Aug 19, 2020

Step-by-Step Guide to Starting a Freelance Business

More and more Americans are going into business for themselves as freelancers. In fact, research shows that 35% of workers now freelance. That means about 57 million US workers are either working freelance full-time or as a side gig. The top reasons cited for this choice include:

  1. Achieving increased flexibility
  2. Being your own boss
  3. Working from anywhere
  4. Choosing your own projects

Freelancing’s upward trend shows no signs of slowing, as 80% of workers who don’t currently freelance report that they’d be willing to do it at some point. In fact, 60% of those who aren’t currently freelancing plan to in the future.

“Freelancing is one of the fastest, most affordable, and easiest ways to get started working from home, especially if you offer services in a skill you already excel at,” explains a freelance report from The Balance Small Business. “In some ways, freelance sits in-between entrepreneurship and employment. In freelancing, you’re self-employed, but the work is contracted by a business and can be steady and regular like in a job. One of the big benefits of freelancing is that you can usually charge more per hour in your freelance business than employers pay for the same work.”

It should be noted that there are also drawbacks to the freelance life. For starters, it requires you to constantly network and seek out clients. Jobs won’t just flow straight to your desk as they would in a corporate setting. The unpredictable workload can become a boom-and-bust cycle for many freelancers: one month you’ll be pulling all-nighters, while the next month could be nearly devoid of work.

Another drawback of freelance work: it can invade your personal life. You’ll need to be disciplined enough to establish a routine so that you get work done during certain hours and then step away when necessary.

Finding clients and commanding the right pay rates can also be challenging. For this reason, you should assemble a reliable collection of clients before you start running your freelance business as a full-time operation. This way, you can begin to learn the tricks of the trade and establish yourself as a trustworthy freelancer before the pressure really sets in.

This guide will walk you through the essential steps of launching a freelance business and finding success as your own boss. And it all starts with you making the bold decision to take the freelance route.

Determining if Freelancing Is Right for You

While the freedom and flexibility associated with freelance are compelling, it isn’t a career choice that fits everyone. Review the following checklist to get a better idea of how well it matches your preferences. If you answer “no” to 3 or more questions, you might not be the best candidate for freelance.

  1. Are you self-motivated?
  2. Can you stay on task, even when no one is watching?
  3. Are you good at networking?
  4. Are you confident enough to approach potential clients?
  5. Are you in a financial situation where you can survive 1–2 months with no pay?
  6. Do you enjoy learning about new industries and topics?
  7. Are you a good researcher?
  8. Are you organized?
  9. Can you balance multiple jobs simultaneously?
  10. Are you confident enough to send out invoices?
  11. Are you tenacious enough to follow up on unpaid invoices?
  12. Do you feel that you’re scrappy enough to compete for jobs?
  13. Will you still be able to afford healthcare?

These questions provide a general idea of what the freelance life entails. It can present incredible opportunities, but you’ll only “eat what you kill.” You can’t be passive and expect to be successful as a freelancer.

Laying the Groundwork

It’s nearly impossible to succeed as a modern freelancer if you don’t have a portfolio. Most freelancers create a website to showcase their work, though you might be able to simply use LinkedIn and similar platforms to accomplish this same purpose. A potential client shouldn’t have to expend any effort trying to find samples of your work—the smoother the process and more impressive the presentation, the higher your chances for getting work.

Connected to your professional portfolio should be your profile. This is where you feature many of the elements that would appear on a traditional resume. Highlight your experience, training, certifications, education, and personality. When a client is considering 2 candidates with similar backgrounds, the details in your profile can help move the needle to your side.

Next, you’ll need to decide how you want to connect with clients. Lots of freelancers sign up with freelancing platforms like Fiverr, Upwork, or SimplyHired. The chief advantage of a platform is that it can connect you with a vast array of jobs. Additionally, any good platform will have policies in place that protect you from getting jilted by a non-paying client.

The biggest issue with platforms, however: they take a cut of your earnings, which can range from 5% to 30%. Competition for jobs on these platforms can also affect your billable bottom line: sometimes, so many freelancers bid for work on a platform that the rates plummet to levels you aren’t willing to accept.

If you feel comfortable with the risks of a platform and feel that it’s the best option for your freelance business, take the time to research the available options. Make sure only to build profiles on platforms that have a high standard of quality and help you to meet your business goals.

The other option is to find clients on your own. This takes more effort, but it also offers the chance for a higher reward. Popular methods for finding clients include:

Of course, you can always use a hybrid approach to finding work. Having a profile on 1 or more freelance platforms can allow you to always have a proverbial line in the water, while you can use your free time to attract clients on your own.

