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Feast or famine
Prepare for the worst and hope for the best
If you’re still in your first few years of freelancing, one thing you need to be prepared to expect is that there is no such thing as a steady income.
Even if you think you’ve got it dialed in - long-term contracts, great clients - simply by virtue of being a contractor, you are the first thing that can be cut when things get tough. (And I don’t know about you, but from my view, things seem to just be getting tougher for the whole world, and it’s best to prepare as if it’s gonna last a while.)
No matter how friendly your clients are, no matter how long-term your contracts are, there are always ways to end a freelance business relationship. It’s the nature of the beast.
It’s not always because contracts end, either. It can take forever to secure contracts, with lots of interviews and waiting around on HR to issue a contract and waiting for your onboarding.
You’re always at the mercy of the clients’ schedules and deadlines, rather than building the workload around your financial needs. Sometimes you have to chase payments that were sent on a Net 30 basis…for six months.
It can get messy, really quickly, without a good plan in place.
And given that the world is, depending on your worldview, either an apocalyptic hellscape or, at the very least, in need of a large bandaid and a stiff drink, it’s a good idea to be ready to manage that change.
The problem is that most of the advice about managing the feast or famine nature of your business is just plain useless.
Don’t freelance until you have a year’s worth of expenses saved up? Yeah, well, that one only works if you have a lot of disposable income and/or aren’t freelancing because you got laid off and couldn’t find a new job.
Keep six to twelve months of expenses in the bank for your business? Sure, and I’ve also got some oceanfront land in Arizona to sell you. You’re running margins that are thin enough in your personal world without also trying to save every penny you make in your business world.
Open a business credit card for emergencies? If you have great credit and a steady freelancing income with at least two years of tax returns, you might be able to qualify for a business card — but most freelancers just starting out aren’t going to be able to get a dime.
Take out a business loan? [Insert the giantest of all giant eye roll emojis here, bro.] Business loans for freelancers are practically nonexistent, because our bodies, minds, and energy levels don’t count as collateral, and that’s the sum total of our inventory.
You have to have some semblance of financial stability, though, because that is how you grow. You’ll never have a great idea to take to the next level if you’re counting pennies in your anxiety-filled sleep at 2 am. (Not that I’ve ever, ever done this, obvs.)
So what are some things that you can do to make sure you’re prepared for the feast or famine nature of this work? Today, no matter how much you have in the bank, and going forward?
1. Give yourself some security by banking loan, debt, or card payments (or overhead) for a few months.
If you happened to be able to get a PPP loan (if you’re in the US, that’s the Covid-19 relief loans for small businesses), as I did, great. They’re low interest and spread over 30 years, with really manageable payments. If you have a low payment, like a credit card minimum, a small loan like PPP, or another debt, try building yourself a three-month runway. Doing this first means you know you won’t immediately be in dire straits if something falls through.
If you don’t have a debt or card payment, save up three months of your must-have running costs (see #2) — your hosting, services, or other monthly costs.
2. Keep your monthly running costs low.
There are a ton of cool tools out there, and more released every day. I get it. I’m a total nerd for them, too.
But the fact remains that one of the most attractive things about a freelancing business is that your overhead is so much lower than almost any other industry. Once you’ve secured a laptop and somewhere to use the internet, it’s all small costs: software, hosting, marketing, and things like that.
Keep those costs low. They’re little, but they add up really fast, especially when you’re not paying attention. Set a goal for your monthly running costs for must-have tools (domain, website hosting, Canva, email, and the main tools you need for your work, such as a course platform, or Zapier, or design software). Then, create a budget for the nice-to-have tools that aren’t extremely necessary (looking at you, Sunsama, Superhuman, Trello, Asana). It’s easy, then, to know where to cut if you need to.
3. Take advantage of tax writeoffs.
There’s a longer piece on the way about this, but you can write off your office space, a percentage of utilities, and a percentage of your phone bill and transportation expenses. We’ll talk more in a longer piece about how to handle your US taxes as a freelancer (sorry, international friends, that’s the only one I’m remotely qualified to talk about!), but saving yourself tax money at the end of the year means more in your pocket when your new annual budget begins.
4. Start saving small.
It’s really hard to save as a freelancer. You’re already setting aside a good chunk of each paid invoice for taxes (or you should be, stay tuned for the tax article!) and paying your business overhead before a penny ever reaches the account where, you know, you pay for the roof over your head and the food you eat.
Start really small with savings — say $25 a month. You can always find that, it doesn’t feel scary, and it will add up quick. After you hit $75, in three months, up it again - $50 per month. It’s another $25 you can easily find, once you let yourself see in the real world that the first $25 didn’t cause your life to catch on fire. Easing your way into savings can really help — and can also help you get past the scarcity mentality that drives so many of our financial decisions.
