The 5 Hidden Dangers That Can Wipe Out a 6-Figure Freelance Business

388. Freelance Self-Defense

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Brian: [00:00:00] You can spend years and years building up a highly successful six figure or multi-six figure freelance business, only to have it crumbling down to dust, to nothing in a matter of months if you don't defend yourself against a few things. So in this episode, I wanna talk about specifically defense from the five hidden dangers that can wipe out a six figure freelance business.

Brian: I can speak to this not just from experience I've had over 10 years of freelancing experience, but also because I've coached hundreds of creatives and I've seen way too many talented people that were wiped out, not becausethey sucked at something, not because they sucked at their craft, but because they just weren't protected.

Brian: and one of these silent killers actually cost me five weeks of work that I had to make up for free. And, could have easily been prevented, at least mitigated to some degree. So that sucked. Yes. So if you're new here. Hi, I'm Brent Hood. This is a six figure creative podcast.

Brian: It's a podcast for creative freelancers who want to earn more money from their creative skills without selling their souls.

Brian: And preferably do that for a very, very long time. So you have a long, fun, healthy career that doesn't suck. Today, like I said, we're gonna dive into those five hidden killers, those silent, assassins, whatever you wanna call them. And I'm gonna [00:01:00] tackle these from kind of like increasing risk.

Brian: and this order is generally correct, but you might disagree with some of these. the first one I wanna talk about today, the thing you need to defend yourself from, it's just burnout.

Brian: The more successful you get, the more susceptible to burnout you get. But this is that mental and physical exhaustion where you feel like you have just a shit load of stuff to do and you don't wanna do a damn thing.

Brian: It's like a really weird, horrible feeling. It's basically just like a, a loss of motivation, declining creativity, and can even be sometimes resentment towards your work, your clients, your business. anything having to do with like what you actually get paid to do.

Brian: If you don't defend yourself from this, you'll just simply crash and burn. you'll start to see self-sabotage, where you will just avoid doing things, knowing they're gonna hurt you, or you'll actively do things that you know will hurt you and I mean in your business sense, I hope not like actual self-harm, but you'll just self-sabotage

Brian: your actual business. Nothing will get done. You'll neglect things. You'll ignore things. You'll gravitate towards shiny objects that pull you away from your main business. These are all signs that you're,experiencing burnout.

Brian: and it happens after prolonged stress and overwork due to maybe you're taking on too many clients. Things got [00:02:00] really, really hectic. You got that really big feast mode where you're like, oh God, I,I don't know when the next famine period is gonna come. So I just gotta say yes to every single project that comes in.

Brian: So I'll just take all the money that I can get right now while they're getting's. Good. Right. So you take on way too many projects, way too many clients. You have strict deadlines or stressful deadlines. You have poor client boundaries that can lead to burnout on top of all these other things,

Brian: usually without rest or without any sort of likepersonal time.

Brian: But the reason this is first on the list isn't because it's the least detrimental to your business. You can utterly ruin your business by burnout. It's first on the list and least impactful because it's relatively easy to prevent. The thing about burnout is it doesn't just come out of nowhere. There are usually signs, symptoms.

Brian: It's like a,spectrum where you can be slightly burned out or you can just be extremely burned out to the point where you wanna burn your business to the ground. So when it comes to preventing this to defending yourself against burnout, there's pretty simple steps to do this. It's simple, it's not easy.

Brian: And especially for the type of person who you wanna, people please, you wanna make your clients happy, but you gotta make as much money as possible. So you gotta take on as many projects as possible. It can be difficult, yes, but it's very simple if you [00:03:00] can follow these sorts of steps. So the first is just set and enforce actual work hours.

Brian: My business continues to double every single year. I still only work about nine to five or eight to four every single Monday through Friday. That's my work hours. I enforce those. Rarely will you ever see me working before or after that or on the weekends? Occasionally it can come up or some little thing that slipped through the cracks.

Brian: I just come in and log in my laptop and do it really quick, like on a,Saturday morning, but that's exceedingly rare. I'm very, very diligent about enforcing my work hours. But beyond that, you have your work hours. I talked about this a few weeks ago in our prioritization episode.

Brian: episode 3 84, the Power Hour Method. how smart Freelance Answers work. It's basically during those eight hours, you can get a lot done or you can get nothing done.

