Happy New Year! Thank you for coming back in 2012. The New Year is here and the time is ripe to take a fresh look at how you can bring more revenue and profit to your Freelance business. The purpose of this blog is to inform and inspire readers to create the conditions that will generate a successful and rewarding Freelance consulting career. Let’s get the ball rolling and look at how effective financial management promotes that goal.
Resolve to skillfully manage cash flow
Cash is king and cash flow is the life blood of every business. Nothing flows unless the cash does. Cash flow management means knowing how much money is expected to enter your coffers and when those checks are expected to arrive, along with knowing how much money must be paid to creditors and when those checks must be sent.
Even if you show a profit on your P & L, it’s possible to have insufficient cash in hand to pay monthly bills and other accounts payable. We all know that working as a Freelancer can be a cash flow nightmare, so it’s vital to get arms around the accounts receivable, or else sleepless nights will haunt.
Cash flow management actually begins in client meetings. Once your project fee has been addressed and agreed upon, diplomatically state that 15% – 20% is paid at contract signing and that invoices are payable upon receipt. Payment schedule for the balance will depend upon the length, type and cost structure of the job.
Whatever you do, don’t allow more than 35% of your fee to be payable at project conclusion (unless it’s a small job). Take steps to discourage the client from preserving his/her organization’s cash flow at your expense. Write payment terms into the contract, right along with the scope of your work, deliverables and start date.
Resolve to get paid what you are worth
Establishing value and getting paid for same is the goal in every service business, whether it’s teaching piano or being a nanny. Your pricing strategy should reflect the value that your services bring to the client. Needless to say, pricing supports cash flow and revenue. To identify an appropriate fee range, pricing experts recommend that you focus on four factors:
- The perceived value of the services your provide
- The demand for your services (and your reputation as a purveyor)
- What’s involved in the delivery of your service (time = production cost = the Freelancer’s cost of goods sold)
- Your mark-up / profit margin
Resolve to create and analyze the basic financial statements every quarter
Freelancers have a good idea as to how we’re faring financially, because we either have the desired amount of money in the bank or we don’t. We either have jobs in-house or we don’t. We have either big jobs in or small jobs. Like a balance sheet, your bank statement provides the snapshot of your financial picture at a given moment.
There’s nothing like creating and then actually contemplating and analyzing one’s cash flow and income (profit & loss) statements to truly grasp your true financial picture and most importantly, receive clues as to what would be advantageous for you to do about the business model, sales and/or marketing segments of your consultancy. Smart business decisions are invariably data-driven.
As you analyze your financials over the years, you may identify regularly occurring busy periods and decide to hire temporary help or bring in a Freelance sub-contractor, to give you another pair of hands at those times and allow yourself to make more money.
Slow periods will likewise be identified. You’ll be encouraged to find a way to either stimulate business during those times by incentivizing clients to hire you, find temporary work, find classes to teach (if that’s one of your competencies), or engage in prospecting, networking and professional development activities.
Next week, I’ll return with more business-themed New Year’s Resolutions for 2012.
Thanks for reading,