With freelancing becoming increasingly popular, Forbes reports that around 36 percent of Americans took on this type of work in 2021. Whether you're an aspiring freelance writer, bookkeeper or driver, running a freelance business can come with financial rewards and satisfaction as long as you're also willing to work hard. Starting a freelance business requires detailed planning to choose a business entity, arrange for financing and strategize how to find clients. You'll also want to follow some tips to make going freelance and managing everyday business tasks go smoother.
Getting a Freelance Reality Check
Being self-employed comes with several upsides. It can give you the freedom to set your own hours, choose the work you do, decide who you work for and be highly independent. You can also decide whether to make your own freelance business a full-time job or just use it for extra cash alongside your day job. In addition, you get the personal satisfaction that comes from being your own boss.
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On the other hand, a freelancing career means you're fully responsible for your business's operations and finances, you can experience a sporadic workflow and you'll need to pay self-employment taxes. Being your own boss also involves not having employee benefits like health insurance, so you'll need to seek your own. In addition, it can be hard to take time off if you're overloaded with clients.
Deciding on a Business Entity
If you've decided freelancing sounds right for you, you'll need to choose the legal structure to set up. Your business structure is especially important since it will affect your setup process, tax handling and personal liability for business debts. If you're running the business alone, you'll often choose the popular sole proprietor format. But while it's easiest to get started, you'll have full personal liability for your business's debts.
Alternatively, the IRS mentions you could also do some extra work to become a single-member limited liability company (LLC) in your state and get the benefit of not having full personal liability for business-related debt. You can also consider the S-corporation option, but this is more complex to set up and manage.
You'll want to research state processes for forming these types of businesses and weigh the pros and cons. In addition, you'll want to look into requesting an employer identification number (EIN) unless you plan to solely use your Social Security number.
Whether you're an aspiring freelance writer, bookkeeper or driver, running a freelance business can come with financial rewards and satisfaction as long as you're also willing to work hard.
Researching Freelance Regulations
You'll also need to consider the products and services you'll offer as a freelancer to determine if your locale will require any registration, permits, licenses or insurance. For example, you'll likely have more requirements if you'll be a freelance salesperson or plumber than if you'll work in graphic design or copywriting. The Small Business Administration cautions that requirements could exist at the federal through local levels, so you'll want to do your research.
If you'll work out of your home, also consider whether local zoning requirements or your homeowner's association allows this. This is especially true if you'll have customers visiting the premises regularly. You may find you'll need to rent office space or do your work via traveling to customers instead.
Think About Financing Options
Business owners in all industries can expect some startup expenses and ongoing costs. For example, you might need to buy a new computer and accessories to begin freelancing as a web designer, or you might need tools for a freelance handyman career. Examples of ongoing costs could include office rent, business insurance, utilities, gas for traveling and any fees for professional services needed.
You might just use funds from your personal bank account to get started, but you'll need to make sure you have some funds aside for an emergency fund too. For larger financing needs, you might find small business loans through the SBA or commercial banks, like U.S. Bank, necessary. Other options include using crowdfunding platforms, seeking grants in your community, getting a personal loan and borrowing from family and friends.
Finding Clients and Pricing Services
You'll also want to determine how you'll obtain new clients. You can consider several online methods like advertising on LinkedIn and other social media platforms, setting up a website using WordPress or listing yourself on marketplaces, like Upwork or Fiverr to find gigs. You might also find your first client through an acquaintance, networking event or print advertisement in your community.
At the same time, consider your product and service selection, pricing strategy and expected expenses. Especially if you plan to freelance full time, it can take time to build up your client base with enough freelance jobs to make a living. Therefore, you'll want to make sure what you're offering is in demand and priced appropriately. Since finding clients and honing your offerings can be challenging, it's helpful to start freelancing as a side hustle first.
Creating Your Freelance Business Plan
Now that you've done your research, you can apply it to a freelance business plan. The SBA recommends this document for any small business since it will both help set you up for success in the first place and guide you on your business's management and growth. You can expect to build on your research during the process of making your plan.
While you can make adjustments to fit your needs, some traditional business plan components include the following:
- High-level executive summary covering the purpose of your freelance business, its future staff, products and services available and your financing plans
- Description of your business's goals, target customers and market strengths
- Analysis of the market for your offerings, what competitors are doing and how you plan to give customers what they need
- Overview of your company's chosen structure (such as sole proprietorship or LLC) and its organizational chart (if applicable)
- Section detailing your product and service offerings (including any patents or intellectual property)
- Sales and marketing strategy for both getting and keeping customers
- Amount and types of funding needed
- Projected financial data for at least a few years
Managing Your Own Business
Once you've completed all the legal requirements, obtained any necessary funding to start up and have started finding potential clients, you'll need to know how to run your freelance business efficiently. After all, entrepreneurship requires wearing multiple other hats besides doing the type of work you've chosen. For example, you'll also be responsible for everything from marketing to accounting unless you've hired outside help.
Here are some tips to consider:
- When working with clients, always have a freelance work contract signed to protect both parties, suggests the Freelancers Union.
- Consider building your skills to provide more value to customers and expand offerings, as this can benefit you financially.
- Find an efficient and secure way to accept customer payments, such as using PayPal or Stripe versus cash and checks.
- Be sure to estimate your tax liability and make quarterly payments per IRS rules.
- Adjust your pricing accordingly as you gain experience, incur higher expenses or detect market rates rising.
- Try not to mix your freelance business finances with your personal finances.
- Look for podcasts and articles by experienced freelancers for their advice on marketing, customer service and business management.
- Keep detailed documentation of all transactions with clients as well as receipts and other proof of business expenses for tax time.
- Know when it's time to hire help or consult professionals for tasks, such as accounting.
- Reassess your financial and nonfinancial business goals to evaluate whether you're on track or need to make adjustments.
- Take advantage of high-quality apps like QuickBooks for invoicing and accounting, Zoom for customer meetings, Calendly for appointment management, Dropbox for file storage, Google Docs for collaboration and Asana for project management.
- U.S. Small Business Administration: Write Your Business Plan
- IRS: Single Member Limited Liability Companies
- U.S. Small Business Administration: Apply for Licenses and Permits
- U.S. Bank: Business Loans
- Freelancers Union: The Freelance Contract
- IRS: When Are Quarterly Estimated Tax Payments Due?
- Forbes: U.S. Freelance Workforce Continues To Grow, With No Signs Of Easing: New Report