Profitability versus Cash Flow
A little tip for budding freelancers is that a big difference exists between being a profitable business and having sufficient cash flow on any given day. Its an important consideration. Why? Because cash flow keeps you in business and, regardless of profitability, lack of cash flow will put you out of business.
The problem is that while profitability is an admirable quality for your freelance business, you need cash available to meet your power bills, wages and other commitments that come into the business every other day. You need to know when cash is due in and out of your accounts and you need to understand the relationship between your income and your expenses.
Short term debts are called current liabilities; if you don’t meet current liabilities as they fall due your creditors have every right to claim against you to redeem their money. This is particularly true for freelancers because you are probably operating as a sole trader which makes you personally responsible for all of your business debts and under personal obligation to repay them.
Yes its the boring side of doing business but you’re either in business or you’re not in business. Its not all about playing in Photoshop and crying in front of the tax agent once a year. Successful freelancing is as much about nailing the business processes as it is about the guts and the glory of being a self-made web professional.
So long as you know. That’s all. Without cash flow you just aren’t in business anymore – end of story.
[And please operate out of a separate business account - East is East and West is West, if you know what I'm getting at. Better a business snail than in business gaol.]
