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Managing your Cashflow from Freelancing

Can you manage your cashflow better?When you work for a consultancy, you know when you will be paid, how much you will be paid, and the firm pays for, your benefits in part.  When you work as a freelancer, you can have long periods without a client, you can have a hard time getting payment, and that you have to take care of things like health insurance and disability insurance on your own. It is vital when you are a freelance consultant that you carefully manage your cash flow. Here are some tips that will help you to manage (and even build) your cashflow as a freelance management consultant.

1.  Keep an Eye on Your Costs - Before you can worry about anything else, when it comes to freelancing, it is vital that you get a handle on your costs - both in your personal financial dealings and in your business dealings. Be meticulous about keeping at least a spreadsheet and entering in your receipts. You can also look into paying taxes, accountants, etc. on a monthly instead of yearly basis.  If you don't have the option of making monthly payments, then pay the amount you would spend into your savings account and DON'T TOUCH IT! Work to reduce personal costs. By reducing the number of times you eat out by dining in, go to movies rather than renting movies, or spend money on impulse buys you can dramatically increase the amount of money you have to work with in your budget. Another way to save money?  Look for ways to save on marketing fees. Finally, cancel any subscriptions to magazines and websites that you don't use or that you can find at the library.

  2.  Increase Your Income - This is an obvious way to increase your cashflow, but it's amazing how many people overlook it when they look to make the increase. There are many ways to increase your income: 

  • Increase your rates (especially if you are just starting out, or if you haven't raised them for a while) 
  • Look for new markets  
  • When you see an opening in the newspaper for your niche of consulting, contact the firm.
  • Don't stop business development and marketing when you have clients - many freelancers relax when someone bites the worm on the pole they have cast, but the truth is, the only way to catch more fish is to keep that pole out there - even when you have a client now. 
  • Don't forget to engage in both active and passive marketing strategies  
  • Can you add on services and products to your current menu? 
  • Can you add other aspects of business to your repertoire (i.e. an internet business, real estate, investing, etc.)   
3.  Have Your Payments Come in Promptly - Unfortunately, past-due accounts can be a huge problem for the freelancer.  You have to track down the payee, or sometimes the payment terms are non-negotiable (i.e. 45 day waiting period). When you do have control over payment terms, you can charge a retainer fee of 30%-50% where the client pays half up front and the other half on delivery of the project. You can also offer a discount for prompt or early payment.  Offer multiple options for payment to your client - direct deposit, cheque, PayPal, etc. Finally, deal with slow paying clients and past due accounts diplomatically.  Write a letter with the invoice following up on payment. Always try to settle accounts before they become seriously past due.
4.  Save, Save, Save! - Make a habit of paying yourself first. When paid, put away at least 10% (preferably 20%) of your income into a savings account.  By keeping money in reserve, you protect yourself in case of that proverbial rainy day - and it will come.   
5.  Minimize Your Taxes - If you can, hire a tax advisor or accountant to make the most of your tax deductions.  
Through following the above five tips, you can maximize your cashflow and reduce the amount of financial distress in your life.  Being a freelancer requires discipline with money among many of the other traits.  The sooner you learn how to increase your cashflow, the better.    

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