Use This One Tool To Make Sure You Never Run Out Of Money As A Freelancer:
Freelancing is a great choice if you want more freedom and control of your work and time, but admittedly if you need financial stability at all times. That’s why I am such a proponent of maintaining a balanced budget and getting wise to the basics of Accounting 101.
One of the best ways to sleep better at night is to have a solid projection of how much money you’ll have coming in and going out over the next 12 months. In order to do this, I'm going to demystify a boring/scary term for you: cash flow forecasting. It’s dry and dull, but potentially one of the best things you can do to gain peace-of-mind as a freelancer.
What Is Cash-Flow Forecasting?
Cash flow forecasting is something that almost every business does, from enterprise-level to start-ups. In essence, it’s a data-driven prediction of money coming in and going out, so you’ll have a good idea of how much money you’ll have over the next year. In short, it’s a way to know you won’t suddenly run out of cash.
While it’s easy for businesses with CFOs and accountants on payroll to forecast cash flow, we find that most freelancers don’t have a formalized process of performing this important task. Sure, they have a general sense of “money in, money out” but many shy away from doing the actual math, and refining their calculations as work changes. But not only can it provide more financial stability, it can also show you the path to grow your freelancing business (more on this later).
How To Get Started
Let’s start with just one upcoming month. What income assumptions can we make for next 30 days? Let’s say:
• You have $10,000 of operating cash (money earmarked strictly for business) that will be the baseline.
• Most of your clients will pay the full invoice within 30 days and you’ve invoiced $4,500. (Say 90% of your invoices will come in.)
• There is a chance a new client will come onboard. If so, you would invoice $1,000. (Say 50% chance.)
And the assumptions for your expenses for the next 30 days:
0 comments:
Post a Comment