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In today’s economy, more people than ever before are turning to freelance work in order. People do this to make ends meet or achieve their career goals while working around personal obligations and pursuits. If you are thinking of joining this brave new world of freelancing, there are several important financial factors. For example, you should consider before taking the plunge and working for yourself full-time. The following 7 tips will help you get started on the right foot and avoid common mistakes. Making mistakes can lead to financial ruin and long-term instability as a freelancer.
Accounts Payable Automation
The majority of accounting and bookkeeping calculations that you need to complete on a regular basis can be directed to an accounting software package to automate accounts payable and accounts receivable. Accounting programs such as QuickBooks, Sage 50 or Freshbooks are perfect for freelancers. This is because they make these important tasks simple, easy to follow and easy to keep up-to-date. However, they can be very expensive. As such, it is a good idea to start with a basic program like QuickBooks in order to set it up properly before moving on up as your needs grow. The key thing to remember when switching to an accounting package is that you will still be responsible for recording your time and billing clients on a monthly basis.
Create an Emergency Fund
It is important to create an emergency fund that you can draw from. You will draw from an emergency fund in case of unforeseen circumstances such as medical emergencies or job loss. This fund should be used for non-discretionary expenses only. Also, its size should be determined based upon your average monthly expenditures. It is a common mistake for freelancers to use their income to cover all of their monthly expenses. If you do this, you may expect it to last while they wait for future payments. The problem with this is that while they are waiting, they won’t have any money to use for purposes that are much more vital. The amount of money that you should keep readily available depends on your financial situation. That said, you should never dip below the amount that will allow you to meet your basic monthly expenditures.
Open a Separate Business Account
As a freelancer, you are likely to have multiple types of payments coming in and going out. These payments can be lump sums or regular installments. This makes your checking account a great place to keep your personal funds safe while you use a business account to handle all of your payments and receipts as they come in. Make sure to use a business account that won’t charge you an exorbitant amount of money in fees and that offers online capabilities for easily handling your account transactions. The goal is to make it as fast and easy as possible for you to manage payments coming in. You also want to manage expenses going out so that you can stay on top of your business. The best way to do this is to divert your income and all of the payments from clients into a separate business account. By doing this, you can keep your personal funds separate.
Pay Yourself Regularly
Many freelancers get used to working on a project-by-project basis. Next, they wait until the end of the project in order to collect their payment. This is a dangerous practice. It’s dangerous as it leaves you with no financial cushion to fall back on while you are waiting for payment. It is better to be paid at regular intervals throughout the course of your work than at the end of the job. If your client is unwilling or unable to make this commitment, you may need to look elsewhere for work. The best way to do this is to set up an automatic payment plan with them. By doing this, you will be paid on a regular basis. You can even offer to make the first payment in order to establish a good track record with them. Once you have established a good working relationship with clients, you can begin asking for this type of arrangement and both parties should welcome it.
Diversify Your Projects
One of the best ways to protect yourself as a freelancer is to diversify your work type. As a freelancer, your clients will want you to take on projects that fall within your area of expertise and interest. However, when you do this exclusively, it will be difficult for you to find new clients because each project has a limited life cycle and there are only so many potential customers out there. It’s important to create a portfolio with different types of work that attract many different types of clients. For example, your portfolio can include web design projects and writing projects in addition to freelance programming. By including a variety of types of work in your portfolio, you will have a bigger pool of potential clients.
Don’t Overpay Yourself
If you are working with clients on a project-by-project basis, you may be tempted to overpay yourself on each job because it will motivate you to work more efficiently for the client and finish the project sooner. The problem with this is that it can lead to personal financial disaster. Decide how much you should be paid for each job, and then stick to a budget no matter what the client asks you to do. This will help you maintain a steady flow of income while avoiding the temptation of overpaying yourself on each job. Also, try to avoid collecting more than one payment on any project so that you don’t have too many bills piling up at one time.
Get Professional Advice
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Most freelancers don’t think of seeking professional advice when it comes to their business but the truth is that they should be getting advice from a lawyer, accountant and even an insurance specialist. This type of advice can help you to avoid many pitfalls that exist for the unrepresented freelancer and can give you the best shot at success. These consultants will help you always stay on top of your business and will keep your personal finances in order. They will also give you peace of mind by advising you on legal issues as well as financial issues. Whether or not you want to consider the advice of a representative for your personal finances, the advice of a professional is likely to be beneficial to your business.
Takeaway
Freelancing is the only way to make a living without having to work for someone else. However, you need to be smart about the way in which you run your business so that it doesn’t take over your life. By making these seven business decisions, you will be in a much better position to ensure that your freelance venture lasts as long as possible.
