In the last few months, millions of freelancers around the world have faced financial difficulties due to the coronavirus pandemic. In the UK, for instance, three quarters of freelancers lost income and 69% faced cashflow problems. To add to the pain, many have been ineligible for government support schemes due to the structure of their businesses. And this is all before the forthcoming recession has really kicked in.
While this outlook is bleak, freelancers are in a relatively good position when it comes to coping in tough economic times:
- Most freelancers have multiple income sources
- Freelancer expenses are typically low
- Companies often prefer using freelancers during a crisis as it’s cheaper than hiring employees
- The freelance business model is highly flexible - it is easy to ‘pivot’ to find new work
If your income has taken a hit during the pandemic and subsequent recession, now is a good time to look at how you will manage your finances going forward.
The following tips will help you prepare.
Managing your freelance finances in a recession
Right now, no one knows how long or how difficult the coronavirus recession will be. Nevertheless, you can start making plans.
Take a cold, hard look at your finances
Before you can do any planning, you need to know what your current financial situation is. So, get out a pen and notepad (or open a spreadsheet) and download your last few months’ bank statements. You need to make a list of:
- All money held in your personal and business bank accounts
- All money outstanding from clients
- All money you owe to suppliers and general business expenditure
- All your personal savings
- All your personal expenditure
Getting a snapshot of where you are with money right now will give you a good basis going forward.
Hope for the best, prepare for the worst
Now you know what your financial situation is, you should begin preparing for the worst-case scenario. As a freelancer, this would be all your clients cancelling all projects for the foreseeable future.
You therefore need to plan for what you would do if this happened. If you have a decent buffer of savings, you might well be able to carry on for six months or even a year with no work.
On the other hand, you could be looking at serious problems in just a few weeks. It is therefore smart to have a backup plan in case this happens. Do you have friends or family you could stay with? What are your options for seeking out new work? While this would hopefully never happen, it is better to have a plan in place before a crisis than trying to work one out in the midst of difficulties.
Prioritize finding work over cutting expenses
Most freelancers have relatively low costs, so trying to cut back to the bone will often only provide minor savings. At the same time, if you decide to save £20 per month by deleting your website, you could potentially be missing out on clients who find you online.
So, unless you’re spending thousands of pounds on a serviced office you barely use, the priority should be to seek out new work. Get in touch with old customers, promote your services online and approach new clients in pharmaceuticals, eCommerce, technology and other sectors that have grown during the downturn.
Don’t let cash flow slip
During an economic crisis, everybody is going to try and reduce their outgoings. Nonetheless, now is not a time to let customers off the hook for delayed invoices. In most cases, a polite reminder email will do the trick, but don’t be afraid to persist.
It can be valuable to agree specific payment terms with clients and get this in writing – otherwise 30 days can quickly turn into 60, by which time you’ll be struggling to pay your own bills. You can also incentivise early payment – let the customer know you will accept a small reduction in the fee if they pay promptly.
Monitor your books
If you are the kind of freelancer who has many clients, it is easy to forget who owes you what and whether or not you’ve been paid. In this case it is really important to keep an eye on your books. Set aside time daily to work out who owes you money, how long they have owed you for and whether it is time to follow up with them.
Take advantage of tax payment deferrals
In many countries, governments have offered tax payment holidays to businesses – make sure you take advantage of these. You might have a direct debit to pay the tax authorities every quarter – if so, put this on hold if you are allowed.
Reduce personal expenses
While cutting business expenses needn’t be your top priority, reducing spending in your personal life is smart during a recession. Cancel any subscriptions you don’t really need, cut out takeaways, spend nights in rather than going out – all the usual methods for cutting back on household expenditure.
Your mortgage provider or landlord may be open to a payment holiday too, which could be worth taking advantage of (although you will eventually have to pay it back).
Finally, if you have debts it is also worth looking at ways to manage them better – and seek out advice if you are struggling to meet repayment terms.
Keep on top of freelance finances
There is no doubt that the coming months will be challenging for all kinds of businesses, freelancers included. However, by taking the time to review your finances now and preparing for the risks ahead, you can go forward with more confidence.
At Xace, our freelancer bank accounts are designed specifically to make managing your business finances easier. By bringing all your income and expenses into one, accountant-friendly app, it becomes much easier to get in control of your finances. We have packed the account full of features that help you monitor expenses, save money for a rainy day, and receive payment at the best rate from clients around the world.
Whatever the coming months throws at you, having a solid freelance finance plan in place will make it much easier to ride the storm.