Oops: Cash Flow for Freelancers

If you pay tax estimates, you know it’s currently the worst time of year. While everyone else is planning to blow their tax return on a Memorial Day excursion, we have just paid our tax bill for last year and our first quarterly estimate in April, and for some infuriating reason, the second quarter is about to be due in June. So if you made more money last year than the year before–which is everyone’s goal–three huge tax bills are due in a two month span. Hey, IRS, that’s not how you divide 12 into four.

Because mother nature is really great at financial planning, my husband and I had a kid days before this annual budgetary sucker punch and then took a mere one month off of work (all this after buying a house and a car in the last six months), we recently noticed that we have on our hands something we’ve never experienced before as freelancers: a cash flow crunch.

I know about cash flow for exactly one reason. I write about it. For reasons that I can’t even begin to explain (mainly because I don’t understand them myself) I’ve somehow become someone who writes and edits financial writing. As someone who chose to take weightlifting instead of calculous my senior year of high school because eff-it, I’d already met the requirements to graduate, I had to learn everything I know about money and the numbers that rule them on the fly.

What I’ve learned is that cash flow is a challenge for all small businesses. There are times when customers and clients are paying on time and your service or wares are in season and money is flooding in the door. And then there are the other times. For some businesses this is the off season or when a big client won’t pay up. We don’t have these issues typically, so we neither prepared for nor anticipated we could be subject to the same business cycles as a putt putt golf course.

Cash flow, it turns out, is something we freelancers need to keep our eyes on as well. Mike and I have sorted things out, but we’re certainly going to be more aware of and prepared for cash flow issues in the future. Here’s what would have been handy for us to consider before we found ourselves poking around in the bottom of our pockets.

• Plan Ahead Seven months ago, my answer to the questions, “How much income will you be making over the next year?” and “What will your expenses be?” were, “Plenty!” and “Who can, like, see the future, man?” But I knew we’d be buying a house and car and having a baby and taking maternity leave. Had I been planning ahead better, one thing I would have done differently would be put less money down on my car. We scored 0% financing on the thing, and I could have afforded a slightly higher monthly payment. But I was thinking of getting the thing paid off sooner, not having a cash drought in a few months–even though I should definitely have seen it coming, what with the root of most of it growing inside my uterus.

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  Finance What You Can Guess what happens when you have a baby somewhere other than the woods? Hospital bills! Didn’t think about those in advance either. Our insurance covered about two-thirds the cost, but a third of a childbirth still turns out to be really stinking spendy. Could we have emptied our savings account to pay the full bill? Yup. But instead, I called the hospital to check on finance options and it turns out they allow you to do monthly installments for two whole years with no interest or fees. So yeah, we signed up for that. (We also have all sorts of credit cards. We could have used those for some bills, but we were able to avoid that.)

• Consider Creative Revenue Sources We also didn’t want to drain our savings to pay our regular bills. You gots to have some cash, right? So we looked around at other ways to patch the hole in our budget. Retirement accounts can’t be touched. Both of our work schedules were pretty full. A lemonade stand wasn’t going to cut it. But we did have some significant savings bonds that had been sitting around since my childhood. After doing the math, I determined they were worth more to us now than waiting for them to slowly finish the last of their accruing and putting some current expenses on credit cards. So we cashed them out.

• Rainy Day Fund We have savings. We had a lot of savings. And then the house and the car happened. Now we have enough for like, a rainy day. Had we not made those purchases, we could have handled this cash flow crunch with that savings account. We could have determined today was that rainy day, but the options above allowed us to avoid that. So the rain, rain can go away and come again another day. Which, I am sure, it will.

• Control What You Can, Accept What You Can’t We could not have had a baby in the tiny house we lived in before, nor could we drive her around the deathmobile formerly known as my car. We also had no control over her being born squarely in the middle of the worst financial time of the year for freelancers. Finally, we were not willing to give up the parental leave we’d planned for ourselves. Could we have put off the purchase of a new hot water heater? Probably. Should I have spent a little less on Christmas presents last year and chosen the affordable grocery store more often over the last several months? Yeaaah. Guilty.

• Reevaluate Now we are wiser. Now, I am projecting income and expenses farther ahead, as well as analyzing them both over the past year. All of the things we’ve learned will change the way we budget each month, as well as the way we make financial decisions in the future. Like, maybe we won’t do a new house, car and baby in the same year anymore. Lesson learned!