might even keep a chart on your desk, telling you for example that you will do general material for $0.09/word, technical for $0.10/word and rush jobs for $0.15/word (these are just examples, not recommendations). You might also have a chart worked out for how you adjust your rate based on the size of the job. I regularly accept a slightly lower rate for jobs which exceed two weeks in duration. Make sure your rates are reasonable; there’s no point in asking for twice the market average because you’ll quickly find you have no work. There are lots of good translators out there waiting to replace you; so don’t give anyone a reason not to use you.

You can find out roughly what other translators are charging for similar work by checking on-line resources such as the rates survey on Aquarius (http://aquarius.net). You can also ask people in local translation societies, and even consult with your more reputable and honest clients. Charging too high a rate has obvious drawbacks, but charging too little, to some people's surprise, is also problematic. Consider this: You know what a reasonable price for a gallon of milk or gasoline, what a music CD or paperback book, or for that matter what a box of cat food. If you found a store that sold a gallon of milk for $0.99, a new music CD from a hot band for $2.59, or a new paperback for $0.49, you might be happy, but you might also be nervous. Why the big discrepancy in prices? How can the store afford to sell these products at prices that are way below wholesale? The same attitude should permeate your pricing. One project manager told me that at her agency, rates that are more than 10% below market norms are seen as dubious or suspicious. So know the going rates for the kind of work you do, figure out an acceptable range for yourself, and then memorize those numbers so that you can negotiate with confidence.

Stick to your rates once you establish them. There are times to change your rates, and I’ll discuss that in a moment. But first, let’s look at why you should stick to your rates. If you constantly let yourself be talked down, you are effectively cheapening yourself, and by extension, other translators and the profession as a whole. People value what they pay a lot for. And people are willing to pay a fair price for what they value. Part of that sense of value and price comes from the quality and nature of the work. Part of that sense comes from the pride and professionalism of the practitioners. If you show no pride or professionalism, you will lose, and by extension, the entire profession will lose.

I’m not saying that translators should all double or triple their rates. But when translators start accepting lower and lower rates, they create a crisis for themselves. As rates decrease, more and more translators will be forced out of the business simply because they cannot earn a living, and good translators will move on to other fields which value their knowledge, training, and ability more. Some will leave voluntarily because they know they can make a better living elsewhere. Others will leave because they have no choice. Eventually, only those who are translating part-time and are not concerned about pay (if such people exist) will be left.

This brain-drain in translation will be bad for everyone, not just translators. Naturally, the same issue about rates applies to agencies and to end-clients. You get what you pay for is a maxim which is virtually axiomatic in business. Translators have to do their part by insisting that their work has value and is worth so much per word. Agencies have to do their part by insisting that a project will cost so much if it is to be done correctly. And end-clients have to realize that they are dealing with specialists and experts and respect their ability and judgment.

There are, however, some times when you will want or be forced to change your rates. For example, I translate Japanese. If Japan suddenly fell into the ocean, I might have to lower my rates, though more likely I’d be looking for a new job; perhaps as a Japanese historian. On a more realistic level, any time an event causes a sudden change in demand for a language combination, whether that event is a war, political or social turmoil, a natural disaster or economic crisis, an upsurge in a new industry, or what have you, rates will change. The growth of the computing industry has created opportunities for translators working from English into other major languages that did not exist ten years ago. The strong economy in the United States in the 1990s led to increased demand for many consumer goods manufacturing overseas, and translators benefited accordingly (at least I did; I hope others did as well). So be prepared to change with the times, but don't get too far ahead or behind of the marketplace.

The Red Side

Like any business person, translators have expenses. Expenses come in all shapes and sizes, from the petty annoyances like stamps and telephone bills to the wallet-sucking monsters like new computer systems and new office furniture. The trick is to minimize and optimize your expenses so that you get the most out of a very small red side on your balance sheet. As usual, part of this trick involves timing.

Taxes

We all know we have to pay taxes. Like all self-employed people, translators have to pay quarterly estimated taxes, as well as the traditional annual taxes. Remember that when you work for someone else, you have withholding taxes removed from your paycheck. Because translators are independent contractors, they receive all the money owed to them, and then have to make quarterly payments to the IRS, as well as their state government if that government collects state income taxes.

The trick with quarterly payments is to pay as little as possible without incurring a penalty at the end of the year. If you pay nothing or very little, you may end up owing not only a large tax bill at the end of the year, but a penalty payment as well. There is no easy way to calculate the exact minimum. However, what you can do is use your prior year’s tax return, then play with the numbers and see how low you can go before a penalty payment appears. This works only if you are basing your quarterly payments on your previous year’s income. And it is only advantageous if you are making more than you did in the previous year, something which is difficult to predict.

If you annualize your income, then you have to be more careful. Annualizing your income means that you figure out how much you earned each quarter, and demonstrate that your quarterly payment is appropriate. For translators who have a lot of work during some parts of the year and far less during others, this is very useful because the quarterly payment reflects the amount of income in that quarter, not some predetermined amount which may be too low or too high.

