Keep track of your cash flow

One of the typical fears most freelancers have or even people that want to get started, is the unknown factor of costs and income. When you start off, you probably already know what kind of products or services that you want to provide, but you get kind of stuck on the financial part.

Even if you deliver a great job on time, the moment you run out of money, you can close your books. You might have an idea of your future expenses, it’s still a good idea to write everything down. Keeping track of your income and costs might shed some light on how well you are doing and when it might be a good idea to invest or keep it on hold for another month.

Cash flow

That’s where cash flow comes in. Cash flow is keeping track of the movement of money into or out of your business. The best part is that you can create a forecast for all your incomes and expenses over time.

The way I always work is just create a spreadsheet on yearly bases. Feel free to download my cash flow forecast in odt format ( or xlsx ) example sheet. It might be easier to follow.

In my example sheet, I start listing every month of the year horizontally, with a pre-start column for some starting revenue and costs at the beginning of the year and a final total column so I can calculate the total amount for each row.

First thing is keeping track of your revenue streams. Use one row per revenue stream. A revenue stream can be a specific type of service your offer. By splitting up your revenues, you can keep track of each stream separately.

Next up are your expenses. Just like your revenues, try to split them up. You’ll always have recurring costs. Some monthly, others quarterly of even yearly. Think of your internet, cellphone subscription, rent, electricity, taxes, insurances, social security, etc. Also don’t forget to list your monthly wage.

Now calculate your total revenues and expenses per month. This way, you can easily calculate your cash flow surplus or deficit. Of course you don’t want to see any deficit here, but it can be normal to see some negative numbers when you are working x-months ahead.

Since we are working with a cash flow, we also need to keep track of our opening and closing cash balance. Your opening cash balance is equal to the closing cash balance from the previous month (or the pre-start surplus / deficit when you are just starting off) . To calculate your closing cash balance, just take your opening cash balance and add your cash flow surplus / deficit for that specific month.

In the end, you will have a detailed view of your revenue and expense streams, as well as a monthly total of all year revenues and expenses and a detailed sum per stream on a yearly basis.
With this detailed insight, it will become much easier to make financial decisions since you now keep track of your current and future state of your bank account.

Some tips

  • Update your forecast at least once a month
  • Enter your revenues and expenses with VAT included and try to make an estimate how much VAT you should pay every month ( or quarterly )
  • Always round your estimates up! For instance, if last year, you paid 734,05 € for some sort of tax, round that number up to 740 or even 750 € for next year. This way you build some buffer, where you for see a higher expense that might be the case.
  • Fill in your revenues at the end of the stated payment term and not the billing date since clients will not always pay you directly.
  • Fill in your expenses in the month you receive them and not at the end of the stated payment term. This way, you might have a time buffer where you can always move you expense to the next month if necessary
  • A cash flow forecast is not only for businesses or freelancers. You can always use it for your personal finances as well