About the Author

Allan is the cofounder of LessAccounting, loves his family more than breathing and builds weird lamps for fun.

You're Going Out of Business, You Just Don't Realize It

Written by on Sep 18
going out of business

We’ve all driven past businesses with “Going out of Business” signs. Being that our businesses don’t have storefronts, what does a failing freelance career or failing tech business look like?

Here’s a common case of a web consultancy

A freelancer will get a couple of well-paying clients. Hooray! Months of money earning goes by, slowly their ego puffs up. This freelancer might hire a person to help them, maybe rent an office. Business spending gets a little bit loose. Let’s the good times roll!!! Instead of saving money, they reward themselves by financing a newer car, and they get a bigger house. They think to themselves “Why not? We’ve made it, we’re a success!” The reality is these purchases undermine their business’s stability by forcing the business to support this higher rate of spending.

Then their business revenue drops due to cash flow hiccups, a client lawsuit, changes in the economy, a client doesn’t pay several invoices, the market shifts, or even personal health issues. It always happens, and every business eventually sees a drop in revenue at some point. The only way to survive this storm is with cash. Cash is your life raft.

My Warning.

You’re going to read this and smile. Move on and go back to work. You’re going to forget my warning until it’s too late and you’re the one going out of business. But I’ll warn you anyway. Save your money. A small business/freelancer needs cash. Keep at least three months of overhead sitting in a savings account. Then personally you need at least two months of living costs in a savings account. This cash will be used to pay yourself and pay your employees, contractors, office, bills, etc. during hard times.

My stress level is directly related to my bank balance. A higher bank balance (six plus months of cash cushion) equals lower stress. A lower bank balance (one month of cash) equals higher stress.

But saving sucks.

I know, I love to spend money. Start saving today, cut back your spending, do it now and save your business later. Otherwise, you’ll find yourself hanging a “Going out of Business” sign in front of your place.

Read these articles about cash-flow

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