So far in this series, we’ve talked about the time, money and stress we can cost ourselves by trying to do everything; why we should sometimes say no to work; and how bad management of our workload can overwhelm us. It must be time for a happier topic, right? OK. Let’s talk about payday…
Yay! Someone just paid your invoice for £400. That’s handy, because you have a £120 energy bill about to direct debit its way out of your bank account and little Jodie’s school trip to France costs £200. You can spend the other £80 on whatever you want!
You can – but you really shouldn’t. You’re a freelancer now, and that means financially, you really are on your own.
Fail 4: Forgetting To Put Money Aside For Costs and Rainy Days
Annual leave, sick leave, compassionate leave, maternity or paternity leave – the only person who can pay you for those is you. No work, no pay.
While you can get insurances that will cover long-term and/or severe illness if it unfortunately happens to you, what happens if your partner, parent or child becomes seriously ill and you have to care for them?
What happens if one or more clients pay their invoices late – or a major client, who provides most of your work, announces that they no longer require your services? It may take a while to find new clients to fill the gap in your workload, and regular clients aren’t that easy to find.
When you calculated your fee or rate, you should have factored in the expense running your business – because even though you may work by yourself from your own home, there are expenses involved.
Equipment – purchase, maintenance, insurance and replacement.
Accountancy or legal fees
Energy bills – at least a portion of these will be attributable to heating and lighting your working space
Desk, office or premises rental
Internet and phone bills
The list goes on. Having factored in your expenses, you must ensure that when you’re paid, a portion is put aside for paying these expenses. It’s not just available money; that energy bill direct debit will keep on spiriting money from your account every month and that laptop you’re using won’t last forever.
We never lick the feast and famine risk permanently. It’s only ever a job away. And of course, there’s always HMRC, waiting in the wings with a tax bill – and, if you haven’t filed your tax return correctly or on time, a fine.
How to Avoid Fail 4
Remind yourself that you are, in effect, running a business – and that even if it doesn’t seem that way, that business costs money to run. If you need reminding of them, maybe you could print out my list above and pin it up somewhere prominent!
Calculate what those running costs are – including a reasonable sum for infrequent but expensive costs, such as fixing the car that’s essential for your business, or a new laptop or printer.
Consider what household bills you would have to cover if the work dried up or circumstances meant you had to take a break.
Now, armed with that information, ensure that whenever possible, you put a portion of your earnings to one side, providing a cushion if the unexpected happens. A bare minimum for this back-up fund would be enough money to pay all foreseeable costs and bills for a month. If you can manage it, a three-month financial cushion is far better – and reassures you that, in the midst of what may be a very busy and stressful time, you won’t need to panic about money immediately.
Phew. Now I can rest easy, knowing that you’ll be prepared for the financially unexpected and that you’re running your freelance business like… well, a business.
Next time, we’ll take a look at why it’s not good to be a Bow with a Single String.
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We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!