Brian: And if you're facing burnout, it's important that you schedule and time block, meaning when you have client projects that come in, you set them on your calendar, you've scheduled them out ahead of time, you've essentially stacked them up in the future so that you know you're gonna tackle these projects in a row and not try to,dive into like six projects at one time.

Brian: So you've scheduled them and also time blocking so that you know that likeI have to do [00:04:00] revisions. No matter what. So I might as well set an hour a day, after lunch, the first hour after lunch, or the last hour of the day when my brain's already dead and I can't be creative, I can just do revisions.

Brian: I have to do these things. So I need to time block certain things that have to be done in my schedule regardless of whatever else I have going on. Because when you start trying to fit in things in gaps that were never there, never intended to be there, that's how work spills over to the nights, into the weekends.

Brian: So if you've set and enforced work hours and you have scheduled your clients out in your calendar and time blocked the little spots you need for working on your business client revisions, to do admin work, et cetera, et cetera,that's how you start to,schedule and structure your day.

Brian: Again, I go more into depth,with this on episodes,2 83, something like that.

Brian: The next thing as far as avoiding burnout is just saying no. I probably should have started with this. this is a bigger one to me. Saying no,Saying no is okay.

Brian: saying no to the clients. You shouldn't be working with this. Is that bill paying work? Especially in times when you're in a feast mode and you're like, ah, what's one more project? I'll take it on. That's money in the bank, right? If that's selling your soul, in my opinion, that's where we start getting s into thatselling your soul territory.

Brian: again, this podcast is earn more without Selling Your Soul.

Brian: also saying no to [00:05:00] projects that don't really fit into your schedule or don't fit you personally. Maybe your creativity or your style or your vibe doesn't really match the project. Being willing to say no to those. Like that project that comes in, it's like, oh, I've gotta get this done next week.

Brian: And you're like, well, I can get you in three months from now. How's that? And they say, no, I gotta get done next week. And you're like, well, if I work over the weekend, maybe I could get it done. Just say, no, it's not worth it. Especially if you're filling the burnout. Come on saying no. to requests that are unreasonable, clients asking for things that are outta scope.

Brian: We'll get more into this later, but just saying no. The more you say no in seasons of burnout, the more time and bandwidth you buy back for yourself, the more you're able to push through for a long career. Not a short, powerful, burnt out career that ends in a flame.

Brian: If you find yourself in the position where you're getting more products that you can handle and you're finding yourself getting burnt out and you're working all the time and you're like, I don't know how I can fit more into this end and I gotta start working weekends and start working nights.

Brian: If you find yourself in that position, That's a perfect time to raise your rates. If you're working constantly you have to say no all the time. That's where you start to raise your [00:06:00] rates.

Brian: If you go way back to episode 230, there's an episode called Dynamic Pricing, the Secret Weapon Clever Freelancers are using to maximize their income. That episode is essentially me talking about this at length, so if you're the type of person where you're like, I'm booked solid right now, go back and listen to that episode, Just go to six figure creative.com/ 2 3 0. That is the episode. short link to that.

Brian: There's also one more big thing you can and should be doing to avoid burnout, and that is have your non-negotiables. I've said all the time that there is very little to no difference between you personally and your freelance business.

Brian: As a freelancer, you are your business, so the better you protect yourself and the more you pour into yourself, the more you're able to, pour into your business. But if you're an empty vessel, nothing you do. Will help you grow your business. It will simply wither and die just like you are.

Brian: So exercise, fitness, rest, hobbies, friends, family, all these sorts of things. You should have non-negotiables around it so that you're not sacrificing these non-negotiables in order to make more room for work. Again, that is just simply selling your soul, and I'm not there for that.

Brian: So that's burnout. [00:07:00] Burnout is. Something that needs to be defended against something that can be easily mitigated if you have the ability to just follow these sorts of best practices and being willing to say no. That's the biggest thing, is justif you can say no more, then you're gonna be able to deal with burnout.

Brian: But then we get to the second kind of insidious thing, and this to me is more insidious and more difficult. And more dangerous because it's something that you can live with forever. It's like a,chronic disease as a business. And that is the chronic disease of scope creep. And we've gotta defend ourself against this.

