Working capital is a fundamental financial concept for any freelancer. It represents the funds available to run your business day-to-day.
What is Working capital?
Working capital is the money you have available to cover your immediate business expenses. It's calculated by subtracting your current liabilities, like upcoming bills, from your current assets, such as cash and invoices due.
Why is this important?
For freelancers, positive working capital means you can pay your bills on time, even if a client payment is late. It provides a financial cushion, reduces stress, and allows you to invest in new tools or marketing to grow your business.
How does it work?
You use working capital to pay for software subscriptions, taxes, and living expenses between projects. When you invoice a client, that amount becomes a potential asset, but you only add to your working capital once the payment actually hits your bank account.
Pros and cons
The main advantage is stability; good working capital keeps your business running smoothly. The challenge is building it, as it requires disciplined saving, managing irregular income, and sometimes turning down work to avoid overextending yourself financially.
Conclusion
Managing your working capital is essential for freelance success. By tracking your cash flow and building a reserve, you ensure your business remains solvent and can seize new opportunities without financial worry.
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