Shake up your freelance finances

Address your money stresses and finally get on top of your finances

This September, we’re going back to freelance school on The Professional Freelancer. Throughout the month, premium members will receive weekly resources and exercises to help you recalibrate your freelancing business. We’ll tackle a different theme each week throughout the month – this week we’re shaking up our finances. Catch up on the rest of the series here.

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We’ve talked about your mission and marketing, now it’s time to talk: money.

The foundation of a successful freelance business is healthy finances. That doesn’t mean you need to be making a certain amount of cash, or even a lot of it. Rather, it means knowing exactly what’s happening in your business bank account (and planning to open one if you don't have one yet).

I’ve put together a list of five financial checkups you can make to help you get your finances in good shape. A word of advice: Don’t get overwhelmed with this list. Start with where you are right now and approach this exercise with no judgement. 

Here are five financial shakeups to make this week:

1. Figure out what’s making your finances difficult and course correct 

The first and most important step to take in shaking up your finances is to figure out what’s actually stressing you out about them. 

Get to the bottom of what’s causing you the most grief with your money and then take steps to address the problem. 

👉 Ask yourself: what is it about my finances that stresses me out and what can I do to make it better?

To make this even simpler, I’ve outlined some of the common issues you might be facing and what you can do about them.  

• Are you not getting around to sending your invoices because you hate asking for money? Hire a bookkeeper who can send your invoices for you

• Are you missing out on money that’s owed to you because you’re not chasing unpaid invoices? Use bookkeeping software that sends automated payment reminds to clients 

• Struggling to keep track of how much money your business is making? Open a separate business bank account

• Are you not making enough money to cover your bills each month? Maybe it’s time to add a new revenue stream to your business

• Worried that if your computer breaks you won’t be able to afford to fix it? Start an emergency fund

• Can’t take a holiday because you can’t afford to take time off? Create a benefits package for yourself  

More often than not, the shame associated with money worries stops us from taking a small step that could turn our entire situation around. 

2. Streamline your systems

Even the most organised and financially savvy freelancer can streamline their systems. 

👉 Ask yourself: are your systems actually working for you? 

Start with wherever you are right now. If you recently started freelancing and now the money’s starting to come in but you’re struggling to keep track of it, it’s probably time to open a business bank account. Mobile banking services have made this a lot easier (and cheaper) to do. In the UK, Starling, Monzo, Coconut and Tide all offer free or low-cost banking services specifically designed for freelancers. 

If you’re currently using a shoebox to stuff your receipts into, consider upgrading to a digital system that will help you stay on top of your expenses. Apps like HudDoc will let you take a picture of your receipt and upload it straight to your system.

If you’re juggling multiple clients and are struggling to keep track of your invoices, it might be time to start using bookkeeping software. Xero, Wave Apps, FreeAgent and QuickBooks all offer invoicing software and a system for logging your expenses. 

If you already use invoicing software, consider hiring a bookkeeper. I recently hired a freelance bookkeeper (she’s amazing – I’m happy to give a personal recommendation to anyone who wants her details) to help me stay on track of finances. My issue isn’t that I hate doing my admin, it’s that I like doing it too much. I spend an embarrassing amount of time going down spreadsheet rabbit holes when I should just be getting on with my work. Bookkeepers are a lot cheaper than accountants and they actually do the clerical work of making sure all your expenses are accounted for. 

It might feel like a faff to sort this stuff out, but it makes life so much less painful in the long run. 

3. Get on top of late payments 

Late payments, the true scourge of freelancing. The mechanics of getting paid when you work for yourself are truly heinous and why I campaign for better pay conditions for freelance workers. Until we see change at a policy-level, here are my three top tips for getting paid on time:

• Invoice at the same time each week. Having a recurring weekly slot for taking care of invoicing helps you keep on top of what’s overdue. 

• Chase payments as soon as they become late. Don’t wait until you need the money to chase the payment. The day payment becomes overdue, it’s late and needs chasing. 

• Let clients know you take late payments seriously. I include the following text on all my invoices as standard. (ND: This text has been drafted by a lawyer and was written in accordance with UK regulations)

Payment terms are 30 days. 

Please note that in accordance with the Late Payment of Commercial Debt (Interest) Act 1998:

1. a fixed sum (£40 for debts up to £1,000 and £70 for debts over £1,000) for the cost of recovering a late commercial payment will become due in the event that this invoice is not paid on or before the due date. A revised invoice including this late payment fee will be issued in the event this invoice becomes overdue; and

2. Starting from the day following the due date on this invoice, late payment interest will start accruing on the overdue payment at 8.1%, being the statutory rate of 8% plus the Bank of England base rate, currently 0.1%. Invoices will be updated weekly to reflect the accrued interest.

Failure to make payment can result in a complaint being raised with the Office of the Small Business Commissioner. 

4. Review your rates

When did you last raise your freelance rates? It’s time for you to review your rates. 

Who’s paying you the most money and who is paying you the least?

You can talk to your existing clients about raising your rates. The conversation doesn’t have to be difficult, send them an email letting them know you’ve raised your rates and that you’d like to discuss reviewing the fees they pay you for your work.

If you’re reading this and thinking, there’s no way I can send that email or even if I did, the answer would be No.

If that’s really the case and it’s not just your imposter syndrome speaking, then it might be time to ask yourself another question: Do you need higher-paying clients?

5. Look at the big picture 

Once you’ve taken care of the day-to-day finances, it’s time to look at the bigger picture. What’s happening with your macro-level finances? 

Do you have emergency savings?  

I have two categories of emergency savings – one for unexpected things I need to pay for (my emergency fund) and one for times when my income falls short (my benefits package). 

My emergency fund is a pot of cash that can only be used in emergency situations. These include things breaking (my laptop, car or boiler); getting stuck somewhere (a holiday went wrong and I need flights home or I need emergency accommodation); an unexpected bill (in my case, this is usually from the vet)   

My benefits package is buffer money that covers me when my income falls short. This happens when I can’t work, either because I’m sick, am going on holiday or need to take time off for any other reason. I’m actually going to be using my benefits package to cover my income while I take time off to write my book. 

Is it time to start your pension? 

Spoiler alert, the answer to this question is always yes. 

Freelancers aren’t required or encouraged to save into a pension the same way that in-house staffers are. Here in the UK, employers are legally obliged to opt their employees into a pension scheme, but there’s no equivalent regulation for the self-employed. This means it’s up to us to take care of our future plans. 

The reason I think pensions are so vital is simple: it’s free money that matures in a way no other means of saving can do. My biggest tip when it comes to pensions is to start small and soon, it really doesn’t matter how little you put away, to begin with, just developing the habit of paying into a pension each month will transform your financial freedom. 

Is it time to restructure your business?

In most countries, people who work for themselves have two options when it comes to structuring their businesses – they either operate as an individual or as a business. There are pros and cons to both depending on where you live in the world, your personal circumstances and your longterm plans. 

It’s worth spending some time researching your options and reassessing whether you’re set up in the best structure for your business. Revisit this once a year, ideally with an accountant or financial adviser. 

Do you need more streams of income?

As we’ve all seen as a result of the pandemic, nothing is stable or certain. Now more than ever, it’s vital that you spread your risk by having multiple streams of income.

Take an hour out of your week to sit down and look over your finances for since January. How many revenue streams do you currently have? What percentage do they each bring in (ideally you want an even spread)? How has the pandemic impacted your revenue steams?

If you conclude that you need a new revenue stream, check out my guide to future-proofing your freelancing.

🚀 Next week is Office Hours! I’ll be taking questions about finding your freelancing mission. You’ll get an email inviting you to leave your comments in the thread.