Brian: Now, you know what scope creep is? This is when a client asks for stuff that wasn't part of the original agreement. and they wanna do it without pay generally. this scenario gets very much into the give a mouse and cookie.You give them one little thing and they're like, okay, can I have likesome more please?

Brian: And you're like, ah, sure. I'll do that a little bit more. Okay, cool. Can I have some more please? You say, God, okay, I'll do that one more thing. Okay. Can we have some more? Please? There's no real limit or end to the appetite of this theoretical mouse. Your clients will keep asking for things until you say no.

Brian: And first off, this just sucks. I'm sure you've felt this before, client asks for things that are outside of the scope. Scope creep starts to happen, especially gets out of control. It [00:08:00] sucks, but beyond it just sucking. This is the sort of stuff that can lead to burnout. This aids to the burnout conversation.

Brian: The first thing, it also leads to resentment against your clients. It takes time away from your other clients. Your other projects takes time away from those non-negotiables I talked about earlier. But beyond all that, it erodes your profit or your hourly earnings. So for every hour that you work for free in your business doing anything, admin work, taxes, which I guess are the same thing, revisions, if you do like free revisions and then the things above and beyond you were paid to do, which is the scope creep stuff, every single one of those things sucks away.

Brian: Your actual profit per hour All those extra hours you put in for scope creep with your clients adds up.

Brian: But if you're running a business, this is not a good thing. It also trains your clients to expect free work,

Brian: worse, it trains yourself that you're not worth it.

Brian: I want you to think about that anytime you do work for free, you're saying, I'm not worth getting paid for that. I'm not saying being unreasonable here. There are scenarios where it's like, can I go flip this one switch one time and that fixes the thing they're asking for, and it's done.

Brian: Sure, be reasonable. But then if that turns into three more little things and then 10 more little things [00:09:00] after that, you've gotta have a hard line.

Brian: And this generally happens, scope creep starts to happen because there's a lack of boundaries on your end. you have no boundaries whatsoever. You haven't actually said anything, you haven't communicated anything. There's no clear scope of work. There's no clear communication around what's included, what's not included, where the limits are, where the boundaries are, where the walls, where the lines, and so the client just thinks it's no big deal. They can ask for these things. They don't know they're doing anything wrong in a lot of these cases,

Brian: or they know they're doing things wrong and you simply won't stick to the boundaries. There's a wall there and you're just letting them go through the wall you're trying to people please, or because you don't have self-respect. Now, let's talk about how to prevent this. How do we defend ourselves against scope creep?

Brian: First is just make sure all the deliverables and the revision limits are all clearly in your contract. I'm sure you have a contract, right? If not, we'll talk about it clearly in your contract, the deliverables and the revision limits. And then before you start every project, reconfirm the scope of work before you actually begin the work.

Brian: You can even, and I think this is a good best practice to have. have your clients sign off on the scope, like a separate document. You just say, I'm about to start work next week on this. I just [00:10:00] wanna make sure the scope of work is crystal clear before I begin on everything.

Brian: Here it is. Can you look it over and sign off to make sure this is exactly what you expected the scope of work.

Brian: That way you have that script of work with our signature on it. To refer back to if anything comes up in the future,

Brian: and if and when something comes up, this is where you have to just have a backbone as a business owner. You are a business owner. The second you started to take money as a freelance, you decided to take money.You've started a business, and that means we need to collect payments for things that we do.

Brian: We're trading our creative services for money, and that includes things that are outside of the scope. So if your client's asking for things that are outside of the scope of work that they've signed or agreed to use change orders, or some sort of add-ons when they have this new requests, even if it sounds minor, if the task requires extra time. To prep for it, communication back and forth with the client or new assets that you have to create that is outta scopeand that's where scope creep comes in.

Brian: Or if the client changes direction, maybe they've just changed their mind. They wanna go a completely different direction because they have new feelings. Now that's now outta scope if it undoes all the work you've done because they've changed the direction that was. Beyond what you agree [00:11:00] to ahead of time.

Brian: That's a scope,change. That's where a change order comes in.

Brian: Train yourself to say, happy to do this. Here's what that would cost. It's just an easy phrase. You want to completely throw away everything and start from scratch with your new half brained idea. Happy to do that. Here's what that would cost. Maybe you're not too happy with that. But again, just that one add-on.