Fortunately, the penalty the IRS assesses is fairly low, so much so that some translators (and others I know) do not bother with quarterly payments, instead choosing to use that money elsewhere, perhaps in investments, and pay their annual tax balance at the end of the tax year. I don't recommend this strategy until and unless you 1) have a lot of extra money to handle the tax bill without feeling the pinch; 2) understand your taxes thoroughly and know what to expect at the end of the year; and 3) have developed a certain measure of financial discipline in your business and personal life. For most people, making at least a modest quarterly payment is a strategic and wise thing to do. I include myself amongst such people, by the way, and hope you will adopt this thinking, even if it means not "keeping money as long as you can."

A straight-forward way to get a rough estimate of your annual federal tax burden is to use the Tax Estimator from Intuit at the Quicken web site (www.quicken.com). Although you may not be able to put in exact figures until late in the year, you can at least get some idea of what to expect to pay in taxes for that year.

Deductions

The art of paying taxes seems to be the art of paying as little as possible. Deductions are how you reduce your taxable income. The trick is to reduce your gross annual income as much as possible, without breaking any laws, of course (this section assumes that you are a law-abiding citizen).

After you get done with all the obvious deductions, including dependents, interest payments, other such common tricks, you have to ask yourself how to deduct the maximum for your business efforts.

One obvious trick is how to take the deduction. For instance, let’s say you buy a new computer in 2000. First, you should consider doing it as late in the year as possible so that you don’t have to wait long to get your money back. Then, you have to decide whether to take a straight deduction or depreciate the computer. Since computers lose so much of their value and utility so fast, you probably should take the straight deduction. Then, when you decide to replace it, donate it to a school, church, or other non-profit organization and take the deduction for the donation. If you sell any business equipment, you have to report it and pay taxes on it. The sale also effects your depreciation schedules. All in all, you save a lot of money doing by taking the straight deduction (at least as the tax codes stand right now). I suggest using the Section 179 deduction, because the paperwork is straight-forward, and the maximum amount ($17,500 as of tax year 1999) is more than enough to cover all conceivable expenses for a translator in a given tax year.

Another obvious trick is getting all the deductions owed to you. The IRS doesn’t advertise its deductions. It’s up to you to know what they are. So here are most of the deductible items which apply to translators.

Office supplies: This includes all paper, envelopes, pencils, pens, paper clips, staples (and stapler), light bulbs (for lights in the office), printer toner or ink, floppy disks and so on. You may say that this sounds like you are nickel-and-diming the IRS to death, but is there any reason not to, given that the IRS does just this to the American taxpayer? (Actually, to be fair, Congress sets the tax laws, the IRS is just a large collection agency. When we complain about the IRS, we should really be complaining about the Congress. Clever of our elected officials, no?) I suggest buying all your office supplies at once at the end of the year, then take the deduction. Get a receipt when you make your purchase and you’re all set.

Utilities: I previously discussed deducting the business-use-of- home. However, one important deduction to remember is the cost of your business phone lines, or your long-distance phone calls if you use your home's only phone line for business. Every business call can be deducted. Keep a log of the individual phone calls if you use only one phone line in your home, or keep the phone bill receipts for your business line with the rest of your business receipts, then add up the total cost for the year. If you want to be efficient, use a spreadsheet to keep track of individual calls if you use only one phone line, or use an accounting software package to keep track of your phone bills if you have one or more dedicated business lines. And remember, business calls include faxes and modem transmissions.

Advertising: I’ve harped on the need to market so much that it must be clear that a translator incurs advertising expenses. These expenses are deductible. If you advertise in local papers, the phone book, using a web site, or simply market yourself by sending out mailings, you can deduct these costs. Keep records, including post office receipts.

Shipping: I regularly use Federal Express and the U.S. mail to send material to clients. The costs of shipping are deductible so keep records and take the deduction.

All of the above may sound like a nuisance to keep track of, but if you add it all up, you’ll have hundreds of dollars worth of additional deductions which you can use to lower your taxable income.

Investments

Translators should invest their money. Careful investing can yield greater rewards in the short and long run. Because translators are self-employed, there is no 401-K plan or employee IRA plan to take advantage of. Instead, translators can establish their own SEP-IRAs or Keogh accounts and take the appropriate deductions from their taxes, while simultaneously saving for retirement, something we all should be doing because Social Security will at best provide only a small part of one’s retirement income. The federal government is currently sending out reports to all employed people in the United States, telling them what their Social Security income will be based on contributions to date. It will likely be an eye-opener for some of you.

Insurance: Medical, Dental, and Life

The cost of medical insurance is a factor of self-employment no one can afford to overlook. Very basic medical coverage can cost hundreds a month for a young, unmarried individual in generally good health. Add in a spouse and children, and medical insurance costs can rapidly a major annual expense. And as people age, insurance costs rise dramatically.

