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How to live through a short-term financial crisis

This is a post from a member of the Freelancers Union community. If you’re interested in sharing your expertise, your story, or some advice you think will help a fellow freelancer out, feel free to send your blog post to us here.

I closed out 2014 with a small bank balance and about $7,000 owed to me for work completed. My income was significantly higher than the previous year, so I felt my freelance business was on the right track.

I’m a freelance writer and editor -- after 24 years at a daily newspaper, my paper followed the fate of many other print enterprises. A company restructuring and shifting to the digital-first model added me to the growing roster of newspaper refugees.

As my layoff loomed, I scanned the possibilities for a comparable full-time position in my longtime community, but gave in to the lure of a freelance life. Since 2013, I’ve written for print and online publications, and edit for a variety of organizations. I’ve cobbled together an interesting project list that focuses mainly on social issues, religion and public policy.

Despite what I thought was a healthy financial start to 2015, I quickly realized I was headed for trouble. As the year began, I had outstanding invoices, and several long-term projects not quite completed. But my bills didn’t wait.

Until early March, I received two checks: one for $500 and one for $110. That was a small fraction of what I needed to pay one month’s bills -- January’s quarterly tax payments busted my business checking account.

The phrase, “Cash flow is king” kept running through my mind. That’s the comment my teacher in a small business development course repeated endlessly. I now know what he means: cash flow is crucial to keeping your business, and your life, afloat. Invoicing for $7,000 does not mean it’s in your account.

Because of my limited cash flow, I spent very little on food or gas in January and February. Modest spending money came from $25 I got in scratch-off lottery tickets in my Christmas stocking, a $29 rebate from a late-2014 purchase, a few gift cards, and a couple bucks from cashing in my returnable bottles and cans.

As the great humor columnist Dave Barry used to say, I’m not making this up.

Let me be clear: I was not in danger of starvation. I have a well-stocked pantry, and if I got sick of soup and pasta, well, tough. I also could have borrowed from my emergency account or a credit card. My life is rich with friends and family who would have lent me money for a month or two. (At least I think they would have.) My dinner hosts know I am not shy about taking leftovers.

I had options, and I’m not making light of the fact that many people live at the financial edge all the time. But I decided not to test my safety net just yet and see how this cash-flow crisis evolved.

After the early-year panic, I’ve settled on new strategies to escape a cash-flow crisis next January. Experts suggest keeping a bank balance to cover three months of bills; I know that’s a challenge for many freelancers, but creating a plan is a good first step.

Here’s what I’m doing:

- I’ve met with a financial adviser who shepherded me through the painful process of figuring out The Number: What I need to earn each month and each year to pay my bills and not jeopardize my retirement money. She outlined my financial options, should my roof cave in or some other disaster strikes. My adviser is also guiding me on ways to cut my budget – including the tedious work of comparing insurance, TV, wifi and cellphone costs. I did this when I first was laid off, but the numbers were vague. Now I have an outline and guidelines to help.

- When I work with a client on a long-term or multi-part project, I’ll try to negotiate a contract that pays in installments at certain milestones. That way I won’t have to wait until the very last minute to bill for work, then wait who-knows-how-long for payment.

- I’m trying to add ongoing projects for which I’ll be paid a consistent amount each month. So far, I have two small projects in that category. (If you have leads, send them my way.)

- I’ll also continue the strategy a seasoned freelance writer and editor shared with me: diversify my clients. For most of us, unless we’re writing for top-tier publications, pay remains low. That means I have to think more carefully about accepting every writing opportunity that comes my way.

My goal is to balance less lucrative writing assignments for publications with better-paying work for organizations. If I accept a job that feeds my soul, I need to find another one that feeds my belly.

I do not enjoy the business end of freelancing: Numbers hurt my head. But budgeting and planning go with the freelance territory. Tom, my business teacher, was right: Cash flow is king. Now that I’ve lived through a short-term crisis, here’s hoping I do better this year.

Renée K. Gadoua is a freelance writer and editor based in Syracuse, New York. Learn more about her work at www.storiesbyrenee.com and follow her on Twitter @ReneeKGadoua.