Brian: Here's what that would cost, and if they're surprised by you, just have thatscope that they signed saying, Hey, this is what you signed on for. I've delivered these parts so far. You changed your direction or you wanted these things and it's not in the scope. Here's how much that would cost.

Brian: One last thing here. Before you actually do the things, make sure you get written approval from the client before you do the extra work that you're charging for. Don't be the car mechanic who does the 1200 repair on the car without warning, without your approval,and then just send you a bill.

Brian: Nobody wants to work with that mechanic and no one wants to work with that freelancer either.

Brian: So that is scope creep. We talked about burnout, we talked about scope creep. What are some other hidden dangers? That can ruin your business, especially as you get larger. 'cause remember, when you get to six figures, multi six figures, burnout is real and it can take you down scope.

Brian: [00:12:00] Creep can start to get worse and worse. The more projects you handle, the more projects you juggle. Especially if you have a team or an agency and now you have multiple projects going on at the same time and multiple,team members, that's where even more important to have these sorts of things handled.

Brian: Clear deliverables, clear scope of work, clear boundaries, clear everything. But if you're, you know, a starving freelancer, barely scraping by, and the one client you got this month is asking for something outta scope, you're probably just gonna do the work. That's why I'm speaking to more successful, six figure multi-six-figure freelancers in this episode, predominantly because you're the ones at most danger for these things.

Brian: Let's get to number three here. we're getting progressively more dangerous for your business. Number three is the tax man. when you're a freelancer, you're self-employed and that means that you are actually responsible for paying your own state taxes, federal taxes, your own self-employment taxes. I'm speaking to US based, freelancers here. But you all have taxes no matter what country you're in. Anyone listen to this podcast at least.

Brian: And so in the US when you have a job, your taxes are just automatically taken outta your paycheck and you don't have to think about it.

Brian: But as a freelancer, that stuff ain't taken outta your paycheck. And [00:13:00] what's worse is at the end of the year, you have to know how much to pay the government and they know how much you should pay them, but they won't tell you how much you should pay them. You've gotta figure it out yourself. And if you get it wrong, you're gonna be in trouble.

Brian: You're gonna get penalties, fees, even prison and extreme cases.

Brian: But the two certainties of life, you've heard this quote a million times. Death and taxes, right? These are non-negotiables. I don't care if you were,raised with some clever uncle or dad who just like always thought he could.was so smart could get away with not paying his taxes.

Brian: You think you can skirt the system? You're not as clever as you think you are and eventually you're gonna get caught.

Brian: And even if you never get caught you're just like, I'm gonna get paid in cash all the time, I'm just gonna do everything in cash. You'll never be able to get a loan for a home. You're always gonna be a renter for the rest of your life. You're never gonna be able to qualify for a lot of different things.

Brian: On paper, you're poor.

Brian: On top of all the stress of having to hope that you're never audited, that the government doesn't come to you and say, how do you own hundreds of thousands of dollars of assets you've never actually had on paper, they're gonna think actually worse than tax evasion. They're gonna think some sort of drug trade or something.

Brian: When the government audits you, you're screwed at that point. And peace of mind [00:14:00] is difficult enough as it is as a freelancer. So I don't know why you would want to add to the stress here by trying to skirt taxes. Now, that's for those of you who are like actually going out of your way to try to skip taxes, it's a dumb thing.

Brian: It means you're gonna be poor for the rest of your life because the type of person who wants to avoid taxes is the type of person who. Is thinking very, very small and that type of thinking is gonna lead to making small decisions for the rest of your life. so the other reasons though, are not,not just nefarious reasons.

Brian: The tax man can come against you because you're just horribly prepared. it's when you failed to set aside money for taxes after each payment that you've gotten, It's when you have mixed personal and business accounts together.

Brian: You've,intermingled your finances. It's when you have poor bookkeeping, you have missing receipts. You've ignored those quarterly estimated taxes that your,CPA has. You do. You don't have a CPA, you're waiting until tax season to organize everything. You're trying to cram it last minute. All these sorts of things can lead to a lot of issues.

Brian: For example, unexpected tax payments at the end of the season where you haven't paid any estimated taxes, and now you have this big tax payment in April.

