9 ways to protect yourself as a freelancer
At the end of 2018, I was feeling pleased with myself - borderline smug if I'm honest. I had some great ongoing clients nailed down that would meet my revenue targets and enough free time to allocate to my own personal pet projects. Happy days. And then it happened!
The 'something shitty has happened, and we need to put things on the back burner for a couple of months' email arrived from one of my clients and all my lovely plans fall down like a house of cards. OK, it's not that bad, I don't have to start taking in washing, and I'm not going to starve. But it means that I have to put my foot back on the hustle pedal to keep my revenue target on track.
This kind of situation will have happened to all of us at some point. It has happened to my lovely client for a start. They were let down by someone, which has a knock-on effect on me and their other suppliers. I've been running a freelance business for close to 20 years, and I've seen these ups and downs come and go many times. Through credit crunches, recessions, companies going belly-up, bad debts and clients who turned out to be well-dodgy (including the senior partner of a law firm who is currently behind bars - yes, really), I'm still here.
The point is, that if you are freelance, the rug will be pulled out from under you, not once, but lots of times over the lifetime of your business. So it's important to realise this and put some things in place to protect you from uncertain times and the unforeseeable. So what can you do?
Don't put all your eggs in the one basket - it's great to have a big client who pays you lots of money, but I'd recommend that you try and make sure that no single client accounts for more than 40% of your overall revenue. That way, if something goes wrong, as with my situation this week, you will still have other income.
Don't overspend - this sounds obvious, but as freelancers, we are very vulnerable to change, so always make sure you are living with your means and set your revenue targets to include some 'fat'.
Make sure you are putting your tax and vat money aside - the worst situation to be in (apart from health issues), is to have something go wrong, and then have no money to pay the tax man. In my second year of trading, I had a client go bust owing me £6000. I was counting on that money coming in to cover my first year's tax bill - it was awful. So I had to go cap in hand to the IR. Fortunately, because I'd started communicating with them, they let me pay in instalments. What I learned from that, was that I should have done, of course, was put a percentage of every invoice paid into a separate account. Which is what I do now. Trust me, you do not want to be in this situation.
Cash flow - Keep a close eye on who owes you money and don't be shy about ringing people up and asking them to pay you. You don't have to get heavy, just ask a simple question like, "Could you give me an indication when to expect payment on this please?" Also, look at ways of asking for deposits up front and stage payments through the project.
Service agreements/contracts - Get things in writing, 'nuff said!
Protection insurance - it won't cover you if a client goes bust, but it will cover you if you are off sick. It's expensive but worth it.
Join something like IPSE (there are others) - IPSE is an organisation that looks after the rights of freelancers and self-employed. You can get templates for contracts, representation if you have to go through a tax investigation, legal advice etc. It also offers protection up to £10,000 if a client goes bust (providing you have contracts in place). Click here for details.
Pay your pension contribution - no matter how skint you feel, keep this going. (And if you haven't started a personal pension - get one!)
Learn how to hustle - if you're not a natural born hustler you may have to push yourself a bit. But the fact remains, that being able to hustle is probably the number one skill I think you need to be a successful freelancer. This includes things like being active on social media, being visible at events and being an active participant in your business community, leveraging every opportunity. Being confident enough to call round past clients and ask them, if they need any help....you get the idea. I'll do a separate article on that.
That's it for this piece. There are almost 5 million of us out there in the UK. And the way the business world is going, this is going to increase. There's no holiday pay, no sick pay benefits, nobody to stand in for us if we get sick or have a family tragedy. It's all up to us to look after ourselves and each other.