One week last November, I issued over $40,000 in invoices but only had $2,000 in my business bank account.
Despite careful budgeting, building up a cash cushion and prompt billing, my due diligence was not enough to avoid the solopreneurship crunch. For YouEconomy members, the ebb and flow of earnings can be a burden.
Everything from overdue payments to seasonal slowdowns can lead to unexpected cash flow disruptions. Feast-or-famine cycles can perpetuate the stress of paycheck-to-paycheck life.
To survive and thrive amidst this volatility, the adage "expect the unexpected" is a warrant. After all, the rent is still due. It doesn't matter how many thousands of dollars are along the way if none of them are in your bank account when it's time to pay your quarterly tax bill.
Related: Everything you need to know about YouEconomy
Here are four ways solopreneurs can start building a framework of financial security, even without salary certainty.
1. Calculate your number of raises.
What is the bare minimum, no frills, to run your business and your life? Add to that a 10% buffer and a retirement savings contribution to get your pass or break number:a benchmark for the viability of your business.
When you have a clear measure to cover your operational costs Basically, it offers a threshold for how much you need to earn as well as a gauge for other expenses, savings, and reinvestment goals.
Subtract your create or break number from your previous month's income to calculate how much you can afford to spend on discretionary expenses.
2. Don't mix business and personal accounts.
For the novice freelance writer or part-time TaskRabbit, earning a few hundred dollars might not seem like a big deal. But it should still be treated as such. Create separate business accounts to separate income and expenses from self-employment or secondary expenses from personal accounts.
In addition to simplifying accounting at tax time, this separation can help cultivate a state Solopreneur Critical Thinking:Income Doesn't Equal Income!
3. Create a stamp.
Expecting the unexpected requires a healthy cash cushion to handle cash flow interruptions, separate from personal emergency savings.
While building this buffer of business savings, solopreneurs should also anticipate potential business downturns and put backup plans in place. Instead of scrambling after a few weeks out of work, proactively seeking out new opportunities before a breaking point can help avoid overreliance on the emergency trade buffer.
4. Be your own HR department.
Moving into self-employment also means becoming self-sufficient. With no human resources department to set up your health care or employer to match your 401(k) contributions, solopreneurs must take the reins of their own long-term well-being and treat it as seriously. than any other aspect of their business.
I include pension contributions in my appointment number to ensure that it becomes as non-negotiable as any other essential living cost. After all, the only way to thrive in YouEconomy is to take a long-term view and plan accordingly.
Related: Do you have what it takes to be part of YouEconomy?
This article originally appeared in the June 2017 issue of SUCCESS magazine.
