If you are a freelancer, you know that there are ups and downs with work. One week you are overbooked and the next have no work. Learning how to manage cash flow is a process that takes time. However, you can take a shortcut and learn the best way to manage cash flow by following the expert tips below.
Use Software That Helps You Manage Cash Flow
As a freelancer, you should use tools to manage cash flow, such as Cash Flow Frog. Your goal is to grow your business and earn a living. Unfortunately, unless you are an accountant, you might not have the time or expertise to run cash flow reports.
In fact, many well-established businesses turn to software to manage cash flow because:
- Software automates the process
- Using automation and software reduces the risk of errors
- Reports run for the day, week, month, quarter or longer
It makes sense to use a cash flow management tool because it frees up time and allows you the opportunity to run reports wherever and whenever you like. You also have the possibility to conduct in-depth analyses with the help of software.
For example, the right software allows you to review customer pay periods and learn which customers pay their invoices on time. You use this information to cut ties with customers that are always late paying invoices or to even put an additional stipulation in place that adds interest to the invoice payment if it isn’t paid in a certain time period.
Data, especially when it comes to your cash flow and expenditures, help you make smarter, well-informed business decisions.
Separate Your Business and Personal Accounts
Are you mixing your personal and business accounts? If so, it is difficult to keep your cash flow on track. As someone who is self-employed, it is crucial to keep these two accounts separate. Create a:
- Personal account
- Business account
Business accounts allow you to see your finances at a glance, making it easier to run cash flow forecasts. Additionally, when you need to separate income and expenses come tax season, it is much easier to do so when you have a separate account that doesn’t include any personal expenses.
Your bookkeeper and accountant will appreciate keeping two separate accounts. If an audit occurs, it is much easier to handle the process by keeping your accounts separate.
Estimate Your Business Costs
Financial health and to manage cash flow in any business is a balancing act. You must learn to spend within your means, and this means keeping your business LEAN. A few tips that help here include:
- Running forecasts to know how much money comes into the business
- Estimating your week-to-week and month-to-month costs
- Reducing expenditures when it’s evident that you won’t have the cash to cover expenses
Also, take corrective action if your costs are too high one month. For example, you want to consider asking for a credit extension from suppliers or work on ways to get client invoices paid earlier, such as offering a discount if the invoice is paid in net-10.
Draw Up a Budget Forecast
If you plan to manage cash flow during growth, you must get into the habit of running forecasts. When running forecasts and projections, you benefit from:
- Learning how certain decisions impact business
- Knowing when you need to cut spending
- Predicting months when you may need to secure financing
A budget forecast is one of the best things you can do as a freelancer to try to manage cash flow properly. You want to try and budget:
- Income coming from clients
- Invoice payments
- Tax and VAT costs
- Overhead costs
If you create a budget, you keep your cash flow running in the positive and worry less about spending more than you earn. Businesses, and treat any freelance activity as a business, should have a budget for each quarter to keep cash flowing in as well as to pay expenditures.
Managing cash flow as a freelancer is crucial to your success. When you make the transition to a full-time freelancer, it is essential that you either learn how to manage cash flow properly or hire someone to assist you, such as a bookkeeper or accountant.
