Why You’re Starving: How to Avoid The Dark Side of Freelancing

Avoid the Dark Side of Freelance WritingWriters become freelancers for many reasons. Often, it’s the freedom to set our own schedule, a desire to be our own boss, wanting to earn more than a low-paid job offers, or maybe to be home with our young children.

Freelancing is a wonderful way to live and work, but few people tell you about the dark side — namely, struggling with the ups and downs of freelancer income.

Today’s post is a brief Q&A with Dianna Huff, author of Cash Flow for Freelancers. Dianna started out as a B2B freelance copywriter in 1998 and has since transitioned into marketing consulting. She wrote Cash Flow based on the strategies she taught herself to better manage her own variable income.

Carol Tice: Dianna, what do you mean by freelance cash flow? Also, explain how freelance income is different from earning a paycheck.

Dianna Huff: Cash flow is the inflow and outflow of money through your business. The inflow of money is the result of selling your freelance writing services. The outflow is the result of paying the expenses associated with selling your services: your website, hosting, phone, PayPal fees, insurance, equipment (e.g., your laptop or desktop), and taxes, to name a few things.

When you’re an employee for a company, you receive a paycheck on a regular basis. If you’re salaried, your paycheck is the same each pay period. Receiving a steady paycheck makes it easier to budget and pay your expenses.

All of this changes when you’re a freelancer. As a freelancer, your income is variable, both in terms of when cash arrives in the form of client payments and how much of it you earn each month. One month you can earn relatively high income, and the next month very low income. Adding to the variability is stuff that’s out of your control: projects that get delayed or cancelled, or a client who pays late.

Income variability is why cash flow is tough for freelancers. You have to juggle paying your business and your personal expenses against your up-and-down cash flow.

Tice: You hit on a point that not many freelancers understand — the time period between when you begin a project and when you receive final payment. Can you elaborate?

Huff: When I decided to figure out why I was struggling with my own cash flow, I analyzed all of my projects for the previous 12 months on the basis of when I received the initial deposit and when I was received final payment. That’s when I realized that this time period was 60, 90, even 120 days. A few projects had even taken six months! When I saw that, my reaction was, “O-M-G! No wonder I’m struggling.”

So, that’s one reason a freelancer may have cash flow struggles — the time period between getting a deposit and getting final payment can be very long. And the time period between invoicing for a project and getting paid for it can be long, too.

Tice: Besides saving more and doing more marketing, what else can we do to gain more control over our cash flow?

Huff: Get a handle on the outflow of cash — meaning, your expenses — in your business and your personal life. I used to have a number of cloud-based subscription services for my business. I bought all my books on iBooks or Amazon. I’d buy an app or three at the App Store. I ate out quite a bit, and on days when I was super-tired from work, I’d stop at the grocery store for wine and cheeses. I never really kept track of it all — because what’s $1.99 here, or $6.99 there, and wine and cheese I could “hide” in the grocery budget, right?

Well, all those outflows of money add up! Once I started looking at where my money was going, I got smart pretty fast. I cut cable. I cut the expensive cloud-based applications and looked for more cost-effective alternatives. I stopped buying books and now get them (and DVDs and audiobooks) from my library. I rarely buy alcohol now. I’m much more mindful of how and where I spend my money. First, being mindful means I don’t have to work so hard. And second, I spend money on what’s truly important to me — like my new bicycle. 🙂

Tice: What are some other reasons freelancers struggle with cash flow?

Huff: I think the main reason is we’re not taught how to deal with variable income. Until recently, most people worked full-time jobs, which is why financial advice is geared toward people who earn steady paychecks. For example, you hear constantly to save 10% of your income.

That’s great advice if you have a steady paycheck. But for freelancers, the advice really needs to be, “Create a cash cushion you can draw on during low-income months.” If you don’t have this cash cushion, you end up using credit cards to pay expenses. And that adds cost to your business.

Another reason is that we freelancers tend to focus on the work we have today, versus planting seeds (a/k/a marketing) that will bring in work tomorrow. We get busy, we neglect our marketing, and then wake up one day to realize we have two weeks of cash — and no work.

Part of smoothing out cash flow is understanding the very real connection between marketing, sales, and income. To go back to your first question, income doesn’t drop magically into your bank account the way it did when you worked a full-time job — you have to make it happen!

What has helped you smooth out your cash flow? Tell us in the comments below.

Dianna Huff is a marketing consultant based in New Hampshire. Her new guide is Cash Flow for Freelancers. (I’ve had a good look through it, and it has some GREAT stuff, including 5 exercises for analyzing your cash flow, and 6 strategies for creating a steady(er) income.) 

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