Why Understanding Your Cash Flow Is So Important for a Freelance Designer

Why Understanding Your Cash Flow Is So Important for a Freelance Designer

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It’s a common misconception that, as a freelance designer, you don’t need to fix up your financial statements anymore. This couldn’t be farther from the truth. As a freelancer, you still need to manage the financial side of how you’re making a living. Managing your cash flow is vital to your work and having a backup plan if something goes wrong. What Is Cash Flow? Cash flow is the flow of money in and out of your business, which is freelance designing. Cash that flows in will come from the payments from your clients or customers you made designs for. Customers that don’t pay on schedule will cause a delay in cash flowing in. On the other hand, cash that flows out will be payments for your own expenses. Why Is It Important To Understand Your Cash Flow? 1. Know How Much You Have There is a difference between having cash on hand and cash that will be receivable in the future. You need to make a distinction between the two. Sometimes, a sale is made or work is done for a client, but the payment for it has yet to be sent. It can also be hard to track your income if you don’t have an invoice template . This is why it’s important to understand your cash flow: to know how much money is coming in or is supposed to come in. If you don’t understand your own cash flow, you might miss out on some income that hasn’t been paid yet. Always remember that income is not recognized until you receive it in cash. 2. Shows You The Money Trail By understanding your cash flow, you will also be able to know where your money went exactly. You might be getting a good amount of income, but if your bills are flying left and right, your expenses might be the cause of your bankruptcy. If you know how to read your cash flow, you can prevent this from happening by being able to analyze your cash flow. Your cash flow statement will tell you where you’ve spent the most on and how you’re spending your money. If you notice that you are spending too much on a specific area, you can curtail your expenses in that section. 3. Financial Forecasting When it comes to freelance designing, you also need your finances to project how you’re going to do in the future. Many of your decisions for the future will be dependent on the cash you have. By understanding your cash flow, you can make better decisions for your business. For instance, by understanding how much cash you have and are expected to get, you can also plan how you will finance your growth in the next year. Depending on how well your cash flow is doing, you can decide whether you need to loan from a bank or raise capital aside from your internally generated funds. 4. Allows You To Prepare and Remedy Problems There might […]

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