Whether you are a full-time freelancer or have a part-time side hustle, this work option offers plenty of flexibility and freedom but also comes with instability and risks. An economic downturn, like a recession, can bring new challenges, such as lost business, the need to cut costs and fewer new freelance clients. However, it can also benefit freelancers who offer key services businesses need regardless of economic conditions.
Learn about how the next recession could affect you and how you can recession-proof your freelance business.
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Effects on Freelance Business Stability
The Harvard Business Review explains how a recession shocks businesses of all sizes as consumer spending slows down and companies need to make decisions regarding cost cuts. Just as a full-time employee might face a layoff, a freelancer can face the prospect of job loss or less project work during a financial crisis.
If you're an established freelancer with many clients, you can end up financially better off than someone in the startup phase who relies on just a few clients. However, it can still mean struggles to pay your bills and the need to seek more opportunities to get by.
Effects on Acquiring Freelance Work
There is some good news since even bad times can create opportunities to land new clients and succeed as a freelancer. In fact, the St. Louis Fed reports that the coronavirus pandemic boosted the number of people seeking this work for some security and flexibility. For example, as brick-and-mortar businesses closed, some people found opportunities for freelance work through food delivery or package delivery services.
One way you could benefit is when cost-cutting employers seek part-time freelancers versus full-time employees. Forbes notes that companies like saving money on employee benefits and having flexibility when going with freelancers in a recession. To find this work, tap into your network and use social media sites like LinkedIn. You can also consider freelance job websites, like Upwork and Fiverr, where businesses might post one-time or recurring jobs.
You can also benefit if you can offer recession-proof services that businesses can't go without. For example, they'll always need a bookkeeper, marketer or tech professional to keep the business going. That's where looking for ways to expand your skill set and improve your value can help you replace lost clients in a recession.
An economic downturn like a recession can bring new challenges such as lost business, the need to cut costs and fewer new freelance clients.
Effects on Your Freelance Rates
A potential recession emphasizes the importance of entrepreneurs budgeting carefully and preparing for the ebbs and flows of freelance work. During recessions with inflation problems, you face both rising costs and potentially falling revenue. This makes covering everyday expenses harder and can increase your reliance on credit cards and other debt with potentially high interest charges.
You might feel tempted to lower your freelance rates to keep or attract clients, especially if you're not having much success. However, this is counterproductive and will further hurt your business's finances. Instead, the Washington Post suggests considering added costs and income variability and possibly even raising your rates to improve your cash flow.
Considerations for Small Business Planning
Since your freelance business faces extra unpredictability during a recession, you should start making plans now so you can thrive.
This could mean diversifying your income through new clients before demand goes down, creating value that persuades existing clients to keep you even during hard times, and improving current skills and learning new ones. You should also consider the importance of adaptability so that you're ready to take on new types of work during a recession if needed.
In addition, you'll want to get your finances in shape so that losing some income won't mean the failure of your freelance business or create a personal finance crisis. Earning extra income now to put aside in an emergency fund is a good place to start, and Vanguard recommends having between three and six months of cash for necessary expenses saved. If you've got variable-rate debt, also consider paying it down since recessions often mean higher interest rates.