Finally, you’ll need to set your rates. At the onset of your freelance career, you may want to choose a discounted rate that allows you to connect with more clients and build your portfolio. But don’t fall into the trap of becoming a “bargain freelancer.” Your goal should be to increase your rate steadily to match the quality you’re bringing to the table.

If you’re not sure what you should be charging, talk to other freelancers to get an idea of standard rates. You could also check with a relevant professional organization, such as the Editorial Freelancers Association, to get a feel for the rate standards in your industry. Questions like these can also be addressed by a mentor—so take this opportunity to reach out to an experienced freelancer who can guide you through the early stages of your career. If you struggle to think of a possible mentor candidate, reach out to your local SCORE office and ask them for assistance.

Making It Official

Now that you’ve created your profile, assembled your portfolio, decided how you’ll connect with jobs, and determined your rate, you’re ready to put the finishing touches on your business’s structures.

First, you’ll want to set up a bank account for your freelance business. Many freelancers choose to do this at their current personal bank, as the process is much easier: your bank will already have your financial information and will draw upon your track record in order to approve your request quickly.

The other option is to find a new bank for your business account. Perhaps there’s a bank you think will align better with your business goals. Or there might be a bank offering a lucrative perk if you create an account with them.

You should also consider where you’ll base your business. Many freelancers work from home, but you might prefer a shared workspace or some other sort of office space. Consider the advantages and disadvantages of all your options before making a decision.

Next up is choosing a legal structure for your business. This isn’t a necessary step, as you probably have the option of reporting your freelance earnings as “miscellaneous income” on your tax returns. But freelance work has a tendency to complicate your taxes, making it harder to ensure you’ve reported everything accurately and made the best decisions for your deductions.

“Of all the decisions you make when starting a business, probably the most important one relating to taxes is the type of legal structure you select for your company,” says a business structure analysis from Entrepreneur. “Not only will this decision have an impact on how much you pay in taxes, but it will affect the amount of paperwork your business is required to do, the personal liability you face, and your ability to raise money.”

If you want to set up your freelance business formally, you have several options. The 3 most popular are sole proprietor, limited liability company (LLC), or S corporation. Let’s take a closer look at these options, as well as a few others that will likely be available to you:

Given the variety of options and the potential consequences associated with each of them, you should consult with your mentor before choosing a business structure. Also seek out the advice of a tax adviser, as they’ll have insights into how each structure could impact your finances and provide benefits to your business.

Figuring Out Your Financing

Although freelance businesses are often leaner operations than small businesses like restaurants, retail stores, and construction companies, there are still expenses involved with starting them up and keeping them running. Possible purchases include furniture, computers, software, tech support, permits, professional fees, business incorporation, marketing, and office supplies.

You’ll have numerous options when it comes to raising money for your freelance business. Perhaps you’ll want to start by approaching family and friends for a loan. For more robust financing, you should consider one of the following small business loans:

You can also do some research to see if you qualify for a business grant. These are tougher to get than loans, but they have the incredible advantage of not needing to be repaid.

Start by searching the federal grants listed on Grants.gov. Competition will be fierce, but some of these grants can provide a real boost if you qualify. There are also grants available in the private sector. Possible sources include the Halstead Grant, the Amber Grant, the Idea Cafe Grant, and the National Association for the Self-Employed (NASE).

Simplify Your Life With Digital Tools

The nature of freelancing requires you to be involved in virtually every element of your business operations. Yes, the demands can be intense. While you probably won’t have employees to whom you can delegate tasks, you can enroll the help of digital tools. Not only can software and app solutions save you time and decrease your stress level, but they’ll likely complete tasks more effectively than you would have. Humans are bound to make mistakes, while technology often bats 1,000.

Any time you can hand off a task to a digital tool, you’ll reclaim precious time in your day, empowering you in more ways than one.

“Is the saying ‘Time is money’ true?” asks a business report from the SBA. “If your business runs out of money, you always have the opportunity to get more. More money is ‘simply a sale away.’ …Yes, poor time management can cost you and your business tremendous amounts of money. Realize, however, that the better you manage your time, the more money you can earn.”

There’s an ever-increasing list of digital tools that can help freelancers. Let’s look at a handful of the most popular choices:

By leveraging the power of technology in addition to the knowledge and skills of your mentors and partners, you’ll give your freelance business the fuel it needs for a successful launch. There will likely be bumps along the way, but all your dedicated efforts are bound to set up your business for a bright future.

 

 

 

 

 

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The information provided in this post does not, and is not intended to, constitute tax advice; instead, all information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their tax professional to obtain advice with respect to any particular tax matter.

About the author

Grant Olsen
Grant Olsen
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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