It can also be helpful to set specific savings goals, just like you do in your life. Don’t just save for rainy days or emergencies. Save for that new logo you want some help with, or a really nice planner you love but can’t justify, or a month at that new coworking space to see if you like it. If all you do is pay your living expenses — which you will, at least in the beginning and definitely in the slow months — you’ll suck all the joy out of your job, just like you did when you worked for someone else.
5. Increase your income by sweating the details.
If you accept credit card payments, but your processor fee is close to 10% (which happens easily, because we aren’t running higher volumes of cards like stores do), you’re losing money up front. Look closely at how much those processing fees are costing you and how many clients are using them. Consider requesting clients provide ACH transfers or Wise transfers instead, since they tend to be lower fees. Shop around for a better deal.
The same goes for your insurance costs (many contracts require you to carry either general liability or workers’ compensation if you use subcontractors, especially with government and educational institutions — quick, go check!). Shop it around and see if you can improve that fixed cost. You can also do this with hosting, domains, and more.
Another good way to do this is when you have small, unexpected contracts. It will happen more and more as you grow; you’ll take on a 10-hour project here, get a referral for a quick 20-hour project there. Instead of immediately adding those to your personal budget, consider putting that full check into savings. I try to do this at least once or twice per year with small projects under $750-1,000. You can create your entire year of savings this way if you’re paying attention.
6. Ask for scholarships, and volunteer at conferences.
Some of my best business opportunities — not to mention networking and learning — have occurred because I applied for scholarships or volunteered at the conferences and events I wanted to attend. You can do this for one-off events you really want to be at, and you can also do it for membership in most professional organizations. Don’t hesitate to ask for help, especially when things are tight and you’re just starting out. There’s always more than one way to get the thing you need.
7. Take advantage of pay-in-installments plans for larger purchases.
If you need a desk, a computer, a monitor, or some other larger purchase (over $125), consider using Affirm, Klarna, Afterpay, or a similar service. You can usually, with decent credit, pay a deposit and select a no-interest plan that will stretch between six and twelve weeks depending on the amount. This helps spread those large expenses out and minimizes a little of the risk you’d take by purchasing it all at once, especially if your contracts are shorter-term. As a general rule, try not to make those purchases until you’ve got three of the payments in savings.
8. When you do have to save yourself, remember to track it.
Do not feel like a failure if you have to rely on your personal funds to make something up. It happens to all of us, and we all feel like failures when we do it, and then we never talk about it, which makes it worse for everyone!
If you have to put something on a personal credit card, or raid your grocery budget to get by because a client pays you late, it’s okay. Just don’t forget to put that in your accounting system as an owner investment. (If you have no idea what that means, tax article next week!)
9. Judiciously consider referral programs.
Another way you can increase income and get a little extra cushion is through referral programs. No! I’m not talking about being a super-sleazy reviewer who pretends to do stuff just to get you to click a link! Don’t be that guy.
But DO remember that referral and affiliate programs can often benefit you, especially if you’re someone who builds products or systems or tools for others. If you’re delivering anything that your client will eventually have to pay for, you ought to be getting a cut of that.
Designing websites using Squarespace or Wix? Setting people up with a brand kit in Canva? Get on their referral programs so that when your client begins payments, you continue to receive a cut. (Canva’s currently paused their program, FYI, for an overhaul.)
You can also do this with services, which is something people often forget. When I work with other small businesses to help them set up bookkeeping, time tracking, inventory, etc.— especially when I’m building something with no-code and I know they’ll need a paid Zapier or Airtable account — I always make sure I’ve used an affiliate link with them.
This can feel super shady if you come at it from the “get rich quick” YouTubers, but affiliate programs were originally just a way for you to share things you actually use with other people and get paid for it. That’s basically what a freelancing business is.
10. Keep that Someday List close by, and treat yourself like the badass business you are.
Sometimes there’s nothing you can do to avoid it: you’re going to have a low month, rob Peter to pay Paul, use your personal credit card to get by.
After you tell yourself that it’s all going to be okay, as many times as you need to, take out that list of projects you always wish you had time to do. (Or that mountain of transactions you need to categorize in your accounting system. Or that backlog of comments on social media that you should have responded to a zillion weeks ago.)
Reframing “Oh my god I’m so broke rn” to “Now that I’ve got some time, I can get some perspective” can be immensely helpful. Especially when you’re stuck in panic mode or scarcity.
Take yourself on a strategy date. Go sit in a coffeeshop and eavesdrop on all the business meetings around you and brainstorm new services. Catch up on things, whether they’re small — like bookkeeping — or large — like strategic planning.
You’re still a business whether it’s a low month or a high month. There’s a freedom, and a comfort, in treating yourself as such.
Prepare for the worst and hope for the best is something one of my mentors said to me a million years ago. It’s the principle at the core of building a solid financial footing for your business.
Don’t work, or write proposals, or do marketing from a place of scarcity — people can sense your desperation from miles away.
Continue to believe that it will all work out, but plan as if it won’t. And then relax.
It’s just you. You’re the one yelling at you. You’re the only boss.
You’ve got this.