Why Freelance Businesses Fail – Part 1 – Money

You’ve no doubt heard how a large number of new businesses (of all kinds) fail. Apparently, around 400,000 new start-up businesses begin trading every year here in the UK, but only two thirds of them are still in business within 3 years, and only half remain after 5 years.

And for many of the businesses that fail, it’s not down to poor quality products/services, or a lack of customers. It’s simply a lack of cash!

Money management

Sound financial management is an essential part of a successful freelance business. Without it, even viable and potentially very profitable businesses will most likely fail in the end.

Money problems shouldn’t happen as easily for a freelancer though, because he/she is normally in a great position, compared to brick & mortar type businesses, when it comes to the amount of overheads they have.

Even though solopreneurs very likely have some expenses like software/services and online marketing etc. they don’t often have business expenses like paying wages, rent and utilities, paying suppliers, transport costs, offline marketing in most cases, and so on.

However, a freelancer can still end up having a failed business if they aren’t careful with their money management. Not just maintaining regular accounts, but also understanding how much revenue is generated and how that relates to how much money is invested to bring about sales and new clients.

Make sure you have a precise grip on your finances at any given time. Develop a system that works for you to stay on top of things – and make money management an integral part of your day-to-day business operations (which can amount to just a few moments of reviewing your situation and upcoming transactions etc. each day). 

Inadequate pricing

I’ve been guilty of this myself in the past, and experienced the negative effects on my business.

Many freelancers undercharge for their services. It may be to try and beat the competition in a highly saturated industry or niche, which may be useful in the beginning but is definitely not a great long-term strategy. It may be because they don’t believe enough in the value of their service, or they are too ‘kind-hearted’ and don’t want to make things too expensive for their clients!

Whatever the reason, when the necessary costs of production, marketing and delivery of your services outweigh your income, it’s a fast-track to a failed business unless you do something about your pricing. If you can’t charge more for your services, it will be a case of needing to sell more…and if your pricing is based on time/hours, working more!

The clients who can afford your highest prices (and even are more likely to trust you when you charge an expected/higher fee) are out there… Work out the prices you need to charge for a viable business model, and stick to them, no matter what. Undercharging is never the right answer to gaining more business.


While conventional bank loans, investors and venture capitalists are among the funding sources available to small businesses, new freelancers don’t usually have the revenue stream or growth trajectory needed to secure financing from them.

Grants can be very difficult for a freelancer to qualify for too, and many of those require you to provide a large portion of the sought-after funds yourself in order for you to be considered.

Therefore, most freelancers need to have emergency or back-up funds, especially in the beginning. And for an established freelancer, it’s wise to have this in case of dry spells.

If taking the leap from employed work to starting a freelance business, the smart thing to do of course is to work on your freelance business on the side, to begin with, until you know the business will support you. Or, be in the position of having a reasonable amount of savings to support you if you leave your job while you get your business going.

If you are forced to leave an employed position, or choose to, and you don’t have a lot of savings, or a relative or friend who can help if you get into trouble, here in the UK there are state benefits such as Universal Credit. It might not be an ideal situation, but it can help out as you work on building a reliable income from your business.

In the end, the likelihood is that you will need to finance your business yourself, rather than relying on outside sources. Those who aren’t able to, through a job, personal acquaintance, savings or government help etc. must be certain they can finance their business through sales revenue.

Lack of funds is a major cause of freelancing business failure.

In conclusion

Cashflow is the lifeblood of any business.

Be sure to manage your money well. You can get help with that side of things, if necessary and feasible, but it’s an extremely valuable and worthwhile skill to learn too. Also, use some of your income from clients – as often as you can – to put aside as working capital and for safeguarding the future of your business.

Make sure you charge enough for your services to keep your business viable and profitable, and keep a good eye on your outgoings.

Don’t rely on outside help for financing your freelance business. The surest and most ideal way to generate funding is from your own pocket, and to earn revenue from the work you do for your clients.

Why Settle for Your Current Freelancing Income Level When There Are Simple and Effective Ways to Increase It?

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