Here's a few key issues to think about:
1. Variability of cash flow
2. Recognition of income
3. Cash flow management
Unlike employed people, my salary as a tutor is not fixed. Nobody will magically give you a sum of money at the end of the month, every month for a year. You will have to secure your own students, carry out your services, and then receive money. Hence, there's a certain variability in the income that flows in. How much I earn really depends on the month in which you are asking. Generally, there is a seasonality to your income which is based on the exam cycles, and hence there is also seasonality to the cash flow you receive. It can really vary a lot from month to month.
Below is a picture of my income over 7 yrs, written in this blog article here.
On a quick glance, you can see that the off peak season income can be quite negligible. The debt you owe is to be paid monthly, but if your income (and hence cash flow) is seasonable, that might pose a serious issue, especially if you do not have savings. I'll talk more about it under cash flow management later.
But I do get paid weekly, in various sums. It's just that during the off peak periods, the cash flow tap runs a little dry. That could get some people jittery, especially when your family sees you sitting at home, watching tv or reading a book and not working. I realised this can be quite stressful for people used to getting a fixed pay at the end/start of each month.
The only way to mitigate this is to have different levels of students. You cannot do this if you have all sec school students or all JC students. A mix of different levels will ensure that the exam cycles of each level overlap. It's important to set a predetermined level of graduating and non graduating students, something like 7:3 ratio or 6:4 will ensure good continuous flow of cash throughout all months.
Here's a question: Do you recognise your income the moment you carry out the service or do you recognise your income only when you receive your fees? In my personal accounting, I do the latter. Fees are paid either in advance (usually 1 month ahead) or paid on the last lesson of each month, or on a per lesson basis. I do all three, depending on the preference of the parent. But for new students (defined as those who are not recommended by my usual network and are 'cold'), I usually collect the fees ahead. I've a few bad debt cases in the first few years of my job, so I do not want to repeat that again. It's emotionally draining and it eats up your soul. These days, there's strict cut loss practice when collecting the fees, rather than to carry on the service and hope that the payment will come through eventually. So far, I do not have to bring anyone to the small court tribunal to claim my fees, but I'll not hesitate to do so should the circumstances arise. If I do my fees management properly, I won't even have to be anywhere near the small court tribunal.
I believe in fair practices too. There's risk to parents if they pay their fees in advance. There's also risk to tutors who can't claim back their rightful fees. So if I'm going over to the student's place (tutor-moving model), I'm okay to collect my fees at the end of a set of 4 lessons. The credit given to the parents is to assure them that I'll not run away with the prepayment of fees. On the other hand, if the student is coming over to my place (student-moving model), then my usual practice is to collect fees in advance since I'm the party holding the higher risk. I'm afraid the student will run away before the fees can be collected. Most people are forgetful and not malicious, but again, I've my own bad cases so I'll rather be safe than sorry.
Regarding the management of the cash received, I think it's important to have a buffer of savings against the drier months. I know that my work will dry up in around end Oct until Feb (nothing serious gets done until after Chinese new year). Hence I'll have to save up during the peak period to offset the lack of income in the off peak period. Savings to me is not a luxury, it's the way to survive. I guess the same can be said for farmers who have a harvest period too. You can't spend all the money you have during the good months, only to starve in the drier months. For this year, I've saved up enough money to last from Nov to Dec without doing any work, so I know I'm covered. The next thing to do is to do some work during the drier months. I mean I'm prepared not to work for the next 2 months, but it doesn't mean I'll just sit at home and use up that reserve.
So there you go, hopefully people will open their eyes wide before jumping into this line!