Six cash flow fixes for freelancers
HMRC splits Self Assessment bills over 1,000 pounds into two payments on account, each one half of the previous year’s tax, due at midnight on the 31st of January and the 31st of July, for freelancers whose income is rarely consistent throughout the year. The gap between when money comes in and when taxes are due can cause significant cash flow problems. These six fixes can help to close said problems.
1. Pay Yourself On A Fixed Baseline
Decide on a set monthly amount that you’ll pay into your personal account from your business account. Do it on the same day every month. According to MoneyHelper, budget for your lowest monthly income as a freelancer, so you can always rest easy knowing that your essentials are properly covered. Having a baseline will turn variable revenue into something more predictable, making budgeting decisions easier.
2. See Every Account In One Place
Most freelancers move money through a business account and personal cards, which makes total spending difficult to see. A spending app that connects your accounts through Open Banking pulls everything into one view, broken down by factors like category and merchant, allowing you to see otherwise invisible spending patterns.
3. Build A Buffer For Quiet Months
A buffer is what stops a slow month turning into problematic debt. Aim for three months of essential outgoings in an instant access account, and treat everything above your baseline in a good month as buffer money rather than money to spend. Even one month of cover takes the pressure off if you’re dealing with a late invoice or something similar. Creating a buffer is one of the fundamental financial skills that freelancers need to have. For those who are still weighing up whether or not to make the shift to self-employment, check out these six money tips for going freelance.
4. Automate Your Tax And Pension Pots
Move a fixed percentage of client payments into a separate tax pot the day it arrives, and also do the same with a pension standing order. Because each payment on account is half of your previous year’s bill, you’ll know roughly what to set aside long before either deadline arrives.
5. Forecast Your Fixed Costs A Month Ahead
List your fixed costs and establish when they’re due. Check that list against what clients have agreed to pay and when. Late payment invoices are one of the most common reasons that a month turns less profitable, so taking measures like offering digital invoices that encourage clients to pay sooner can really help.
Balancing Your Freelance Cash Flow
The key to success in freelance business is to balance your cash flow, paying taxes and expenses while keeping track of variable income. It’s important to build a buffer to make those cash flow decisions less stressful. If you’re interested in learning more about similar financial topics, see our other articles on our website.