Brian: How do we prevent this? How do we keep the tax from [00:15:00] killing us? How do we defend ourself? What's the self-defense modes against the tax man? First is just, I always recommend use a system like Profit First. It's Mike Macow it's book.You honestly don't even have to read it. I think I read the audio book years and years ago and never really sat in, and now I just have a bank that I use that does it all for me.

Brian: Basically, when a payment comes into my bank account, it automatically splits it into four separate accounts. Some of it goes into operating expenses. That's likethe money that operates my business and pays all the bills and pays the software and pays my team, et cetera, et cetera. there's an account for, owner pay, like what I actually pay myself. There's an account for taxes. every single time a payment comes in, some gets set aside for taxesthere's an account for profit. I guess I should have said Profit first because it's the profit first system,

Brian: and that's the money above and beyond what I pay myself.

Brian: If you go to six figure creative.com/bank, I have a whole video going over the bank account that I use and how it's all set up and all that fun stuff. So if you don't have a business account or you don't have a business account that does that for you, just go watch that video, set it up. It's amazing.

Brian: I've used it for two and a half years now. I have no plans in [00:16:00] changing beyond a profit first bank account that automatically does that for you and a separate business and personal bank accounts. The other way of defending it against the tax man is make sure you track every transaction in a bookkeeping software so that if you're ever audited.

Brian: You have clear bookkeeping records, but also so you have clear records of like how much you have earned, how much you owe, what's your actual profit, end of a month or end of a quarter, so you know what actually you owe in taxes. So you can plan those tax payments, and you can pay those quarterly estimated taxes

Brian: The easiest way to avoid issues with a tax man is to just. Hire a CPA, set up bookkeeping software and set up a business bank account.

Brian: Those three things alone, if you just follow your CPA's, advice will keep you out of danger.

Brian: Let's get to number four now. So we've talked about burnout. It's really hard as you're more and more successful. Scope creep. Very, very annoying long term. It's just stuff like that toothache that you just can't get rid of. Scope creep the tax man, This is more like, uh, affliction it's laying dormant but could rear up at any point and take you down very quickly if you fail to pay the taxes. The fourth [00:17:00] is. Legal issues. Now, this is kind of a blanket statement here, a blanket turn, legal issues.

Brian: But these are the sorts of things that don't happen very often, but when they do, they can just completely wipe you out. This is the guillotine. This is just like out of nowhere. you've just been decapitated, that's at worst or at best, something that horribly distracts you for a long amount of time, lawsuit, for example.

Brian: And the reason this matters so much is because this is not just your business at risk. If you do this wrong, if you haven't defended yourself properly, this can also be everything you own, all your personal assets

Brian: and freelancers tend to run into legal issues usually because of a few main things. usually if you're trying to work without signed contracts and you're skipping. formalities. You're just trying to be like, informal.

Brian: You're trying to rely on like informal trust. That's a recipe for legal issues. I got away with it for a long time as a freelancer early in my career, but the more money I make, the more I take this part seriously. Sign contracts every time. Number two, if you're operating as a sole proprietor in the us that just means you're self-employed and there's no business entity around you.

Brian: That means in the legalized, [00:18:00] there is no difference between you or your business. You can start to see how that can be dangerous.

Brian: Other legal issues can come up because of lack of business insurance. I'll talk about that in a bit. Lack of paper trails. Another issue where nothing's in writing, nothing can be found. Everything's like a, he said, she said.

Brian: And finally, one of the most common issues that legal things can come up is just because poor communication with clients, you didn't set expectations properly. and a legal dispute came up from that. And that's just exacerbated by the lack of contracts, the lack of paper trail, danger of opening yourself up to, because your sole proprietor, the IT business insurance and preventing this.

Brian: It's pretty straightforward. Always use a signed contract before you start any work that is easy. That is just a non-negotiable, especially for six figure or beyond six figure freelancers. With that though, it's important that you use either a lawyer vetted template or a lawyer to have a contract that's actually going to work for you.

Brian: Don't just copy random ones online Next self-defense tactic against this danger is forming an LLC. It's a limited liability company in the US or whatever your local equivalent is. This just basically separates your personal assets from your business assets, so that if you are sued in general, they can usually just come [00:19:00] after your business assets, but your personal stuff, your home, your car, your furniture, your fun things, bank accounts, that's not part of what they can sue you from.

