Want your freelance business to succeed? Pay attention to the money. A survey of 500 founders by the invoicing software, Skynova, found that the top two reasons businesses fail are lack of financing and running out of cash.
Money issues can be due to a variety of issues outside of your control, like a shift in the market. But here’s one you can control: your mindset.
“A money mindset is the way someone thinks about money, talks about money, and behaves with money,” says Ramit Sethi, host of the new Netflix series How to Get Rich. “A lot of our money mindset is influenced by childhood memories. Often, it’s phrases that were unconsciously said at home by our parents, such as ‘We can’t afford it’ or ‘Money doesn’t grow on trees.’ They become invisible scripts, or beliefs, that we hold so deeply that they are, in fact, invisible to us.”
If you don’t have a good money mindset, it’s going to be incredibly difficult for you to succeed, says Buffie Purselle, author of Crawl Before You Ball: Breaking the Cycle of Generational Poverty.
“Cash is the oxygen for any business,” she says. “You need a plan. You can’t run a business without capital. That’s just not possible.”
Fortunately, you can reverse those invisible scripts and adopt a successful mindset. Here are six important steps:
1. UNDERSTAND THAT FREELANCING IS A BUSINESS
One money mindset you must have is that freelancing is a business and not a hobby, says Sethi.
“That means I’m going to take it serious, and it needs to generate profit,” he says. “If it’s not working, then I’m going to set a deadline and move on to the next thing.”
Sethi says beginner entrepreneurs often fall in love with the idea. “I’d rather fall in love with my customers,” he says. “In order to do that, you’ve got to be generating profit, otherwise you can’t sustain.”
2. KNOW IT’S GOING TO BE HARD WORK
Growing a successful freelance business isn’t easy, says Purselle. “You hear people tell stories of, ‘I started with just $500 and now I have a multimillion-dollar business,’ and that’s not the norm,” she says. “That just doesn’t happen. The mindset needs to be that you are about to work your ass off.”
Prepare to have some lean months—maybe even lean years—before you make a profit. “That’s not to discourage people; it’s just to set you up for success,” says Purselle. “Be prepared for a couple of years of no income or low income to you. Because you have to put every dime in the business to make it successful.”
3. DON’T GO ALL IN RIGHT AWAY
When Sethi started his business, he agonized over whether to leave his full-time job. “I finally created a rule for myself,” he says. “I said, ‘I’m not even going to entertain the idea of going full time on this business until I make more money [than my salary] three months in a row.’”
There were times when Sethi made more money in his business than his full-time job for one or two months, but not three in a row. “I had to start all over again,” he recalls. “It’s healthy for entrepreneurs to create their own rules, and then to make sure that they follow through. That way, they don’t fall in love with something that’s actually not working.”
4. GET CONTROL OF YOUR PERSONAL FINANCES
Make sure your personal finances are in order before you go into a business, says Purselle. “If you can’t save or manage to pay your bills timely, how on earth are you going to then run a business, meet client expectations, and pay your business bills?” she asks. “You’ve got to have your whole life together before you get into the business of entrepreneurship.”
Sethi says you might be surprised at how many entrepreneurs have driving businesses with personal finances that are a complete mess. “My advice is don’t let it scare you off,” he says. “But honestly, just fix your finances. It’s not that hard. I wrote a whole book on it. When you fix it, you’ll make your business finances that much better.”
5. HAVE A GOOD AMOUNT OF SAVINGS
One of the biggest mistakes freelancers make when it comes to money is not putting a budget together, says Purselle.
“Bootstrapping a business doesn’t mean that you don’t have any money,” she says. “The first question to ask is how much do you have in savings and investments? It’s peace-of-mind money so that you can work on the business and not in the business. If you don’t have money to pay your bills, you’re not going to make it.”
Purselle recommends having at least a year of expenses set aside. “A lot of small businesses fail because they’re undercapitalized,” she says. “The minute they can’t pay their bills, people go back and get a job.”
To know what it will cost, Purselle recommends talking to people who have done it already or who are also launching businesses.
“It’s good to talk to folks who are in the struggle with you,” she says. “You can do research and find out statistically how much things cost, but it’s always better to talk with someone in your orbit who can give you the real [price] because there’s always other costs that go beyond the finite business costs.”
6. GET CLEAR ON YOUR “WHY”
Finally, know why you’re getting into business. People who are successful entrepreneurs look different, talk different, and have different ways of approaching their work, says Sethi. A money mindset includes answering the question, “What do I get?”
“Imagine me putting my hand out with my palm up, and I’m saying, ‘I’m taking all this risk starting a business. I’m working long hours, especially in the early days. What do I get for doing all of this?’” he says.
You should have a crisp, vivid answer. For example, you might want to pick up your kids from school every day, have flexibility to set your own hours, or to uncap your financial potential.
“For me, it’s to be able to work with people who I like and respect, to be able to travel for months every year, and to have an impact on millions of people,” says Sethi.
By being realistic about what it takes to succeed, you’ll increase your chances of being in business in the future.
