One of the most significant reasons why there is a growing number of freelancers today is freedom. Freelancers are self-employed individuals who independently choose when to work, where to work, and how much to work.
However, this freedom comes with the risk of not having a steady cash flow.
Cash Flow Tips for Freelancers
Here, we will discuss some of the vital cash flow tips for freelancers to prevent money management issues in the long run:
1. Build a Backup
Financial independence doesn’t happen overnight; it is a process you build over time. If you have a job right now but plan to quit and start freelancing, you need to have a specific bank balance to take the plunge.
If you already have savings and can sustain for at least three months, you are good to go. Remember, taking risks are great, but it should be backed up by logical reasoning. You don’t want to take risks that will leave you broke and force you to quit freelancing.
2. Be Clear about your Charges
You will want to research the market rate that your freelancing gigs should fetch you as a beginner. Even if you choose to bid low, you need to put a quote to it and stick to your rates.
There are several aspects to consider when planning your charges. While the foremost factor is your experience in the given field, it is not the ultimate.
You need to analyze the amount of money you need to make to sustain a living. You then need to figure the amount of work you need to do to meet your financial goals.
3. Build a Client-Base
Freelancers acquaint themselves with short-lived projects all the time. But having an excellent professional relationship with clients is essential.
A client who hires you for a single gig can become a potential long-term retainer. Thus, you not only need to give your best with every piece of work you offer but also retain professional terms to get hired again.
As you grow your client base and give them the experience they expect, you have a high chance to get more work. If you do not get a gig from the same person again, you might get referred to another person.
4. Forecast your Cash Flow Every Month
Freelancers might not have a fixed income, but they sure do have some fixed expenses. Unless you rely on retainers to regularly give you a significant amount of money, your income will fluctuate. So, just like businesses, you too need budgeting.
Cash flow forecasting is an excellent way to streamline expected future income against expected future expenses. It gives you an idea of how much more gigs you need to crack to meet your expenses.
5. Clarify Payment Terms with Clients
You must build practical payment terms to ensure getting paid on time and authenticate your clients’ genuineness. Most freelancers prefer taking an advanced payment to build mutual trust.
It is wise to include payment terms and conditions and send a document to confirm that they agree. You must set a number of days in the invoice to mark the latest date by when you should receive the payment. These will help you have a systematic payment cycle and facilitate timely payments.
6. Avoid Long Payment Windows
In a perfect world, every client would pay freelancers the moment they finish their project. But that is usually not the case. It is also fair on the client’s end to ensure that the work provided is what they required.
Most businesses pay contractors by following the net-30 payment window. However, some companies may follow a net-60 or net-90 payment window.
It is crucial to settle payment terms from the very beginning and let clients know your expectations.
Until and unless you get a once-in-a-lifetime opportunity or associate with your dream brand, you might not want to compromise on your set payment window.
Net-30 is a reasonable payment window to expect and receive payments. Your clients might not want to budge lower than that, but you can always offer discounts for quicker payments.
7. Calculate your Taxes
Beginner freelancers may forget calculating taxes and end up with a hefty bill at year-end. This can happen for both seasonal freelancers and regular freelancers.
Increasing your savings along the way can help you prevent such circumstances. But planning and preventing hefty tax bills beforehand is a necessity.
Not having a steady income makes it all the more necessary to calculate taxes regularly. So, it would help if you figure your taxes while planning an expense budget.
Consider opening a bank account to deposit at least 20% to 30% of your revenue every month. It will help accumulate savings and draw the taxes you need to pay without affecting current income.
8. Managing a Month of Low Income
One of the essential cash flow tips for freelancers is following the three-month rule. You need to set aside savings for three months to pay your bills during low income.
To do so, you can evaluate expenses and check how to save that much. Initially, you might have to curtail costs to build that amount of money.
To save more, you need to reduce expenses. You can do that by lowering entertainment subscriptions, keeping a check on your power use, not eating fancy for some time, and so on.
It might seem challenging to curtail costs, but it is way better than not having enough to sustain during a low-income period.
9. Budget your Holidays
Spending weekends without work is luxurious to most freelancers. You might calculate the amount of money you earn per day or week, and holidays can be tough to extract.
When you calculate the amount of work you need to do, you should also calculate the number of days off. Like everyone else, you too deserve a work-free Sunday, but only you can create such an allowance for yourself.
Freelancers often end up being overworked during a span of time when they have a big project to complete. Once done, they might be able to take a long holiday. Ensuring a streamlined cash flow even when picking up such gigs is essential. It will allow you to vacay in peace, knowing that you are covered for the near future.
Following the cash flow tips for freelancers can make you a successful solopreneur and increase your net worth over time. Remember, discipline is necessary not only in terms of meeting deadlines but also in terms of managing finances effectively.