I love learning and meeting new people so every month I try make at least four relevant meetups or networking events that really speak to me.
These meetups are great and provide great insights into the way I do business as well as provide a chance to rub elbows with the Melbourne digital scene.
After skipping out on the last Freelance get together, I was finally available to attend the latest Freelance Melbourne event.
This event "Cash is King: A Guide to Freelance Cashflow" on March, Friday 13th. The panellists for this session are:
- Campbell King(@CampbellKing) is a partner at mi-fi Accountants. Campbell understands how to get businesses up and running - helping them be sustainable through good management and intelligent growth.
- Evan Hawkey(@evanhawkey) is a marketing consultant, entrepreneur and massage therapist - Evan is the director of Muscle Fix where he has had trials and tribulations in dealing with cashflow (or lack thereof).
The event was held at Queens Collective, at General Assembly's Melbourne Office at kicked off with Pizza and Beers at 6pm.
Table of Contents
- Meeting other freelancers whilst carefully selecting the right pizza and beer combination
- So you're not managing your cashflow right...
- Meanwhile you see others managing their books correctly while you still struggle
- Ending the cycle of inconsistency with systems and self discipline
- Pitch smarter and better by by factoring in your investment
- Get access to financing as a freelancer
Meeting other freelancers whilst carefully selecting the right pizza and beer combination
I've been to Queens Collective before in attending some of the free lunchtime General Assembly classes - as an aside, event organiser Cameron Rambert@cameronrambert is hosted an introduction to a career in digital marketing class in April which I attended.
Free pizza and beer were available so while I got my courtesy nourishment I was able to chat with some of the other freelancers at the event.
I am not a fan of the 'speed networking' facet of events like these - I enjoy talking to one or two people and getting deep into what they are working on and true to form this is what happened on this night.
I briefly spoke to John, an IT Consultant, who was a fellow RMIT Alumni. It was interesting seeing someone who had rejected corporate life from the onset and began freelancing during university - and saw freelancing as a natural extension to their professional life.
I also spent a good while talking to Luke Hally (@digitalGeek_au) from DragonBill - a small business invoice payment start-up. Luke has been a freelance web developer for a while and it was good to connect with someone on some common ground - both as married men involved in the web development industry.
Luke had some good insights into the freelance life, beginning a start-up and how he has created a workflow to produce content whilst working on his product. I mentioned a similar service - Just Tell Julie , which was more of a productized consulting service, and how it showcases market validation for his SaaS.
Be sure to check out DragonBill, the small business payment startup from Luke and sign-up for a Lifetime Discount - we all have struggles with chasing invoices and it seems to solve a real pain for small businesses.
So you're not managing your cashflow right...
The discussion kicked off with a discussion about the worst thing freelancers do with cashflow.
Campbell stresses that the number one issue is that Freelancers spend to much of it.
Freelancers don't separate the certainty of income from a previous job. If you have a good handle on your cash cycle, you should understand that making the switch to freelancing is a switch from the certainty of one boss to many bosses - your clients.
Switching to freelancing is switching the illusion of security for the illusion of freedom. - Unknown
Campbell also suggested to run your personal life as if it were a business.
Deciding what you need to live and paying yourself this rate as a baseline salary. All other income should be stashed away in saving for a rainy day. This provides financial flexibility for both your personal life and professional life - and acts as a form of insurance against financial hardship due to lack of cashflow.
Contrast yourself with the farmer - a good farmer is the best at cashflow management. A good farmer understands the 'big wins' and how long dry spells - years, at times in the agriculture industry - can affect business.
Meanwhile you see others managing their books correctly while you still struggle
Evan shared some insights into the transition to becoming a small business owner.
You wear many hats.
As the business owner, you are the marketer. As the business owner, you are the accountant. As the business owner, you are the sales person and many other permutations on this hat wearing process.
Evan found it tough in managing his books and felt as if he was in a 'washing machine of shame'. He never seemed to be where his business needed him to be - until tax time.
Like most business owners, Evan found himself envisioning where his business will be - as opposed to what its immediate needs were. What ended up happening was a bloated, cash heavy business stuck with added extras and monthly extras that really didn't contribute to the bottom line.
To alleviate these cash flow issues, Evan had to resort to borrowing money from his parents when he couldn't meet expenses or lacked cash flow to expand.
Campbell notes that people from the workforce are used to their boss taking care of the administration and the shift to taking this responsibility themselves - with this transition hurting new small business owners.
