When you’re thinking about launching the career of a solopreneur, it’s extremely important to weight all the financial pros and cons of such business effort. The greatest thing about becoming a self-employed businessperson is the freedom you’ll have in making your own decisions. However, this advantage comes together with a serious drawback, or rather a concern – how are you going to maintain a steady cash flow in your business? That’s why we’ve analyzed the most common cash flows problems, as well as their belonging solutions.
Starting out with enough assets
Launching your own, individual freelance career is a brave step and you have probably been thinking a lot in advance about that move. By that, we mean preparing enough cash for the initial period of your freelance living.
First and foremost, you need to ensure the equipment that will be used to generate your revenues in the future. For instance, online freelancers might only need a decent laptop. What’s more, they can work from the comfort of their home. Still, they’ll have some other expenses, like software licenses or – a more frugal option – temporary software subscriptions.
As opposed to that, brick-and-mortar freelancers, such as various craftspeople will need more assets to rent a workspace and cover the overhead expenses, such as the rent, the bills and, to top it all off, the equipment they need.
Both online and offline solopreneurs will need to make a financial forecast for the first few months of their business. In line with that, calculate the fixed business expenses for the first six months of your business – the rent, the bills, the car maintenance (if any), the software expenses etc.
For instance, the Australian Government offers the business beginners living Down Under the online calculator of initial business expenses. Ask around if there’s such an option in your local business administration. All these calculations will give you the full picture of your initial expenses.
So, if you want to retain a proper cash flow in those first months, you need to have some pre-saved money.
Efficient payment periods
This might sound harsh, but the business world is no playground. If you want your clients to respect you as a freelancer, you need to bring some strict rules and make no exceptions.
One of the most important ones regarding your cash flow is setting the payment deadlines that will ensure a frictionless cash (in)flow. What you should allow under any circumstances is the payment discrepancy between your accounts payable and accounts receivable. In other words – your clients should pay you for your work before your fixed business bills are due.
This is why you should pursue a shorter payment deadline. That way, waiting for 30 days for a client to pay you is a long period for a freelancer. What you should aim at is the 15-day payment period. Also, if your project is divided into milestones, ask for a certain amount of cash after every milestone. After all, you need to live while working on the project, as well.
Strict measures for late payers
Now that we’ve set the payment deadline for 15 days from the invoice date, it’s important to stress out that you should expect some late payers, as well. Such clients can be a great pain in the neck when it comes to cash flow management. Naturally, you need to do your best to prevent late payments by offering some perks for early payers – 2-3% discounts, special conditions for the next projects, introducing clearer invoices or anything you can think of.
If none of this helps, you should consider putting all the work for that client on hold until they make the agreed payment. And here’s where you need to be assertive and strict – even if it’s the end of the project, resist the pressure to finish it until it’s been fully paid. By keeping that attitude, you’ll significantly reduce the number of issues with late payments and maintain a steady cash flow.
Although this doesn’t happen often (at least not in the online labor market), you might also come across a client who doesn’t pay you at all. In that case, turn to the admins of the freelance platform where you’ve found that client. Also, read the guidelines related to that issue. Here you can learn how Upwork deals with such problems.
Frequent cash analyses
Even if you’ve taken the aforementioned measures to fight the cash flow inconveniences, you still need to keep a good eye on your expenditure and revenue. In line with that, make sure that you conduct frequent cash analyses.
Once a week would be the most suitable pace for this cause. What’s for sure is that such regular checks lower the possibility that something will go under the radar. Also, you’ll be able to react at once in case there’s an issue with your finances.
In addition to that, you need to collect those weekly reports into a monthly cash flow statement. This document will contain the entire expenditure you’ve made that month, as well as all the income elements.
Apart from that, doing the same thing at the end of the fiscal year will help you identify the strong and weak spots in your freelance business. That way, you’ll be able to make the essential financial decisions for the period ahead.
As you can see, frequent cash analyses will help you hold the reins of your finances and maintain a sustainable cash flow.
Handpicking the projects
While you might not be able to choose your projects in the first few months of your freelance career – that’s why you need those savings – you should definitely develop a habit to handpick them as you gain experience.
This is even more important if you’re working on your own, without any assistants, employees or outsourcers. Ideally, you should charge higher hourly rates for every new project you accept. Also, if you charge projects as single units, this sum should constantly be on the rise.
Such an approach will bring several benefits. First of all, your income will keep growing, given that your fixed business expenses stay the same. As a result, you’ll be able to form a special fund for new investments or for hiring employees that will improve your work efficiency.
Further, your cash flow will be higher, since your accounts receivable will be higher.
Last, but not the least, if you’re making steady progress by taking more advanced projects, you’ll improve your skills and build your motivation for further work. All these features will come if you start choosing your projects carefully after the initial freelance period is over.
Conclusion
Hitting the freelancer highway without enough cash could easily turn into a one-way trip to business demise. This is why every solopreneur and freelancer should pay special attention to their cash flow. Introducing some strict measures regarding payments and putting some money aside will enable you to work without too much asset-related stress. Together with regular cash checks and smart project organization, you’ll have a chance to successfully run your freelance career.
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