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Financial cushioning

How do you build sustainability into a creative freelance business? In this article Dr Steven Sparling discusses how savings and insurance are vital.
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© Kingston University

The key to having financial resiliency is to build up a financial cushion. As we’ve established, having money available in your business to cover expenses until you get paid is sound financial management.

Ideally, you should strive to have anywhere between 3-12 months operating expenses saved up in your business to draw upon. This will go a long way towards easing anxiety around the finances for your small business.

It may not always be possible to have this kind of cash reserves. In that case, you want to have access to some available credit for your business. That might be in the form of a business credit card or line of credit that you can draw upon to carry the business until money comes in. However, it is wise to minimize reliance on this as it can be precarious. Where possible, try to have some cash in the bank to cover these gaps.

As we discussed before, you should always try to get at least a portion of the payment up front once an agreement is signed – this will help with your cash flow.

Having cash reserves in your business account is always a good idea. It’s also a good idea in your personal finances as a creative freelancer. Living paycheck to paycheck is stressful, so again having some cash reserves in your personal finance helps to alleviate financial strain.

As a freelancer, you should again strive to have at least 3 months expenses saved up (rent, food, travel etc.) which means that if your business slows down for a period, you have time to take action without it having an immediate effect on your personal finances.

Finally, let’s consider insurance – both for your business and for you. There isn’t one-size-fits-all advice for insurance as each creative freelancer is going to have different circumstances and different needs. But I’ll outline a couple of areas where you might want to consider insurance.

If your business gives advice to others, for example financial advice, you probably want to have indemnity insurance so that if a client sues you if they have a loss based on your advice, the insurance covers you.

If you have premises – whether in your home or outside of your home – you want to ensure you are covered for theft and any other damage that could happen to your office and equipment.

If you see clients in person, you probably need public liability insurance so that if they trip in your space and injure themselves, you have insurance to cover this.

As a creative freelancer if you were to be unable to work due to accident, illness or disability it could have an immediate effect on your ability to provide for yourself and your family. Therefore, income protection insurance can make sense to be sure you could meet your financial responsibilities if something was to prevent you from being able to work.

These are just a few kinds of insurance that might be relevant. Again, I strongly recommend you join a professional association related to the work you do. Often, they provide insurance either included in their membership or have access to group insurance plans at very affordable rates. If they don’t provide insurance, or access to insurance, they can probably advise you on what might be desirable. Also, talk to other freelancers both in your geographic area and your creative field to understand any particular insurance they might recommend.

Knowing you have some money in the bank, access to credit in an emergency, and knowing you have some basic insurance in place should anything truly unforeseen happen, goes a long way to reducing financial anxiety as a creative freelancer. These steps, while not easy to implement, allow you to breathe and focus on more important things like building your creative business or doing client work while having peace of mind.

© Kingston University
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Survive & Thrive as a Creative Freelancer: A Beginner's Guide

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