Running your freelancing business

Cash Flow Tips For Freelancers

By Brennan Dunn

Like it or not, as a freelancer you shoulder the risks that come with running a business. And unlike a full-time job, there’s no guarantee of a Friday payday. Mastering cash flow — and ensuring that you can afford to pay your bills and feed your family — is critical to being a successful freelancer.

Getting Money ASAP

Because you aren’t guaranteed a steady paycheck, it’s up to you to make sure your clients play by the rules and treat you like the professional you are.

  • Make your payment terms as aggressive as possible. Just because your friends are all NET 30 doesn’t mean you need to be also. Enforce a 15 day payment policy.
  • Get serious about truant payments. If a client is late, stop work until that payment comes in the door. Don’t establish a culture of, “Oh, ok, that’s no problem.” Remember the wise words from the popular children’s tale: If you give a mouse a cookie…
  • Get paid first. Want to eliminate almost all of your cash flow nightmares? Make your clients pay you before you do any work. I often make the comparison of a gas tank: when there’s gas in the tank, I’m moving. I also make it clear that I’m a professional freelance web developer, not a bill collector. When I’m chasing around money, I’m not getting work done. And while I naturally trust the good nature of my clients, history proves that freelancers aren’t always paid on time.

Cash Flow Forecasting

The life of a freelancer, like any other business, requires budgeting. And unless a significant portion of your income is based on retainers or some other form of recurring revenue, your income will likely fluctuate. Cash flow forecasting is a way to weigh expected future income against known future expenses. Because you likely have quite a few fixed expenses — your house, cars, school tuition, and so on — aggressively saving when income is good will help you survive the inevitable slump.

Create A Cash Flow Statement

More immediately than forecasting, I want to know the state of my business right now. A cash flow statement helps me do this.

You can open up your spreadsheet tool of choice, and create two summed columns: Income this month, and expenses this month. It’s easy enough to think about a beefy deposit I’m about to get (especially when I’m trying to justify, oh, buying the latest MacBook!) but it’s too easy to convince your own mind that you’re about to get a lot of money.

Revenue is separate from profit, and your profitability goes down whenever you impulse buy the latest Apple computer or decide to take a week off. When you start realizing this, and you start seeing that your revenue is one thing, and your profit is something separate — something you entirely control — you’ll begin to see the world anew.

A glimpse into the future (a cash flow forecast) along with insight into the here and now (a cash flow statement) will give you everything you need to make the decisions that affect your ultimate profitability, which will directly influence how you fare when times are rough. And when armed with payment terms that favor you as a professional, you won’t be hearing “uh, the check’s in the mail.” Rather, you’ll be growing your business and your bottom line by continuing to do great work for your clients and by being smart about your profitability and cash flow.