Freelance Consulting Advice

Cash flow is the lifeblood of any business, and therefore cash flow management is absolutely critical.  Why?  Because having enough cash at the right time is crucial.  This is one of the main reasons businesses fail.  You could have the best product or service in the world, with happy customers and plenty of sales, but if you run out of cash, none of that will matter.  If you can’t pay your bills on time you will go out of business.  And I speak from personal experience here – it almost ended my freelance career a couple of times during my first 18 months.

Don’t be put off by what I’ve just said.  Just because it’s important, doesn’t mean cash flow management is difficult.  The problem is that a lot of freelancers don’t do it at all – until it’s too late.

And it’s particularly important for freelancers, because for a lot of freelancers (myself included), income is relatively unpredictable or “lumpy”.  If you work on a project basis, it can be weeks or even months between pay days, and that can make it difficult to plan ahead.  But plan ahead you must.

Forecasting Cash Flow

Forecast and forecast often!  That is the number one tip I can give you.  Why?  Because if you can see your cash running out ahead of time you can do something about it.  I generally plan for the next three months, but focus on the month ahead, with a little advance planning beyond three months.  Even though you can’t be sure of everything you’ll need to pay and when (it’s always more than you think), or everything you’ll receive and when (it’s always later than you think), do the best you can with the information you have.  Overestimate expenses and underestimate income.

Show Me The Money!

Take partial payments up front – this should be detailed in all agreements with your clients.  And invoice immediately upon completing each job.  Remind clients of upcoming due dates, and always follow up overdue invoices right away.  Don’t buy stuff you don’t need, don’t spend money before it’s in your account, and always save a percentage of your income to help when money is tight.

For some common terms and examples, see Wikipedia’s definition of cash flow.

Coming Up

In part 2 of this post I’ll go into more detail, share some more cash flow management tips, and provide a sample worksheet to help with your forecasting.

Cheers
Dino