If you work for yourself, you probably occasionally experience jealousy from friends or family members who wax poetic about how wonderful your life must be. You can go to the beach or the movies whenever you want, they say, and naturally, you're thinking, “If I did that, I'd never make any money."
But, of course, you may have trouble getting paid on time, anyway. As every freelancer knows, with some clients, if they can delay sending a payment, they will.
Karen Swim has been there. She is a Detroit-based PR and marketing consultant whose business is called Words for Hire. She says that if a business is late in paying her, it's usually about 60 to 90 days and often due to an accounting issue.
“But I once had a client take almost a year to pay me," Swim says.
So if you're a freelancer struggling to manage your cash flow, you may want to try these strategies.
1. Hang onto at least three months of operating expenses at all times.
Brian Cairns is a New York City-based solopreneur who runs a boutique agency called ProStrategix Consulting, which specializes in helping small businesses and entrepreneurs develop business plans and strategies to help them expand. He strongly recommends conserving three months of operating expenses in cash or very liquid current assets.
If your business's bank account is currently on fumes, Cairns' advice may sound tough—it's hard to hang onto operating expenses when you don't have any—but that's why it's so important to try to always have access to flexible loan and finance options.
Cairns says that when he was originally looking to have three months' operating expenses for his own business, “we took out a small business loan initially, and we manage our cash flows so that this account stays roughly constant."
Cairns adds that you could solve the operating expenses issue via a line of credit. But the bottom line is that old axiom, you need money to make money. After all, a potential client could offer you an incredible opportunity that you can't grab because you don't have the money to buy supplies or do some required traveling. If you don't have some operating expenses available at all times, you may find that you can't operate.
2. Ask for a deposit of the project fee.
Obviously, the fee depends on the scope of the project. If you're working on a $300 project, nobody's likely to give you $150 up front. If it's a $30,000 project, asking for $5,000 to $15,000 up front tends to be more realistic.
However you use the deposit, it can help with your cash flow; it’s always better to get money sooner rather than later. But ideally, with a deposit, Cairns says, “it's not converted to cash until the work is completed."
You want to find a number that is above a starvation wage but low enough that you can realistically pay it yourself steadily no matter what your actual cash flow is.
—Robert McGuire, owner, McGuire Editorial
That’s the best-case scenario—that the deposit sits in your savings account, untouched, earning interest, until you’ve finished the project. Obviously, many freelancers, who don’t have other revenue streams propping them up, will use that deposit to pay bills and live their lives while they work on the project. But that can be a risk, depending on your contract: If something goes wrong, and you can’t finish the work, you could be on the hook for paying the client back.
If you can keep the deposit in your bank account until the project is completed, all the better. But once the project does end, Cairns adds, having that cash will help protect you if the payment is slower to come on the back end.
3. Scale back your operating costs.
If you're really struggling, you may need to reduce your operating expenses. Patrick Barnidge, founder and owner of Rabbit Charger, LLC, based out of St. Louis, did that two years ago when he was starting his business, which sells a charger that charges two devices at one time.
Barnidge, who has no employees, was working with an overseas manufacturer that wound up filing for Chapter 7 bankruptcy. “Revenue generation got pushed back a year and a half," Barnidge says.
So after Barnidge found a new manufacturing partner and when he started to think about marketing his product, he says, “I increasingly turned toward freelancers as opposed to agencies for, for example, web development, photography, packaging and marketing."
Barnidge says that he spent half of what he would have by going with freelancers. It’s something to think about. You can probably cut costs in your business somewhere, whether it’s in marketing services, accounting, labor or research and development.
4. Pay yourself less.
This isn't a fun strategy to consider, but maybe the problem is that you're drawing too expensive of a salary, suggests Robert McGuire, who is based out of New Haven, Connecticut. McGuire owns McGuire Editorial, a content marketing services firm, and publishes Nation1099, which helps freelancers develop their careers.
“You want to find a number that is above a starvation wage but low enough that you can realistically pay it yourself steadily no matter what your actual cash flow is," McGuire says.
5. Find new, preferably fast, ways to bring in additional revenue.
You may have to use your skills to get creative, suggests Swim, who once created a business e-book about writing a resume, drawn upon years of experience as a writer and working in the corporate world, that she was able to sell quickly.
“It made several hundred dollars in a couple of weeks. It was not a ton of money, but it definitely helped smooth the gaps and continued to bring in cash over time," she says.
Swim also is the president of Solo PR PRO, an industry membership group for independent PR consultants. She says that several of the group's members, during lean times, have created social media workshops and charged attendees $200, earning anywhere from $2,000 to $3,000 at a time.
6. Remember your worth.
And, of course, an effective way to keep your cash flow flowing is to not forget about the check that you're waiting for. Swim says that with the client who owed her for an entire year, she made sure that she frequently reminded them that they were late with her payment. She sent polite emails at first, followed by polite phone calls, and then more urgent emails and phone calls.
She eventually had to threaten to take legal action. Eventually, the client (well, ex-client) evidently decided that they’d better pay up.
"I was relentless," Swim says. "At some point, it was less about the money, though I needed it, and more about fairness. I had done the work, and I was not going to be stiffed."