Not meeting your responsibilities can unstuck a business
GST, for example, is not your money - it's the government's. Having accounting software to quickly check your status can help prevent a shortfall.
Providing access to your bookkeeping system and logs regularly can help ensure that your books are reconciled monthly. This allows you to have a higher-level view of how the business going from an income-expenses standpoint.
Campbell recommends Xero for his clients. Even an intermittent reconciliation would be good, with direct bank connection to assist in systemising the process.
He also recommends to find a good accountant - and to ask the a lot of questions.
Ending the cycle of inconsistency with systems and self discipline
When asked about the element of self discipline and putting in place practices to manage finances, Campbell agreed that structure and discipline were key in maintaining a cashflow positive business.
Even big businesses weren't disciplined to save for a rainy day.
Evan chimed in that things go wrong when money that should be earmarked for today is spent.
Campbell mentions that once you have discipline, you can go into forecasting your finances.
Forget big data - it's about cashflow.
Campbell gave some very simple actionable steps to establishing a system that would keep would disciplined in maintaining your finances:
- Grab a spreadsheet: A simple excel or Google Docs spreadsheet is the bare minimum you need.
- Put an 'income' line item: Have a simple column that lists your income.
- Put an 'expenses' line item: Another simple column next to the income one that lists your expenses.
- Input this month by month: The simple practice of doing this task on a monthly basis helps form the habits of good financial management.
Cashflow forecasting doesn't have to be complex - discipline is key.
Members of the audience questioned just how much time is needed in a month to consolidate their finances.
Campbell suggested to put nothing in your income line item, place the expenses so you can understand your shortfall.
Beginning from the worst case scenario and working up from there could provide a good perspective on your small business and avoid some issues that Evan mentioned earlier on.
Pitch smarter and better by by factoring in your investment
One question from the audience was about how to collect outstanding invoices. This is a real pain point not only for freelancers, but for all small businesses - much like how Luke began his startup DragonBill specifically to solve this problem.
Incidentally Campbell recently wrote a blog post on what to do when your customer doesn't pay.
Much like how the best way to avoid a hangover is moderation, the proactive strategy would be to avoid this position entirely.
Using software such a Xero, MYOB or other invoicing software, sending automatic reminders can apply some pressure to alleviate this issue.
It is also recommended that you receive cash in advance for project work to drastically reduce risk - this is also a good client qualifying mechanism.
However every industry is different, so be sensible - don't be afraid to bring up financing from the onset as it doesn't help you to know that your client does accounts receivable on the 27th after you've sent an invoice.
I chimed regarding what was Campbell's opinion on applying a discount for upfront payment.
Prior to launching this business I worked as a Project Manager and despised the pay-day post project completion as it introduced unnecessary risk to a project and helped create a habit of scope creep.
Researching methods to mitigate this risk I found examples in which incorporating line item discounts for items not only created value for your services, but helped win projects with better working conditions i.e. discount for using your terms, discount for upfront payment, discount for link on website footer etc.
I could see Campbell's eyes light up when asking this question and mentioned that small business would be more than happy paying up front if it was understood that they received a discount for such an agreement.
He also mentioned that a rate of 3-7% is typical for this type of discount.
Other members of the audience asked about factoring in the effort in maintaining your sales pipeline and how to factor in the cost/investment of a pitch.
Including marketing efforts as part of your expenses, this really should be factored in your rate or pitch.
Get access to financing as a freelancer
Getting good at spreadsheets, understanding your shortfall and what your proposal-win rate is are key in maintaining a good finanical plan for your business.
Evan mentioned that his business is now cashflow positive after he vigorously went through his expenses. He saved $12,000 just from cutting small monthly expenses and learned that these things do indeed add up.
The ones who put it through work out what they need, and set a plan. - Campbell King
Evan mentioned that having a receptionist was an unnecessary expense that provided little value to the business - making decisions like this showcase good financial management and allow you to stay cashflow positive every step of the way.
Having separate bank accounts from your personal finances and your business income/expenses is important. This allows clarity in financial management and also avoids painful lessons during tax season.
For getting loans, Banks love history.
Past history, documents, projections and other documents help with getting loans or other access to financing.
Overall, it is about keeping good books. Campbell also mentioned that as freelancers, you shouldn't neglect putting 9.25% of your income into your Superannuation.
The hardest part of financial management is setting good habits and a routine to keep good books.
Simply spending half an hour every Saturday and sticking to it can not only keep your finances in track, but provide key insights into how best to project your income for the future.