Cash flow tips for freelancers
Did you know that 79% of freelancers say cash flow is their main business concern? It’s true, and it probably is for you too. If that’s the case, you’ll know all too well the stresses poor cash flow can bring. You’ve probably had a few sleepless nights because of it.
Fact is, it’s an achievable goal to keep your business out of the red. But you will need to take time to get your ducks in a row for that.
By ducks, we mean your accounting processes. Your bookkeeping will need an overhaul, your forecasting too. You’ll also need to track everything - every single invoice - and cherry-pick the clients you work with based on their reputability. Do this, and you’ll have the right system in place to create and sustain positive cash flow.
Most freelancers struggle with cash flow - here’s how to sort yours for good. Follow the pros with these cash flow tips:
Practise good bookkeeping
Bookkeeping can be simply defined as keeping a record of accounts. It’s an irreplaceable business activity that systematically records and organises your financial affairs. This will assist you with monitoring cash flow by keeping you in the know.
You’ll want to keep hold of all financial documents and keep track of your income and expenses. You can do this using something as simple as an Excel spreadsheet.
Keeping a spreadsheet is the simplest way to practice good bookkeeping. On it, you’ll record incomings, outgoings and debtors (clients who haven’t paid yet).
By practising good bookkeeping, you’ll also paint a clear picture about whether your financial processes are fast and reliable enough. If it turns out your processes are holding you back, you can automate them. You can track invoices and get notified when they’re paid with Solna and use bookkeeping software to record every data point.
Read our blog post on the differences between bookkeeping and accounting software to find out more about financial processes and software
Do some cash flow forecasting
Unless your freelancing business is funded by standing order, your income will fluctuate week to week and month to month. Cash flow forecasting is a means to set a clear expectation of income. This allows you to budget.
Forecasting doesn’t have to start anew every month. You can create one forecast for the year and just update elements that are new or outdated.
In your forecast, include all fixed expenses, such as your rent, university fees, house bills, office bills, car, and so on - and work against this to maintain positive cash flow. With it, you’ll be able to see exactly how much you need to make ends meet.
Forecasting might reveal a need for you to change your payment terms. This can help you identify income flat spots and shift income around to make it more consistent.
As part of your forecasting, it’s also important to aggressively save whenever you can. This will create a contingency fund for you during slow months.
Credit check your customers before you work with them
Many freelancers experience cash flow issues because their clients are late paying. This frustrating scenario is no joke - it means you’ll spend hours chasing clients for money you’re legally entitled to. And, if you pick up a bad client, they might not pay you at all.
You can minimise the risk of this happening by credit checking your customers. Performing a credit check will allow you to see a client’s financial health.
Why would you want to do this? To vet potential customers. Nasty surprises can arise for freelancers after project completion. Running a credit check allows you to safeguard your business by working with clients who are financially stable.
It isn’t a guarantee of payment by any means, but it certainly reduces your exposure to businesses with poor credit. And that’s what you want, isn’t it? A shield against the baddies and a big green tick for the good guys.
Solna allows you to run a credit check on customers before you work with them, so you can avoid any nasty surprises. It’s the smart way to do business. You can also set up automated reminders to help get you paid on time and track your invoices down to a tee so you’re kept in the loop. A slam-dunk for managing cash flow. Sign up now!