Brian: It's separated.Now again, talk to a lawyer. If you want more details on this, I'm not a lawyer, nor am I offering legal advice. I'm just telling you, this is how you can help avoid some of the legal issues that are common to freelancers. Next is get professional liability or general business insurance.

Brian: This is a whole wide world out there and every freelance niche is different.

Brian: For my recording studio I had like this very specific recording studio policy.

Brian: But the thing I either didn't have or didn't know I had was something for not just disputes and damage, that's kind of common, but data loss. This is something that if, I had it, it would've saved me from five weeks of hell. I've told the story a million times. I'm not gonna go into details here, but I worked on a project for like probably four weeks.

Brian: And all the files got deleted and I had to essentially tell the client, I will either refund all your money or I'll work for free, plus some extra stuff we'll do on top of that to make up for it. they chose the second option, so I did it all again for free. Five total weeks of work.

Brian: And had I had proper insurance or at [00:20:00] least known more about my insurance, which is again, a lot easier to do now with chat GBT, you can literally just put your policy into chat GBT and ask it questions.

Brian: But I could have actually been compensated for that lost time because of the data loss. insurance around data loss while at least compensate you if you lose projects because of deleted files or, hard drives that died.

Brian: The next thing that's important about keeping you safe and protected here is keeping everything in writing. I talk about having a paper trail. If your client has agreed to things, make sure it's in writing. If you've told your clients you'll do things, make sure it's in writing or recorded on calls.

Brian: If you're on Zoom, if you're on like phone calls, that can be much more difficult. it's important to still confirm everything through email after the fact, if it's. A deliverable change or a tweak or a pricing thing. Just keep everything in writing and record zoom calls, and then keep all your contracts and signatures and documents and everything backed up safely and organized well in case you need those.

Brian: Now, obviously there's like, there's.A lot of different ways legal issues could come up, but the most common ones would just be like a lawsuit from a client suing you because you, didn't do something that you said you would do or that they thought you would do, and there's a dispute there and [00:21:00] you're like, no, I did it.

Brian: Or, I'm didn't say I would do that. It's, again, it's just a misunderstanding. All this stuff I just talked about could help prevent those sorts of things, if not prevent, at least defend you from those things when they do come up. But the last one, and to me the most dangerous of all of these killers. Comes down to payment issues.

Brian: AKA. When you become a debt collector, this is where a client stiffs you, a payment's delayed or completely missed, skipped or even worse, disputed and pulled back from your account for some reason. Usually from what they call friendly fraud,

Brian: but this is the most dangerous one to me. Because it completely crushes your cash flow. Legal disputes, most freelancers will go their entire career without really having any.

Brian: Tax issues or the tax man, most freelancers will go their entire career without having issues there. Scope creep. While you'll have that all the time, scope. Creeps not gonna kill your business instantly. Burnout it can happen all the time, it can be mitigated or prevented.

Brian: It's, it's a spectrum and only until it gets to the very end of the spectrum can kill your business. But payment issues can come relatively outta nowhere.If it's a large enough payment, it can crush your business depending on what your reserves funds are, because if you can't pay bills, you [00:22:00] can't pay yourself, can't pay your team,

Brian: then you can be put in a terrible, terrible position where

Brian: your credit score is harmed. Things get repossessed, or your home goes into foreclosure, or you get evicted from your home, or the relationship between you and your client has been tainted or is now awkward,and now you're stressed and unable to keep your creative flow and your creative juices for all the other products that you have going on,and it can lead to burnout.

Brian: On top of all this,

Brian: and this happens for a number of reasons. The first is because you just did work without collecting any sort of payment.

Brian: Maybe your policies are horrible and you decide that, you're like, Hey, I just trust my clients to pay me all the time, so I will always do the work and then get paid. So your life revolves around doing work, getting paid, doing work, getting paid. A better way to run your business as a freelancer is to. Get paid, do the work, get paid, do the work.

Brian: if a client doesn't pay you, you don't have to do the work. Which now means the next week, next month, next six months, however long the project might have taken, your schedule has now opened up for other [00:23:00] projects to do other things. Whereas if you did all the work and then you didn't get paid well. The next month, you're working on the next project.