When considering the freelance path, consider these kinds of long-term costs. A translator who is married with children will find the cost of medical and dental coverage a major burden. Moreover, such translators might also want accident or life insurance, to protect their families. This will increase the red side considerably, especially in the face of current skyrocketing premiums. Such translators might do well to find in-house work or other work where the employer picks up part or all of the insurance costs.

Of course, medical insurance costs are a deductible business expense, though the percentage of the deduction varies from year to year. Since I started as a freelance translator, I've seen the percentage as low as 0% and as high as 50%. In other words, don’t plan on a precise deduction every year for your medical insurance costs. Also, medical expenses above a set minimum can be deducted on a Schedule A (Itemized Deductions; used when you think your various personal deductions will exceed the Standard Deduction on your tax return). If you find all of this too complicated to figure out, try using tax preparation software (Intuit's TurboTax, Kiplinger's TaxCut, or what have you), or consult a tax professional.

Credit

Have you ever wondered about your credit rating? Just because you get lots of offers for credit cards in the mail does not mean that you have a great credit rating. And when you try to get credit to do something like purchase a house, you have to remember that those calculations are in part a function of your present and anticipated income. Since translators have a present income which fluctuates and no precise method to estimate their future income, credit does not necessarily come so easily, particularly for major purchases.

Imagine sitting down with a loan officer at a bank and requesting a mortgage to purchase a house. The officer asks you what you do for a living. You say translate. After you explain what that means, the officer asks you for income statements for the previous ten years. You show the officer your annual tax returns, invoice records, and investment records. The officer immediately notes the fluctuations from month to month and year to year and then asks you what you will be making in two or five or ten or twenty years. You answer as best as you can, but the officer will doubtlessly wonder.

Translators are not inherently a poor credit risk; however, their profession may make them seem that way. Therefore, you should be doing everything in your power to demonstrate that you are a great credit risk, so great that people come to you and offer you money all the time. You should always pay all your bills on time. Don’t wait for reminders or warnings to come in for rent or utility bills, for student loans or car payments, or for any other money you owe. Don’t bounce checks. Don’t ride high balances on your credit cards. Don’t default on student loans or any other loan. Credit companies keep track of every bill you ever pay and check you write (I know, I worked for TRW for a summer) and evaluate your credit history based not on the one-hundred bills you paid on time, but the one you didn’t.

We all have heard the horror stories about people whose lives are ruined by a bad credit report. What we don’t hear is how a credit report affects the average person. Because of the ill-defined, nebulous, and precarious nature of the translation profession, translators should strive to have immaculate credit reports, the kind that are carried around on gilt platters.

Tricks to improve your credit rating: Have lots of credit cards and use them at least occasionally, paying every bill on time. Make all loan payments on time or request a forbearance ahead of time. Do not use any of the low income assistance programs such as the ones Pacific Bell or Pacific Gas & Electric have (I live in California, but there are such programs all over the nation. I am totally in favor of them, but they don’t help your credit rating). Write lots of checks and make sure they all clear. You get the idea.

Equipment

Translators need office equipment, including a computer with printer and modem, a fax machine, dictionaries and reference materials, and miscellaneous supplies. There are ways to avoid paying top dollar for these items.

Buy computers through mail order houses or through an academic discount at a university. If you live near a major computer firm, such as Microsoft in Redmond, WA, you can go to their bargain basement where they sell off their old equipment (often very powerful machines) at great prices. You can also consider buying used equipment, just keep in mind the advice offered in the Article: Translator's Home Office.

Buy software and other computer equipment such as floppy disks and toner or ink cartridges through catalog companies or the Internet. Outpost, Egghead, MacZone, MacConnection, PC Zone, PC Connection and MicroWarehouse all offer great prices on everything you’ll ever need and will deliver it overnight for free, or sometimes $3 to $6, regardless of how large it is. Make sure to pick a company which is outside your state and thus avoid sales tax on the item.

Dictionaries and reference materials are often quite expensive. Make sure you buy only what you need. Try to find people who use it and see what they think. There are frequently useful discussions and recommendations at sci.lang.translation, or in the various articles at www.accurapid.com/journal. Try to borrow a copy of a reference book you are interested in before you buy it. If you can find one in a used bookstore, a university bookstore for instance, you can save 35% to 50%.

Does It Balance?

This is really two questions: the literal and figurative balance. Literally, if it doesn’t balance, you’re out of business and have to find something else to do, be it translating in-house for a company, or finding a new profession. Figuratively, you can ask if all the energy and efforts justify the rewards, financial and otherwise, of being a professional freelance translator.

I think freelance translation is worthwhile, both figuratively and literally. If you want to know what I’ll think in ten years, ask me then. For now though, I like being a professional freelance translator because of the freedom and control it gives me over my professional life, because I make more money than most of my in-house translator friends, and because I seem to get more interesting work. To me, that’s worth the time and effort.