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The business of freelancing: Money: The Rules

November 17, 2008

Over the next week or so I’ll be publishing a collection of short articles on money. This is the second of a short series on running a freelance business (the first was about business insurance). In it, I’ll try to answer some questions other technical writers have asked me about managing my business finances and money.

First, some disclaimers:

  • I am not an accountant, financial planner, business adviser, lawyer, banker, or any other sort of financial or legal professional in ANY jurisdiction—nor do I pretend to be. Please consult your relevant financial and legal professionals before using any information in this article.
  • All opinions are my own and based on the experiences of running my small (micro) business since 1999. I have never run anyone else’s business.
  • The information in this article assumes you are working as an independent contractor, freelancer, etc. and not through an agency.
  • The terminology in this series of articles is specific to Australia and/or Western Australia. Other states and countries may have similar options available but under different names.
  • The information in these articles assumes that you have sufficient work to generate an income. Getting sufficient paid work is outside the scope of these articles.

There are two rules about money that I believe in strongly. All other advice in these articles springs from these two rules.

Rule #1: You are in business to make a profit

You are in business to make a profit. That’s first and foremost. Anything else is secondary to that.

You may want to save the world, be the best environmentally friendly organization on the planet, have the best invention/widget/doohickey… whatever. It’s all secondary to the real reason you are in business. You must make enough profit to provide a living for yourself and your dependents. I’m not advising you to maximize your profits and gouge all your clients, but you must make a profit to remain in business, maintain your self-worth, provide for your family, etc.

If you don’t make a profit, your business will fail. Period. There may be some months or years where you don’t make a profit, but consistently not making a profit results in the death of your business.

Which brings me to Rule #2…

Rule #2: Positive cash flow is king!

Do not forget this—I’ll repeat it: POSITIVE CASH FLOW IS KING!

It’s very simple: Positive cash flow means that more money is coming into the business than is leaving it.

If you don’t get paid, you can’t pay your suppliers or creditors. That means that they’ll start taking action against you to recover their money. At worst you could be sued, taken to court, be declared bankrupt, lose your credit rating, etc. with the resulting stress and fallout that can cause both personally and professionally.

If you’ve done work for someone for payment, make sure you get their payment in sufficient time to pay your expenses. If you don’t have many bills this month, put that money aside and earmark it for future expenses. You will have large bills to pay every so often, such as tax, annual insurance premiums, so don’t spend all the money you receive just because it’s there. That’s a slippery slope to financial ruin.

Now that I’ve got the basic rules out of the way, the rest of this collection of short articles will focus on the “Top Ten” strategies I use to ensure that my business makes a profit and that I have a positive cash flow.

Strategies

See also: Financial survival advice to writers and other freelancers

10 comments

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