Build a Financial Cushion
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When I started freelance writing I put zero money down. I began it as an experiement in the evenings after my day job. I knew I loved to write, I had good reviews of my writing and great success in college English classes, but I wasn’t sure how it would work as a business idea. I looked into opportunities on the web and I came across Elance.com and that’s where I started. Instead of putting money down I used the free connects to see how the system worked. I started a great freelance job with my third connect, reinvested the money back into the business and kept going. Now I am writing full-time from the comfort of my own home. However, if I could start over again there is one thing I would have done differently – created a larger financial cushion.
It goes almost without saying that when you start up a business venture you need to have emergency funds set aside. When I was moonlighting I had no emergency funds for my business, after all wasn’t this my “extra” money job? Thankfully, I do have a personal emergency fund and when my computer decided to no longer boot that is where I turned so I could keep the freelance funds flowing. In retrospect, even when moonlighting you need to have an emergency fund for your business. The best planners amongst us can’t plan for everything. Perhaps that’s why they “plan for the unexpected.” Even if an expense is planned for it can come as a nasty surprise. After my first year of moonlighting taxes hit with an ugly reality: though I hadn’t earned much that first year it was enough that I should have been paying taxes quarterly. I had spent my “extra” money throughout the year and failed to plan. Ouch, I should have had a cushion.
Learning the Cycle
Businesses expenses and revenue come and go in a cycle. You write, you submit, and there’s a delay in payment. Sometimes you can plan for it and sometimes the client needs to buy a little time. A large financial cushion will help you ride out the cycle. Without this cushion you may find yourself hawking your personal items to pay for rent while you await payment for your work. Assume payments are going to be late. That way, when your client pays you on time you can be pleasantly surprised. If they can’t pay on time for whatever reason, you’ll be prepared and able to cut them a little slack. Don’t forget that this is your business financial cushion and not your personal cushion. Maintinaing two seperate financial cushions will further protect your personal assets.
Every Day is a Rainy Day
We put aside reserves for a rainy day, but it’s important to realize that every day has the potential to turn into a rainy day. In the beginning we may be losing more money than we’re bringing in and this trend can last for quite a while. Did you know that many businesses considered successful lost money in three out of the first five years? Don’t expect to turn a major profit right away. If you’ve quit your day job and you’re just starting to write you may have forgotten to budget in things such as taxes and health care costs. These expenses can be quite a shock to your financial system. Prepare and plan as much as you can to succeed, but don’t forget you can soften the blow of unexpected expenses with a big fat financial cushion. Plan for that and you’ll thank yourself later.