Like many fiction writers I use writing and other skills to 'supplement my fiction habit' and assist my family in paying the household bills. This year, it was suggested to me that I should create a Cash Flow Analysis to track the highs and lows of my business income. If I repeat this year after year I will better be able to predict when I will experience less work, less income or even potential surges in work (so that someday when I can afford a vacation again I will know what month NOT to leave town!)
Not being a 'math person' I didn't get it right the first go-round. But what I discovered was that I was making the process WAY more complicated than I need to, and it's really pretty simple and easy to maintain throughout the year.
Tips to Make The Process Easier
- I recommend having a separate checking account - it can be a second personal account and not a true 'business' account by the standards of your local bank.
- Deposit every cent you make via your writing or other freelance skills into this account.
- Pay any business related bills through this account
- Pay yourself 'wages' to another account in order to pay non-business related expenses.
Creating Your Cash Flow
Essentially my cash flow is an Excel file I use to track how much income came in each month, where any cash was paid out, and how much cash is available for use the start of the following month. (If any, right?) Each month, when you get your bank statement for your business checking account, you will compare it to your Cash Flow analysis to make sure that the balance at the beginning of each month matches what you have recorded on your Cash Flow file.
I find it easiest to record income onto the file whenever I have made a bank deposit, (whether by depositing a paper check, or by moving money from PayPal) and not saving it all for the end of the month. Additionally, if you pay yourself 'wages' because the house payment is due ASAP ... it's easier to record it right when you do it, then to expect that you will remember where that x amount of $ went at the end of the month.
Thanks to on-line bill pay, many of us already know our bank balance at any given time, but seeing where a whole year's worth of income has really gone is a real eye opener! You may find a few surprises ... or just have black and white evidence of what you already knew. I can definitely see that doing this year after year will help me see semi-predictable financial patterns that will be helpful to growing my business - and paying my bills!
Have you ever done a cash flow for your writing business?
If not, maybe 2011 is the year to get started on one. I'd be happy to send the blank Excel file that was given to me to get you started. Send me your e-mail via my web-site contact page, www.suzannewesley.com and I'll send the file to you ASAP so that you can started tracking your January income and expenses.
If you want to write your expenses off on your taxes, you definately need good records, and these are all good ideas. I don't need the discipline of a separate bank account, but it's a great idea for some people. And everyone should record income and expenses as they occur rather than waiting for the end of the month.
ReplyDeleteGreat post.
This is most useful if your income is irregular. Back when I had a biweekly paycheck something like this would not have made as much sense to spend time on. It's not for everyone, but for many freelancers it is well worth it!
ReplyDeleteJust what I was looking for...
ReplyDeleteIf you'd like a starter file just let me know how to get it to you. I promise that I am not collecting e-mails and no one will be spammed by requesting the Cash Flow file. I've just found it so useful I'm happy to share it with other freelancers facing similar irregular payment issues.
ReplyDelete