Getting control of your money will help you manage the feast and famine cycle more effectively. You won’t get to the point where you have to take on any old project or overload yourself with work just to cover the bills.
If your prices are too low, you will have to take on more work than you should just to earn the money you need to cover your bills.
Let’s say you need £4000 per month to cover your personal and business costs – mortgage, bills, car, food, internet, website costs, accountant, IT etc.
The minimum you need to bill each month is £4000 – that’s the minimum. Ideally, you’d want a bit extra towards unexpected costs and luxuries, so let’s say £5000 is your target amount.
If you are charging the equivalent of £25 per hour, you have to do 200 billable hours of work per month. In a 30-day month, that works out at around 6.5 hours a day. And that’s without a day off and without accounting for non-billable work such as admin and marketing.
If you take a week off or have a month where you don’t get much work, you’ll be playing catch up, working 60, 70, 80 hours or more.
And while it’s fine to work long hours, it should be because you choose to, not because you have to.
Get your pricing right, and you won’t have to take on every single project that comes your way just to pay the bills.
Create a buffer
The temptation when you have a “feast” phase is to pay yourself a bit extra and have a few treats, but this can leave you short two months down the line when things go quiet again. That’s why I leave any extra money in my business.
I pay myself the same amount each month even when I exceed my sales targets.
This helps me build a buffer so I can still pay myself if I have a below-average month, a month with lots of outgoings, or a month where I am on holiday. Once I have a comfortable buffer, I pay myself a “bonus”.
Ideally, you want to get to a position where you have enough of a buffer that you could still cover all your bills if you had no billable work for a month (or even longer).
The chances of you getting no billable work are probably slim, but this is a worst-case scenario.
What it means is you don’t get to the point of desperation. You aren’t so worried about money that you take on low-paying work or start discounting your rates.
The problem with filling your time with discounted work is that you don’t have time to go out and get the clients and work you want.
If you hold a little money back each month, you can stand your ground with your prices. And once you’ve built up a comfortable buffer, you can give yourself a pay rise or treat yourself to a bonus.
Unfortunately, not all clients pay their invoices quickly, which can be a real problem if you’re relying on that money to pay your mortgage.
You don’t want to spend hours chasing payments for work you completed months ago, especially if you are only just hitting your sales targets each month.
And what will you do if a client decides they aren’t going to pay?
Getting paid in advance for your work means you know you have cash in the bank to pay next month’s bills. You don’t have to scrape the barrel for work to tide you over or take on extra work to cover unpaid invoices.