When you have a job, your income is pretty straightforward. You go to work; you complete your projects, you get a paycheck every two weeks. Even if you don’t complete your tasks, you’ll probably still get a paycheck from your employer. The steady flow of money into our bank account is the way we’ve been trained to budget our money and plan our expenditures. But everything changes when you work for yourself. Along with more control, your income changes and you can’t always count on steady money or even any money coming in.
Irregular income flow is one of the most unexpected transitions new solopreneurs make in their first year. Even if you’ve planned your pricing and projected your income well, things don’t always go as planned. When it comes to working for yourself, you have to expect the unexpected. Income fluctuations are extremely common in the early years of business. You have to figure out how to handle it without getting burned by clients or third party platforms.
You have to figure out how to handle it. Here’s what six solopreneurs who recently finished their first year in business learned about managing the income ebb and flow.
Don’t let your fear be in charge
Sharon Panelo hadn’t planned to work for herself. But when she had to quit her job as the VP of digital strategy leading a team of 30 to take care of health issues, she found herself a business owner. It changed the trajectory of her career. It lit a fire under her. As soon as she changed her status on LinkedIn, she got a ton of word-of-mouth business from her existing network. She had so much work coming to her that she said yes indiscriminately, far more than she should have for her well-being. If she had ten projects, five were amazing, and the other five meant she pulled all-nighters. With a collection of red bull cans and take-out containers strewn around her studio, she felt like a student again. Still, she hadn't prepared for a four-week stretch without work. While she was all right financially, she worried the work wouldn’t come back fast enough. She started thinking of other ways to make money — maybe she should become a programmer or a designer. After reading a step-by-step tutorial by someone who made money in 24 hours, she tried to start an online t-shirt business as a side hustle. She quickly realized her mistake. Rather than listening to slick ads when feeling vulnerable, she needed to lean into her well-honed skills. As work from her personal network started to wane at the end of her first year, she recognized a need to be less reliant on her contacts for business and set a goal of marketing herself in year two.
When you’re afraid, or feeling vulnerable, especially during a time when you don’t feel like you know what you’re doing, it’s easy to fall prey to get rich schemes or to buy expensive products that aren’t solving your real problem. I know, I’ve done this too. Once when the economy was faltering, and I was going back out on my own, I dabbled with selling Mary Kay. Now, I don’t wear makeup and my style is very tomboyish rather than the pulled together feminine chic of most Mary Kay sales people. You might ask, “What were you thinking?” I was thinking I was scared and was so beaten down by a bad job that I stopped trusting myself.
That pitch was so darn appealing.
I admit it; I bought into it. It lasted two months. I felt pretty awful the whole time like I was putting on an act. I even recruited a couple of friends into the business. One of those friendships soured after I left the business. It’s embarrassing that I didn’t trust myself, that I made an ill-advised decision due to a shaky economic situation. But I grew from the experience. I figured out what to do when I felt scared and vulnerable. It reminded me to trust myself — and never to make big decisions based on fear.
How to handle uncertainty:
- Never make big decisions based on fear.
- Remember that your skills are valuable. When you don’t know what to do, don’t go looking far afield for the answers, try looking closer to your expertise and experience for solutions.
Everything takes longer than you think
We underestimate how much it takes to live and how long it takes to build something. The problem is a lack of experience and the optimism of a new business owner. This leads us to overestimate how quickly we can complete a project or product which causes a loss of income. We underestimate how much energy we have to put into sales and marketing which causes stress while we wait for business to close as we watch our bank account dwindle. And we underestimate how much time we have to focus on other business tasks outside of client work which leads us to set out rates too low.
When programmer Karl Weber went out his own, he underestimated how long projects might take and how much he needed to live. Residing in an affordable area, Karl thought his family could live off $2,500 a month. He soon realized that as a business owner trying to live under that budget was unrealistic. This made the income variability typical of a first year even worse. It was only when Karl doubled his estimate that he started to feel some comfort. Starting his second year, he now offers retainers to get around errors with estimates and has a savings account, just in case.
