The Trouble with Being Self Employed

I really love that Chef has his own business.  He’s doing work that he loves, and most of the time, he can be flexible with his working hours.  That means he can stay in shape by playing soccer for a couple of hours at lunchtime, three days a week.  It means that even when he’s kind of busy at work, he can come home and eat dinner with me, and maybe hang out for an hour or two, and then go back to the shop to work after I go to bed.

There are a couple of drawbacks, though.  The first one is that Chef is pretty much always thinking about work.  He does take some mental breaks from it sometimes, but a lot of the time, he’s thinking about designs or clients or invoices or competitions or whether he’ll have enough ice for a busy week.  When we’re on vacation, he still checks his voicemail several times a day to see if he has new orders.  While we’re watching television at home, he’s emailing members of the board of directors of the National Ice Carving Association to discuss issues.

The other — and perhaps bigger — drawback, though, is the lack of steady income.  Ice carving is a seasonal industry, for sure.  That’s not to say that Chef can’t carve ice any time of the year.  He surely can.  But people don’t order sculptures consistently all year.  January through March is competition season, so Chef is very busy, but he doesn’t have a lot of business.  April is slow, and work picks up for May and June.  July and August tend to be down, and then starting in September, orders roll in and business snowballs through Christmas and New Year’s.  So part of the trick with managing business finances is planning through the times you know are going to be leaner.

But the other trick is dealing with clients and their payments.  Even though Chef had a very busy week in August (which was a very unusual occurrence for August), not all of those clients have paid yet.  And we still have our own expenses to pay.

So what do we do?  Well, to avoid using credit, Chef has a business emergency fund.  He tries to keep a healthy balance in that account so that when money is tight, he can pull from that instead of using a credit card.  Also, we try to get payment in advance or at the time of delivery when possible.  Some of our corporate clients aren’t able to pay that way because they have complex accounting departments to negotiate.  But for individuals we require a deposit, and for all clients we try to get COD payment when we can.

And on rare occasions, our home account has to help out the business account.  Just last week, we got some bonus income (rent from one of our two boarders, plus a check from that research study I was in.)  We knew we wanted to put that money toward our debt, but it turned out that this time, instead of paying over and above what we’ve planned in our debt snowball to pay, this extra home money paid the minimum balance plus just a bit more.  It was a little disappointing that we couldn’t send a thousand or two to knock that debt down, but at the same time, I’m glad that we were able to pay more than the minimum balance.  And we have not incurred more debt.

Business money is tight sometimes, and it’s not always from poor cash management.  During slow seasons and when clients aren’t forthcoming with payments, business owners have to get creative.  We are getting our business to a better place, bit by bit.  Hopefully by the end of 2011, the debt will be gone and we can build that emergency fund so that it has a nice big balance that we won’t exhaust easily.

For any small business owners, what are your strategies for cash flow management and obtaining prompt payment from clients?

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7 Comments (+add yours?)

  1. Kim
    Oct 14, 2010 @ 18:16:11

    Okay, just caught up with the last several posts and BOY, AM I HUNGRY. Good thing we’re getting ready to eat dinner. Altho it’s been that kind of day and I discovered we had one (smallish) potato to use for oven fries and my burgers are falling apart in the pan. But who cares, it’s edible! 🙂

    So many people we know have seasonal, tourist related businesses here and you’re SO right when you say you have to learn to stretch the “fat” months to cover the “lean” months. Good news is, it seems to get easier the longer you do it. Practice makes perfect and all that.

    Looking forward to seeing you (hopefully) in the next few months!

    • Karen, the Small Town Runner
      Oct 15, 2010 @ 12:39:28

      Yes, I’m looking forward to the times when the lean seasons aren’t so scary! Thank you for the encouragement. And I hope to see you when you’re in Indiana!

  2. riTa
    Oct 15, 2010 @ 08:58:34

    Great informative post. You’re on the right path. No advice from me.
    But, don’t you knit while watching TV?

    • Karen, the Small Town Runner
      Oct 15, 2010 @ 12:40:20

      We’re getting there. (And knitting doesn’t usually take as much brain power as emailing, so I rarely look up from my knitting and ask what just happened in the show we are watching!)

  3. Jon Hoyt
    Oct 15, 2010 @ 22:15:46

    At SabreTech it took us the better part of 5 years to build up that nice big emergency fund. We had to beg & borrow funds to get us through tough spots the first few years. I really have no advice to give, other than to work diligently towards that slush fund, but don’t limit your opportunities to grow by refusing to take a loan. Our biggest issue the past couple years has been getting big jobs we can’t afford to finance by ourselves for the first 30 to 90 days while we wait for a payment.

    Wait, here’s some advice. Credit card debt can be replaced with better terms with your suppliers. We’ve had to negotiate and renegotiate several times just this year with our suppliers to get better terms and higher limits.

    • Karen, the Small Town Runner
      Oct 19, 2010 @ 15:39:44

      The trouble is that we utilized loans and credit a LOT when the business was new, and now we’re having to bust our tails to get out of debt. And that’s not one bit fun. We’re really trying to pay for everything with cash now. Negotiating with suppliers is a good thought, though.

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