Brian: You haven't been paid for. What if that doesn't get paid either? You've already devoted the time to the client who already stiffed you, so now you're out. Not just the money, but you're out the time as well. And that is a very dangerous thing because most freelancers don't have enough runway, enough money in the bank to weather that sort of storm, especially if one or two projects in a row stiff you in some way.

Brian: And clients aren't always nefarious. LikeWhen financial times get tough or weird in certain industries and clients run outta money or businesses shut down or clients go bankrupt or whatever, they can't pay you if they don't have money. And so it could just be a case of like, I genuinely don't have the funds.

Brian: I'm so sorry. I can't pay you. In that case, what can you do? You're not gonna sue them because you're not gonna squeeze water out of a rock.

Brian: But if you were to simply just take in the money up front Done the work you would've found out at the beginning of the project that they didn't have the money and you could have used that time to work on something else or just have some time off.

Brian: And if it's a larger project, by the way, you can do milestone [00:24:00] payments and that's where. You take a deposit upfront, It should be non-refundable. Once they put the dates on your schedule, now you have opportunity cost. So if they back out, you lose the opportunity of working during that time.

Brian: So that's why my deposits have always been non-refundable. So they pay a deposit, and then if you have a, let's say it's a 15, 20, 25, 30, $50,000 project or more, you set milestones in the project for payments. So it could be that when we finish, This part of the project, this deliverable payment number two is expected or in reality, if you can, before I start on milestone two, you pay payment number two.

Brian: Then when I finish milestone number two, before I start on milestone number three, you pay for milestone number three. Not all niches, not all clients will allow for like a paid in advance thing, but that's where you kinda have to riskweigh your risks here. If you're working with large businesses or you're working with record labels, or you're working with people who clearly have the budgets and the means.

Brian: They're at a lot less risk of disappearing than you are. So in those cases, they're not gonna pay a random freelancer hoping you're gonna do the work. So the risk is actually in their favor. They're the stable ones, you're the unstable ones. So in [00:25:00] those cases, it's okay to get paid after the fact, but just split it up into milestones so you don't have to do the entire project and wait 30, 60, 90 days to get paid after the fact.

Brian: Another reason you get into this mess is because you ignored red flags from clients. You wanted the project, you needed the money. maybe the weird things they said that I said, what the fuck? maybe WTF myself, You know, maybe I'm just reading into it too much, and then lo and behold, the project starts and it's a mess. And then the client stiffs you and you get no money for it. You ignore the red flags. Never work with an A OL email address client. Yahoo too.

Brian: Another issue that can cause this is just poor communications or expectations set here. For example, you said you were gonna do this. The client thought you were gonna do that. You thought A, they thought B, you did A, the client said, this isn't what I wanted. I wanted B, I'm not paying for this. And now we have a dispute.

Brian: If they've already paid you, they may sue you. Which brings us back to legal issues. If they have already paid you, they could also try to do a credit card dispute saying that they didn't get what they paid for, and now you have a whole other issue to deal with.

Brian: But if they haven't paid you yet, they may not pay you at all. And now we get to the situation [00:26:00] where the client stiffed you. You have no money from this project now,

Brian: But by having that clear scope of work, having that paper trail, having all the things in place that I've talked about thus far, and having clear payment terms of when things are due, what happens if they're not paid on time? What happens if things are delivered late? What happens if files are sent to you, late revisions are sent to you late?

Brian: All that's in a contract that they've signed and communicated to them that can help mitigate a lot of these issues.

Brian: As soon as a invoice is past due, it's important to just stop work on the project and that can feel weird. again, this is a hard part of this. You have to have boundaries for yourself. So my terms were this. I required a 40 or 50% non-refundable deposit. To start on the project and the remaining balance was due at the first date the project starts, right?

Brian: The problem is sometimes clients wouldn't have the money when the project starts. In these cases, I would still work on it because I've been paid 50%. But when I get to that halfway mark, if they haven't made up the payment, if they haven't finished the payment, by then, I simply stop work. I will not go past the part where I've already been paid for And the reason is I don't wanna become a debt collector. I don't want you to be a debt collector. I just wanna be a creative. I just wanna work on the projects and [00:27:00] my explanation to all my clients has always been, the reason I require payment in advance is so that we can just focus on the project itself and not worry about the money.

