Freelancing gives you a beautiful amount of professional and personal freedom. That beautiful freedom comes with one all-important price tag though—cash flow management.
It’s not quite like a traditional business model where you can get software to take care of your inventory management, it’s more like a second job in and of itself. You have to keep track of hours and work load, invoice and save for taxes, while managing the actual work and saving for the near and distant future.
If you haven’t made the leap into freelancing yet, you may still be taking for granted the structure of traditional jobs. Here are a few tips to help you handle your cash flow as a freelancer.
Tip 1: Look for new jobs before the old one is finished. There is a sizable amount of time lost between jobs, and as much as you may think you’re distracting from your current job, having zero to little downtime between jobs is important to keeping a steady flow of income.
Tip 2: Keep scientific financial records. Scientists keep records so that, if they spontaneously combust one day, another scientist should be able to come in and pick up right where they left off. Back up files, organize by date and at the end of each month, or at the very least each quarter. Also analyze your cash flow, trends, invoices, receipts and bank statements. Every time you have to file taxes you should be so organized you don’t panic about anything.
Tip 3: Hire an accountant. Unless you minored in accounting or are just really into filing taxes, this is the perfect duty to outsource. As a freelancer you have deductions to claim: computer equipment, software, office space and whatever else you can. Hiring an accountant is the best way to make sure none of these things go unnoticed and you end up getting credit for everything you should.
Tip 4: Diversify. It’s like the old saying, ‘don’t keep all your eggs in one basket’. Don’t keep all your money in one bank account. Every paycheck should be split up into pieces that get sent off to a savings account, a tax account, a usable account and an investment account. Due to the feast and famine nature of freelancing, splitting things up so you can make your money work for you is important.
If you’ve taken the bold leap into freelancing, you have to be your own boss. That means taking on all the responsibility of a boss, managing your business with an awareness that will make you successful rather than a disorganization that can bury your talent and limit your earning potential.