Running a creative business as a freelancer or solopreneur is an opportunity to turn your passion into profits. But like any other business, you still need to keep an eye on the bottom line.
That’s where putting cash flow management strategies to work comes in. Actively keeping tabs on your financials allows you to stay profitable and invest in growth. Try these seven tips to smooth the flow of cash in and out of your creative business.
1. Reevaluate pricing and services
The first place to start with cash flow management is revisiting what you charge for your creative services. Rate your services too highly and you may find it hard to stay fully booked with clients. Undercut your rates and you might struggle with turning a profit.
The goal is to find the sweet spot in-between, while making sure you are charging what your time is worth. If you haven’t updated your rate sheet in a while, as yourself some questions:
- Do you charge every client the same rate or is pricing varied?
- Has your workload for each client increased, decreased or stayed the same?
- Have your expenses increased or decreased since your last rate update?
- Do you know the minimum baseline rate you need to make to maintain positive cash flow? (Pro Tip: Do the math backwards)
- Are you accounting for extras like taxes and credit card fees, or the time you spend on calls, emails and research?
Research what other creatives with similar experience in your niche are charging as well. Use that as a guideline for updating your rates to reflect your expertise and the quality of services you offer.
Beyond reevaluating your pricing, it may be worthwhile to dig deeper into alternative methods to boost your bottom line. Are there additional income streams you’re ignoring? Brainstorm other services or products you can offer to reach a wider audience like classes and workshops, or webinars and online courses. Could you package products or services into bundles? Not only does this mean more business for you, but it also makes customers feel like they’re receiving more value for their money.
2. Examine expenses
Income is one side of the cash flow equation; expenses are the other.
As a freelancer or solopreneur, your expenses likely include the basics, such as internet access and a laptop. But if you’re in a specialized niche such as graphic design, you might need special software or equipment to run your business.
Take a good look at your monthly expenses for the previous year. Zero in on costs that have increased or decreased, as well as new expenses you’ve picked up along the way.
Then, consider what’s essential to making your creative business work. For example, you might be paying for recurring subscription services or monthly fees for a project management software. Look at what you really need to keep your business going and trim the fat. For the expenses you keep, consider switching to a cheaper (or free) provider if possible.
3. Renegotiate shorter payment terms
When it comes to getting paid, the struggle is real for creative entrepreneurs. Fifty-eight percent of gig economy workers say that getting paid on time is a genuine obstacle.
When you don’t get paid on schedule, that can throw your cash flow off track. It can be harder to keep up with debt payments or your day to day bills. Renegotiating payment terms to encourage clients to pay sooner may be the answer.
Switching to direct deposit and online invoices can also help. For example, over 80% of invoices sent through HoneyBook are paid within one day. By cutting out paper checks, you can skip the snail mail wait and get your invoices paid faster electronically.
4. Consider financing (or refinancing)
Financing can help you fill in the cash flow gaps in your business strategy. For example, you might turn to a invoice factoring to turn your accounts receivable into cash, rather than waiting 45 days for customers to pay. Or, you may consider term loans, which could give you the funding you need to invest in a bigger growth project — without having to dip into cash flow or drain your savings.
You can also take advantage of financing to make existing business debt less expensive. Consolidating business debt can make repaying business debt more manageable, while refinancing can lower your rate and your monthly payment, saving your business money. In turn, a lower payment could ease cash flow strain if you have less money going out each month.
5. Offer payment discounts
Offering discounts may seem counterintuitive to running a creative business but there’s a great reason to give it a try. Incentivizing your clients with a discount could encourage them to pay early and in full so you’re not chasing them down for payment.
Decide how much of a discount it makes sense to offer, based on what you’re charging and the target rate you want to earn after deducting business expenses. Then, determine whether to offer it to every client or just the ones who have a history of paying late.
On the flip, you could also introduce a late payment policy. Letting your customers know that they’ll be charged a penalty fee for paying late offers two benefits. It motivates them to pay on time to avoid the penalty and if they end up paying late, you get to pocket some extra money.
6. Get serious about budgeting
Budgeting isn’t just for managing your personal finances. It’s also a way to take control of your business financials.
There are two basic sides to a budget: income and expenses. When making your business budget, go back to the expense review you did earlier and include a line item for each on that you’ve deemed necessary.
Then, add those expenses up and subtract them from your income. If your income is irregular, you can use your average monthly income for the previous year as a baseline.
When you’re creating your business budget, add in a line for saving if you’re not already doing that. Building up some cash savings can give you a cushion for months when your income is lower or if you have an unexpected business expense you need to handle.
7. Forecast cash flow
Last on the list of cash flow management tips is forecasting. This just means estimating your business’s cash flow for a set period, usually the next year.
Forecasting can help you accurately gauge how much money will flow in and out of the business. That’s important for anticipating potential cash flow dips when business slows down and capitalizing on the busier months.
Once you have a forecast in place, remember to update it regularly. You can also compare your cash flow statement against the forecast to monitor your progress from month to month and see how your creative business is doing.
Learn more and grow your business with HoneyBook’s all-in-one client management software for small businesses.