Feb 7, 2018 · 3 min read

Ways to safeguard against not having a consistent cash flow and how to manage quarterly taxes and forecasting for the future.

This article was written by featured writer Ashlee Christian

Whether you’re a moonlighter like myself, or a full time freelancer you need to be smart about how you manage your finances. While freelancers report making 17% more an hour than their full-time counterparts, they will also make 28% less over their career because they typically work less hours. Freelancers also have to pay for all the stuff that a traditional employer would cover on their behalf (insurance, equipment, desk space, etc). In order to maintain a good balancing act to ensure that you have more cash coming in than you do going out, proper financial planning is essential.

Establish payment terms up front

Payment terms are akin to figuring out how to price your services in how much angst they can cause. I tend to fall into the trap of trying to be breezy upfront, and then often times I regret it because it leads to folks thinking they don’t have to pay me in a timely manner. As a full time freelancer, managing cash flow is one of the more difficult balancing acts, and having solid established pay terms between you and your clients will serve you very well.

Milestone Payments

For bigger projects, milestone payments are a great way to help regulate cash-flow. This works especially well for projects that have defined phases. Each phase should be very clearly defined within your contract, and include payment amounts and terms.

Pre-Payment Discount / Post-Payment Penalty

Everyone likes a discount right? Well you can incentivize your clients by giving slightly discounted services for early payments, early payments could mean before services are even rendered, or perhaps if your payment terms are normally 30 days however, there’s a discount if the client pays within 5 days of receiving the invoice. On the flip side you could write a provision into the contract that stipulates that any payment made after a certain amount of time will incur a penalty.

Much of the time just having the conversation up-front with the client as you are figuring out the rest of the project specs will do the trick. Make sure you know exactly who you will be invoicing, and that the client knows when you plan to send the invoice after the project is complete, as well as what the payment terms are.

Keep track of your W9s!

I live my life by the two guiding principles that nothing is certain except for death and fucking up your taxes. I’ve learned A LOT over the years, but it has come with some hard lessons and some extended installment agreements with the IRS. Know who you’ve completed a W9 for, and keep track of who owes you a 1099 at the end of the year.

Also, If you aren’t already talking to a tax professional about filing quarterly taxes, you should be. I promise you that extra 17% an hour is going to seem pretty paltry in comparison to what you owe the IRS at the end of the year if you don’t make quarterly payments.

Forecast and budget

Budgeting can seem like an impossible task when you don’t have consistent income. However, after a year or so of freelancing full time, you should be able to estimate what your average monthly income is. Use whatever that average is as a projected cash flow, from which all of your other expenses can be budgeted from. Once you have determined what you need to make every month to sustain life, you can start planning for how you want to pay off any lingering debt, and as well as planning for retirement.

Freelancers, how do you manage your finances? Leave your hot tips in the comments & join our #NonprofitRevolution here!

The Nonprofit Revolution

Nonprofits are badass, and so are the people working at them. We're gathering stories covering real and authentic perspectives in the nonprofit sector. Join the revolution at Wethos.co


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The Nonprofit Revolution

Nonprofits are badass, and so are the people working at them. We're gathering stories covering real and authentic perspectives in the nonprofit sector. Join the revolution at Wethos.co

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