Many things in organizational development consultant and speaker Stosh Walsh's first year in business took longer than expected. While he was aware of sales cycles, he hadn’t executed them for himself so he was caught off guard when a client was still pondering a proposal two months after it had seen sent. Building a video series product took longer than he imagined. Then he got sick with an illness that lasted for months. He was forced to put the product on hold and dig into his savings. Luckily he was prepared for a steep income drop in the first year to minimize pressure on him to earn money while recovering.
How to handle business inexperience:
- Double your estimates for everything, especially during the first year. If you know yourself to be an optimist, consider tripling your estimates. Never base a project estimate or basic income needs on the minimum.
- Don’t price yourself or plan your income around your last salary as an employee. When you work for yourself, what you do is much more than just client work. Make sure your rates accurately reflect the number of hours you can actually devote to client work. You don’t get (paid) vacation time — but you’re going to need it. You’re going to get sick; you’re going to need time off. Don’t get caught off guard, plan for it.
Plan for slow periods
Most every business is cyclical. While an ice cream shop in the Midwest can prepare for slower times during the winter, when you provide a service like software development or design, it’s harder to predict when things might slow. But they will, and you need to be ready. Expecting income variability can help you ride out your first year in business without white-knuckling it every time you look at your bank statements.
Copywriter and designer Beth Bogdewiecz was used to someone else planning ahead for her. She just waited for her boss to hand her work. The first five months of her business were chock full of work. She thought she had it made until January rolled around and work came to a screeching halt. When three months went by without much income, she was ready to give up. Instead, Beth picked up extra work through a part-time job. She learned that she needed to line things up for the slow periods. Instead of scrambling after a few weeks of no work, Beth needs to reach out to people before it happens and always have something in her back pocket, just in case. In year two, she knows that January is likely to be slow, so she started reaching out to prospects and clients early to book work ahead.
Personal finance writer Cait Flanders prepared for working for herself. She worked a side gig while she held a full-time job, quitting when she had nearly a year of runway between her savings and booked client work. Still, the income variability took her by surprise. "One thing I thought I was prepared for but didn’t understand what it looked like until I was in it was the variability of the income. The uneven income was drastic. It’s counterintuitive, but when you’re flush, it’s time to hunker down rather than spend openly. When you have the money, don’t spend it.”
During my first year of business, during an economic downturn, I took a long-term gig while building my business at night. It was a lot of work, and I went more slowly, but it helped me weather the slow times with much less stress. I never worried about being able to pay my rent and having to bow to the demands of clients just to keep the business.
How to handle slow periods:
- Expect slow times and have a backup plan.
- Set aside savings or have some kind of steady income.
Be the boss
Marketing yourself and having a defined sales process isn’t the only reason for income variability. Educating your clients and setting boundaries are just as important. When we had a traditional job, educating and managing the clients was someone’s else job; now it’s up to us. A lack of reliable systems and boundaries can lead to a loss of income as you chase the client for invoices or deliverables necessary for your work.
UX Designer and Creative Consultant Vanessa Terrell went out on her own to have more control over her work process. She relished being in charge. Still, she had a moment of, “OMG. It’s all up to me.” As she waited for clients to meet their deadlines with critical deliverables, she faced uncertainty with her income. If they didn’t meet their deadline, she wouldn’t get paid on time. She learned that if she had an unruly client, she might not be able to pay her rent. Project management, scope creep and projects delays could all become dire if you don’t manage them upfront. After a couple of project snafus, she hired someone to do project management to ensure clients met their deadlines and paid on time. Having a project manager allowed Vanessa to focus on her work without worrying whether she’d get paid on time.
How to handle your new role as the boss:
- Protect yourself by using contracts. While it might be hard to go after a delinquent client, it will spell out the terms to make sure you’re communicating.
- Create a list of boundaries. Educate your clients from the beginning, so they know what to expect, and what happens if they step over your line.
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