Imagine never working nine to five ever again. Imagine being your own boss, making your own rules, and only taking work as you want it or need it. Sound appealing? Freelancing can be a great job, but you may face some hardships along the way.
One of the many challenges a freelancer will have to face is lack of work. Sometimes, you’ll have all the work you need today; then the well will dry up and leave you with nothing by tomorrow. Instead of the boss assigning you busy work so you can earn your paycheck, you aren’t earning anything at all. It will take time to get a steady flow of clients and customers that know and trust you enough not only to hire you over and over, but also to recommend you to others.
Ever thought about becoming a freelancer? It’s a great job with a lot of freedom. You can work from home, in your pajamas. No boss, no work you don’t want to do, and no corporate nonsense. However, freelancing isn’t all fun and games. It takes a lot of hard work, dedication, motivation, and no little talent to get your feet off of the ground.
Building Your Brand
So what can you do with the down time? Spend some time building your brand. Blog on your personal website, and begin to build yourself a market of your own. Do you love to write about cars and engines? Start up a blog you can share with potential customers that displays your knowledge and skills. Make up some flyers or business cards for yourself or imaginary companies. Although it may not bring in direct income, these backup pieces can help you land the clients you’ve been searching for.
Another big drawback of working for yourself is lack of benefits. Although freelancing comes with freedom from corporate life, it also can deny you the luxuries of being part of a larger group. There’s no pool of freelancers going in together on health and life insurance. You may find yourself too busy with work to take regular vacations. These seemingly innocuous things can make a huge difference in your monthly budgets and your lifestyle.
Although it may seem a little overwhelming at first, don’t let the cost of benefits keep you from doing what you love. Make sure to shop around for insurance and other benefits, and make sure to ask lots of questions. See if potential insurance providers offer discounts for something you already have or do. Also, check to see if your spouse can provide you with basic health and life insurance through their work.
Taking a vacation also can be a little tricky. If you are determined to have a work-free week with your family or friends, make sure to add the cost of your vacation into your budget. Since you will not be earning any money on your vacations, you’ll need to factor in loss of wages just as much as you would the cost of the flights and hotels. Just make sure to give yourself plenty of backup money, give your clients plenty of notice, and make sure to set up an “out of office” reply for your email address before leaving!
Create a Portfolio
So, you’ve managed your budget and figured out your niche. You have portfolio pieces and are ready to get to work. Now what? The single biggest challenge a freelancer faces when getting started is simply getting started. Where do clients come from and how do you get your name out there?
There are tons of great ways to get started. For example, try doing work for someone close to home. Perhaps a family member or a friend needs an illustrator or graphic designer like you. You can use the work for portfolio pieces and make a few bucks while you’re at it. Make sure to have business cards ready; if someone likes your work, give them a few cards to hand out to others.
Network, Network, Network
Another way to get your freelance career off of the ground is good old fashioned networking. Find meetings online for business owners that might need your expertise. Ask friends to leave your business cards with their bosses and colleagues. Always be selling yourself, and never sell yourself short.
Buy a Contract
When you go into business for yourself, you will want to protect yourself from clients taking advantage of you. There are clients out there that won’t pay, ask too much, or are unresponsive when you ask questions. What you need to protect both you and the client is to buy a freelancer contract for your niche so you can detail out the terms before you start work. This is a must if you want to protect your brand and business.
Pro: You are Your Own Boss
One of the best things about being a contract is that you are your own boss. You set your own hours, take your own days off, and work how you want to. It’s wonderful to be able to wake up when you are ready and take breaks when you need them. You also get to decide against certain projects if you don’t think it will match your skill perfectly, or if you aren’t interested in the subject. Never again will you be forced into busy work, just so you aren’t idle on company time.
Con: You are Your Own Boss
Being your own boss is also a lot of work. You have to motivate yourself, and wasting company time eats into your money very directly. When you turn down a project, you may find yourself wishing you had taken it, because you are a little short this month. With great freedom comes an awful lot of responsibility, and your decisions affect you and your family’s budget.
