The following is a guest post, but it’s on a subject that I’m familiar with–financial challenges faced by freelancers who are running a one-stop-shop. When it’s your job to be accounting, management, sales, and workforce, getting everything done becomes a challenge. Being overwhelmed in any one area throws the others off balance.
When living on a freelance income, it becomes especially important to use your money wisely. However, sometimes you can fall into some bad habits that can put your business and income at risk. It’s important to understand common financial challenges a freelancer faces and implement solutions that will cover your bottom line.
Freelance Feast and Famine
Problem: You only look for work when you’re between projects. Your freelance business goes through a vicious cycle of: no work, heavy advertising, too much work so you kill the advertising and then once a few projects are off the plate, suddenly there’s no work again. Then the crazy cycle starts up all over again.
Solution: Devote at least 10% of your week to looking for new clients. Schedule projects so that when one ends another one fills its place. If you’re overloaded, try setting up a client waiting list.
Expanding on Credit
Problem: Your freelance business is growing. You need to invest in better reporting software, new business cards, website redesign and a host of other improvements that will elevate your business to the next level. You don’t have the money now, so you put it on your credit card. Then when the credit card bill comes, your clients are late on their invoices and you can’t pay the bill.
Solution: Avoid the debt trap. Never buy anything unless you have the money in your business to cover it. Freelance income isn’t always reliable, and you should never spend money that isn’t there. If you have an unexpected expense that has to be covered, make sure to pay off the credit card bill as soon as you can to avoid leaving a balance.
Problem: You’re so busy doing your client’s work, you don’t have time to send invoices, and collect on your debts. A month or so goes by and when you finally get a chance to send the invoice, the client sits on it or worse, doesn’t pay it.
Solution: Make sure to set a regular billing schedule. Set terms on your invoices, letting your clients know how much time they have to turn around invoices. If your client is consistently pays late or is difficult with your invoices, consider firing your client and finding one that doesn’t mind paying on time.
Problem: Something always seems to come up and you’re spending the money you should have put aside for taxes. Then when it’s time to pay your taxes, you’re scrambling to get your estimated tax payment.
Solution: Make your estimated tax payments using Electronic Federal Tax Payment System (EFTPS). If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.
The financial side of your business is every bit as important as the rest. But when you’re passionate about the work you’re doing, it’s hard to plan for the parts you dislike. Many financial fiascos can be avoided if you implement some basic financial planning practices into your business. Make sure to schedule time to do the paperwork, be proactive about scheduling projects, and put money aside for lean months and future expansion.
This was a guest post from Kathryn Katz, a Certified Personal Finance Counselor who works for Consolidated Credit Counseling Services in Ft. Lauderdale, Florida. Their non-profit credit counseling agency helps families through financial crisis.