Overcoming the financial hurdles of freelancing and owning a small business

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A Cape Town-based freelancer recently shared an aha! moment about money management on social media. While working at a popular music festival, some distance from the nearest town, he discovered that a client who was due to settle an invoice had failed to do so.

This was not the first time this had happened. With not enough money in his account to buy a meal and committed to a gig for the rest of the weekend, he finally realised that the only way to avoid this kind of experience is to budget properly.

Cash flow issues are unfortunately very common hurdles for many freelancers and small business owners and incessantly calling your client and sending thousands of “follow up” emails is generally far less effective than intelligent budgeting.  

“Budgeting may seem like such a simple concept,” says Henry van Deventer, Wealth Strategist at Old Mutual Wealth, “but when you have an irregular income and a host of personal and business expenses, properly managing your money can mean the difference between a proper meal and having to settle for 2 minute noodles on the couch.”

The 2016 South African Freelance Media Industry & Rates Report, published by the South African Freelancers Agency and the first of its kind in the country, found that freelancing is the single source of income for 60% of freelancers, with 43% earning less than R10 000 per month, well below the national average which according to Stats SA was R18 045 in 2016. 

Apart from late paying customers, freelancers face the challenges of establishing a regular customer base and keeping up with the associated costs of freelancing such as maintaining equipment, marketing and social media engagement – none of which brings in cash but is an important part of the job.

“As a freelancer or small business owner, you need to think practically about money management while at the same working toward financial stability and success,” says Van Deventer.

He offers freelancers and small business owners the following practical tips on budgeting:

  • Ensure you have a view of your fixed committed monthly expenses, such as rent, subscriptions, policies or insurance. 
  • Then consider your variable costs. These might include food, petrol and entertainment.
  • When it comes to planning, make sure you earn at least enough in one month to cover your fixed and variable costs. 
  • If you have a view of your income, allow some wiggle room in case a client does not settle in time. For example, if you expect your income to be R15 000, budget for R12 000. 
  • A similar principle applies to your expenses. Review your variable expenses on a month to month basis and budget for more. If, for example, you spend an average of R500 on petrol per month, consider budgeting for R600 to build in a buffer. 
  • Factor in maintenance and associated costs over a 6 or 12 month period. For example, if you need to service your car once a year, make sure you put away some cash over 11 months towards the servicing. Consider a tax free savings account that offers flexibility, access to your money at no cost and tax free growth. 
  • Establish an emergency fund that can pull you through a tough month. Consider putting aside a small amount, say 5% or 10% of your income, and stick to it. 
  • Finally, consider your medium and long term goals, for yourself and your business, and start putting plans in place to achieve them. You may want to explore a retirement plan with flexible contribution options, a basic medical aid plan or a structured savings plan to save towards a deposit on a home or car.
  • Budgeting is not just about managing your money, says Van Deventer. It can also give you insights into your income and expenses over time. “As a small business your goal is to thrive by having more income than expenses, but the only way you can track this is by having a good view of what you’re getting in and where you’re spending it over time,” he says. 

“When you have a good month or two, with income well above expectation, it’s crucial to remain committed to your plan. You should also tap into all the free resources you can, such as online budget templates, free apps like 22seven that categorise your expenses and automatically generate a budget,” says Van Deventer.

“Don’t be afraid to ask for help,” he adds. “A financial adviser can help you get the basics in place and also recommend solutions tailored to your needs and circumstances. You don’t need to figure it all out on your own. Get advice that will ensure you do not end up at Rocking the Daisies with groovy tunes in your ears … and rumblings in your empty tummy.”

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Issue 83


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