When you make the leap to self-employment and become a freelancer, you soon realise how many different skills you have to have to keep everything running. One of the most important skills is to know how freelancers can stabilise their cashflow.
Your cash flow is the money that is both coming in and going out of your business. In an ideal world, you’ll be bringing in far more than you’re spending. However, you need to be able to make your cash flow run smoothly so that you have enough money in the bank to meet your commitments, even during the leaner months.
Record your cashflow carefully
In order to run your finances, you need to have a detailed view of your money. Use a professional software platform to record all of your income and expenses. Most can also handle invoices and produce profit and loss reports and calculations for you.
Reduce unnecessary expenditure
When starting out, think carefully about every spend you commit to. Are there any ways to save money by using free versions of software or business pricing at certain retailers? If you don’t have the necessary capital to buy equipment, then find ways to spread the cost such as printers for lease or by renting items rather than buying them outright.
Don’t let your invoices pile up. You want to be paid for your work in a timely manner. Use invoicing software to send and follow up on unpaid invoices. Many freelancers operate on a money upfront basis, where they charge a percentage of the agreed price upfront before they start work. If this is common in your field, you should really think about moving to this payment model.
Build up a cash reserve
There will be times when money might be tight. Perhaps you have clients who aren’t paying on time, or it’s a quiet time of the year for your type of work. Bills still need to be paid during this time so you will need to build up a reserve of money in order to cushion you through these months. Save a percentage of all of your income into a separate account. This should help you to cover your expenses. The bigger the reserve you can build up, the better.
Charge what you’re worth
When you first go freelance, it’s tempting to charge low rates in order to get your business up and running. However, this is a difficult situation to get out of. If you’re planning to keep working with the same clients for the longer term, how will they react if you suddenly raise your rates considerably.
Do your research and charge a fair price for your services. Assess these prices on an annual basis and raise them, at least in line with inflation.
Managing your money can be daunting when you go out on your own in business. With careful planning and consistency, you should be able to make the best of the money you have coming in and create a cash flow that will allow you to be financially stable.