Whether you are a musician, actor, writer or journalist, work tends to arrive in fits and starts: such is the chaotic nature of freelancing. Only rarely will you enjoy a steady, predictable flow of jobs, and the variability of freelance work will inevitably have an impact on your cash flow.

Freelance bank accounts can lurch from hideously overdrawn, to healthily in the black, and then, before the next payment arrives, back into negative territory. And just when you have paid all your bills, the tax deadline looms and you start desperately digging between the sofa cushions for loose change. OK, maybe this is an exaggeration, but an unpredictable cash flow is a perennial issue for many freelances.

Set targets

There is no simple answer to this problem, but you can take measures, which will minimise the trauma. The first is to set yourself a financial goal for the year. This could be a radical suggestion because many freelances work on the assumption that they simply need to earn ‘as much as possible.’ But the problem with this strategy is that you are destined never to be content. With no target, there is no satisfaction.

You might also be tempted to compare yourself with others in your field and set your goal accordingly. There is nothing wrong with ambition – on the contrary, aspiring to improve keeps us motivated – but it’s important to remember that everyone has different skills, experience, contacts, and luck. Just because someone else has scooped a major contract it doesn’t mean you are a failure, nor should you feel a burning urge to beat your rival next time. Don’t let other people set your goals: you need to decide for yourself.

The starting point, therefore, is to sit down with a pen, paper and calculator and figure out how much money you need – rather than how much money you want - per month. In other words, what does it cost to put a roof over your head, heat and light your home, feed yourself (and any dependents) and have a reasonable existence? This is your ‘survival income.’ Next, add amounts for those things that make life more enjoyable – trips to the restaurant, shopping mall, a vacation, etc. – and call this your ‘happy income.’

Then, add 25% to each figure (this will be explained below.) So long as you bring in the lower amount each month, you will survive and if you hit the upper amount, you will be content. The next step is to draw on your experience and estimate how many jobs or commissions you need to achieve these income figures. Naturally, not all work is the same but you should be able to equate your ‘output’ with financial amounts. For example, a journalist might need payment for four feature articles a month to reach their ‘happy income + 25%’ but could survive if they only wrote one and did four days subediting work.

You now have a pair of targets that are specific to your own circumstances, and, by thinking about your financial objectives in terms of units of work, you can envisage how you might achieve your goals. Consequently, you have a framework against which you can build a marketing strategy. This framework does not eradicate chaos – work will still arrive sporadically – but, at least, you have accurate benchmarks that will forewarn you of difficult, or indeed lucrative, times ahead.

Get even

Next, you need to even out the undulations of cash flow. It is not unusual for freelances to earn very little – or maybe even nothing - in some months. Work can be seasonal, invoice payment can be painfully slow, and other times, the market for your services will be moribund. Conversely, you might experience a boom and effortlessly break through your ‘happy income + 25%.’ If this is the case, resist the temptation to spend the excess immediately, and pay it into a separate bank account. This is your contingency fund from which you can draw funds if your monthly income dips below ‘survival’ levels.

This strategy may appear tediously conservative but it is preferable to the alternative: debt. Short-term credit may be necessary from time-to-time but borrowing money to finance basic living expenses is expensive, stressful and highly restrictive. Debt is manageable if you have a regular, predictable income because you know that you can afford the payments. But if you have a low-income month, payments to creditors will put inordinate strain on your finances.

Quick transfer

Finally, when you receive a payment, immediately transfer a quarter of the amount to your contingency fund. This equates to the 25% you added to your ‘survival’ and ‘happy income’ figures earlier, and by stashing this away, you will be prepared for the inevitable tax bill. A quarter of your income is a conservative, rule-of-thumb estimate and, when you have subtracted your tax-free allowance and business expenses in your end of year accounts, you will find a welcome surplus, which you can finally spend on whatever you like, with a clear conscience.

The contingency account is an essential weapon in the freelance’s eternal struggle with chaos. Without one, you are exposing yourself to the whims of unpredictable and unforgiving markets. Even if your earnings are normally very modest, it is important to put something away for the inevitable slack period. It is equally vital to make sure there is money set aside for the taxman, otherwise you will need to use next year’s income to pay last year’s tax. There will be times when this approach requires an iron will, but it is far preferable to onerous interest charges, credit card bills that never seem to diminish, and the nagging clouds of debt.

Business skills training
for creative freelances