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Avoiding Pitfalls

There are certainly some financial risks when it comes to freelancing that can leave you out in the cold. Some of these practices have helped keep me from getting burned, or have come about from experiencing some unfortunate situations in the past!

• Fixed quotes from subcontractors

This is something that I almost always demand, especially concerning a large project. Allowing sub-contractors to charge by the hour opens you up to serious risk, even if the individual in question is a trusted friend or associate. If he or she underestimates the tasks – unfortunately, that’s their problem, not yours. After all, you’re trying to run a business.

• Clear financial communication with clients

Being upfront about costs and expenses could very well be the number one rule to financial effectiveness in freelancing. Remaining clear about expenses at the beginning of a project is much easier than trying to justify them in the end. If all is laid out and the client understands what they will be charged and why they are being charged for it – they’ll be happy to pay you. Surprises, on the other hand, can cause delays and conflicts.

• Clear financial communication with subcontractors

Clear financial communication is just as crucial when dealing with your team or your subcontractors. Make sure they are aware exactly what you will pay, when you will pay it, and conversely what you expect in return, and when you expect to get it.

• Charge part of your project revenue up front

It’s common industry practice to charge a percentage of your project revenue up front – or at least a portion of it somewhere in the early stages. If you’ve practiced good client interaction, sales, and communication, the client shouldn’t have a problem with this concept. This can also save your tail if the client for some reason decides to upset the project part-way through, and drives further commitment to contribute to the working relationship.

• Back up your files

It only takes one hard drive failure to burn this practice into your memory forever, and you’ll never quite expect it when it comes. Prevent this type of scenario by backing up not only your web site files, but all of your records and financial data as well. It’s a good policy even to make hard copies of certain important documents such as contracts and income statements. The way I approach backing up information is the “fire mentality”. If my flat or office burned to the ground, what would I have left? This means that beyond your computer, your external hard drives, and hard copies you need to have additional or supplementary backup either online or at a separate location.

Banking

While many of us start by working out of our kitchens or bedrooms as an individual freelancer, it’s important to separate your personal finances from your business finances – especially if you’re planning on expensing certain items to the business for tax deductions.

Start by meeting with someone from your local bank – they’re generally happy to sit down by appointment and discuss your needs as a small business owner, and they can shed some great light on your financial situation stemming from their experience in the banking industry. Once you have a good handle on your options and what the standards are, open up a business bank account and start running your income and expenses through it rather than your personal account. That way everything is kept nicely separate and it’s easy to view your business activity by checking out your account history.

If you expense equipment, travel, food, supplies, and the like to your business for tax deduction, be sure to keep a record of all receipts as hard copies as well as to enter the data electronically in some fashion (potentially using a web tool).

Government or Institutional Support

It may be different depending on your geographic location, but it’s worth looking into either way. In Canada there are a whole pile of resources aimed