Being a freelancer allows you certain freedoms, such as greater control over the projects you work on and the people you deal with, but it also involves the responsibility of ensuring that you are paid. Indeed, cash flow is one of the most common challenges that businesses face. Over 57% of small businesses in the UK report that they have encountered cash flow problems, and 24% indicating that late payments constitute a threat to their survival. With this in mind, its essential to do everything possible on your end to manage your cash flow.
Cash flow refers to the movement of money in and out, and as a freelancer, it is your responsibility to maximise your income while minimising your outgoings. Taking your eye off the ball might result in money arriving too slowly and departing too quickly, putting your cash flow at risk, resulting in financial trouble. While you may be busy, consulting a professional accountant, implementing some special techniques, and planning will assist you in managing and improving your cash flow effectively. The various ways of managing your cash flow as a freelancer are as follows –
Keep track of your cash flow– To begin, its essential to stay on top of your finances and manage your cash flow by having a solid understanding of where your money will come from and where it will go. Looking ahead, its important to know your revenue and expenses for the next few months to ensure that your figures dont fall out of balance. As a freelancer, entering all estimated and confirmed figures into a spread sheet will assist you in staying on top of your books while also forecasting for the future and preparing for any expected business slowdowns.
Understanding when and where the money is expected to come will help you organise your workload and identify your most reliable paying clients. Keeping a spread sheet that tracks where money comes from when it is due, and when it is received may also help you identify any clients that are consistently producing cash flow issues by paying late or not at all.
Stay on top of Invoicing– Another strategy to manage your cash flow effectively as a freelancer is to have a well-organized invoicing and payment system. To maintain a healthy cash flow, money must come in on a regular basis, and in order for that to happen, you must guarantee that you are billing your clients accurately. As a freelancer, it is your job to ensure that you are paid, therefore establish an invoicing system and follow up on late payments.
When you send your invoice is entirely up to you, and with some clients, you may set specific payment dates. Some freelancers choose to invoice for services immediately upon completion to avoid forgetting, while others request payment midway through a project to help manage their cash flow and ensure a consistent stream of money.
Review your charges and prices– If you're having difficulty managing your cash flow yet constantly appear to be working, it may be time to review your prices. As a freelancer, you must be aware of your worth and the current professional cost for the services you perform. Avoiding selling yourself short is vital if you want to earn a good income and avoid running into cash flow problems.
Take the time to analyse how many hours you offer to specific clients each month. This will assist you in determining who gets the most out of you and who pays you the least per hour. Similarly, if you have established long-term connections with other clients, do not be hesitant to increase your fees if you believe you have a valid reason to do so.
Build a Buffer– Always keep a buffer in the bank to cover you in the event of a quiet period of work or unforeseen costs and expenses. Having at least a couple of months worth of operating expenses in reserve can help you minimise financial strain and improve your cash flow management. For example, if you rely on your laptop for work and it breaks, having enough money saved up to replace a it ensures you don't fall behind on already-scheduled commissions without disrupting your cash flow.
Additionally, it will assist in keeping everything afloat if a client defaults on a payment or you lose a large source of income.
Consider using an Accountant– If you work freelance, its a smart idea to hire someone, and a professional accountant will reduce some of the tension. They may help with bookkeeping, annual tax preparation, accounting, and conduct a financial health check. Additionally, an accountant can assist you in reviewing sales records, balance sheets, income and expenditure, all of which will help you manage your cash flow and plan for the future.
Separate your personal and business accounts– As a freelancer, you can combine personal and business expenses in the same account. However, this can create confusion and may result in you accidentally utilising business funds to cover personal expenses. Additionally, it complicates the process of filing your self-assessment tax return, as business payments must be anticipated from personal transactions. As a result, it is recommended that you separate your business and personal bank accounts.
Switch to cloud accounting software– You probably went freelance to earn a living from one of your skills, not to spend all of your time monitoring your accounts. Cloud accounting software such as Nomisma includes plenty of automated services to assist you with invoicing, cost management, and filing your self-assessment tax return. This helps you to make key strategic decisions at critical points in time.
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