Brian: Stuff that gets awkward, it taints the project. So I prefer to be paid in advance so that we can just go to the project and be creatives together and it works.

Brian: but if the invoice isn't paid, you've already paid for the stuff you've done so far and it's remains unpaid,you essentially can wipe your hands of it. They don't necessarily owe you anything, but they're not also gonna get anything from you.

Brian: But if they want the deliverables that you've created so far, and to finish the project, they have to pay the remaining balance. But if you've done work. it hasn't been paid for yet and the invoice is passed due, it's important to stop work. If you have, are still working on it,reach out to the client very nicely.

Brian: Send the reminders automatically through your invoicing tool. But if that stuff doesn't actually resolve it and get the payment, they're not communicating with you. you have a couple options here this is something that I, I'm on the fence about, but I think it's important, especially in a B2B sense.

Brian: But even with clients that are, like if you're in the music production business and you have clients that are like, their main gig is like working at Hardee's or at Carl's Jr from the west coast.

Brian: It can feel weird [00:28:00] to take legal matters up, but I think it's important we have a saying called Don't reward bad behavior. that is where if somebody's behaving badly, meaning they're not paying with a hill. You've done the work, then by not taking it into legal matters, you're essentially rewarding their bad behavior.

Brian: You're saying you don't have to pay for what you've forced me to do for you. And it's even worse if they've already gotten the deliverable. That's even, that's the next level. Never deliver files without being paid. But if you've, tried your best, you can send a formal demand letter, and that is essentially a way of like stating that This is my intention. I will take this into legal matters if you don't pay up this invoice, and you can consider hiring like a freelance friendly kind of debt collector or take some sort of small claims action. Now, there are,I never looked into this, so I, I don't know howwell this would do, but there's like freelance type debt collection services that are out there that will essentially go after the client for you and they take a percentage of the invoice.

Brian: I don't know how much I love that because it's essentially somebody reaching out on your behalf trying to get money outta people. And you know, maybe it works. Maybe you could try that with some clients. It's up to you, but small claims is probably the best area to do this. Small claims court, [00:29:00] or even arbitration, depending on which one's better for you, where you can essentially take legal action.

Brian: It's a binding court order and the client's forced to pay you at that point. But again, this is a huge distraction, but it's one of those things about setting a precedent and not rewarding bad behavior for your clients.

Brian: Because remember, payment issues are the thing that can crush your business. The cash is the lifeblood of your business. And the second that cash flow stops because somebody failed to pay you on what you've been owed because you did the work and the way your business is set up or the way the industry is or the way the expectations are, you can't get paid in advance.

Brian: The second that money dries up, you're done.

Brian: And if you look at the way real businesses are run, if. A large organization doesn't pay another large organization. There will be legal disputes to settle things,

Brian: and you can model yourself after the bigger businesses once you've exhausted all of the like friendly personal approaches to things. just to recap, these kind of five silent killers or these, Hidden dangers that you need to defend yourself from it's burnout, because that will lead to a place where you're just getting nothing done. You don't wanna do anything. Things are falling through the [00:30:00] cracks. Scope creeps number two. It's that toothache that just never goes away because you just let clients walk all over you

Brian: you fail to put the simple sentence of happy to do that, here's how much that would cost. the third is the tax man because you think you're too clever and you can get away with skimping on your taxes or because you're unorganized and you haven't actually properly set up your stuff.

Brian: The fourth is legal issues. You've just opened yourself up to all sorts of legal dangers because you're not using contracts, et cetera, et cetera. And then the fifth, and to me the most dangerous one is payment issues. You become a debt collector because you haven't set your payment terms up correctly, or

Brian: you're ignoring red flags or.

Brian: You're just rewarding bad behavior because you're allowing them to get away with not paying you. None of those things are acceptable. So I hope this episode has been helpful for you. This week is my birthday. I turned nine this week. God, I'm becoming an old man. I dunno how I feel about this. It's not 40 yet, but it's 39, so I might as well be 40. so you're welcome to, to shoot me a, a DM or a message or a email or something to say, uh, happy birthday, old man. But, uh, yeah, that's all I got for you this week.

Brian: I'll be back next week for the six year Creative podcast. Thank you so much for [00:31:00] listening. Peace. See you next week.