Pro: You Get to Keep Your Earnings
If you complete a big project for the company that earns them a lot of money, you might see a little bit of bonus. However, employees don’t usually benefit from their companies finishing big projects. As a contractor, you get to keep every dime of your project’s earnings as well as any royalties or bonuses. You won’t have to share your income with anyone!
Con: Your Earnings Won’t Go as Far
As a contractor, you will be responsible for your own benefits, taxes, and other expenses a company usually takes care of. Instead of company-shared health plans, you have expensive, individual plans. Instead of the company managing your taxes, you have to figure them out yourself, quarterly, and pay into it yourself. There are no 401k matching programs when you are a freelancer. Planning for these extra expenses may be the difference between making it, and not.
Pro: You Take the Jobs You Want
Need a mini vacation? No problem. All you have to do is just turn down any jobs you receive for the next few days, and grab some sunscreen and a bathing suit. No need to tell the boss you’re taking the day off.
Con: Fluctuation in Pay
Turning down jobs means turning down money. You have no job security, you have no guaranteed paycheck at the end of the month, and you certainly don’t have any contracts stating that you’ll earn enough money to pay all of your bills. There may be short or long dry spells where nothing is coming in, and your marketing ploys seem to flop. A week without any work in a freelancer’s world is a week without pay.
Pro: Your Income Taxes Maybe Lower
Depending on your household income, a freelancer may end up paying less in taxes than a corporate employee. Even if you end up in the same tax bracket as you were when you worked for a bigger company, you get to decide how your tax money is withheld and when checks are sent to government. This will allow for a little more flexibility when it comes to spending your hard-earned cash.
Con: Liability for Debts
If the company you work for goes bankrupt, you may lose your job, but you won’t owe part of the debt. If your freelancing business goes under, you will most likely be liable for all to a portion of it, even with a LLC.
Pro: More time at Home
Without a commute or time spent in the office, you’ll be able to pick up the kids from the bus stop or read them a book before bed every night without worrying about work interfering. More family time builds stronger, healthier relationships between you and your spouse and children. Who doesn’t want to take a short break from work for a Nerf gun fight or a tea party?
Con: Nothing is Guaranteed
As a freelancer, you may not be guaranteed your paycheck, even if you complete your job up to speck and on time. Although most people are honest, you may stumble across that one client that insists you didn’t deliver on time, the piece wasn’t up to his standards, or something went wrong and will refuse to pay you.
One of the biggest legal mistakes a freelancer will make is with their taxes. Self-employed taxes are a little bit different than taxes from your paycheck. Since your company no longer withholds taxes every paycheck for you, you will have to start a savings account to withhold them for yourself. Estimated taxes are required every quarter, and there is a penalty for paying less than you earn.
Filing as a Sole Proprietor
A sole proprietorship is one of the easiest styles of taxes for freelancers. You claim profits, losses, expenses and write offs. However, you are also personally liable for credit issues and problems stemming from your business, because the business if tied directly to you as a person. A sole proprietorship can be great for freelancers because it is simple to use and you probably won’t need an accountant.
Filing as a Corporation
A corporation is one of the best ways to go for most freelancers. Although it requires a little more paperwork and your taxes may need the help of an accountant, it will limit the freelancer’s liability as an owner of that corporation. This can save you from personal ruin if your business were to fold and go bankrupt. Also, becoming a corporation will make you look a little more professional to your potential client.
Filing as a S-Corp
A subchapter corporation, or s-corp for short, is still a corporation. You’ll receive all of the benefits of having a corporation, but with shareholders. The owners are considered employees; therefore the freelancer will get a guaranteed paycheck through this system. Losses are delivered, like profits, through the shareholders. The paychecks, as you might expect, are subject to payroll taxes and income taxes. The shareholder profits and losses however, are not.
Filing as an LLC
LLCs, or limited liability companies, allow you to file taxes as an individual or a group. There are strict limits on your liability as owner of the company. LLCs are also a great choice for freelancers.
Know What Your State Expects
As a new freelancer, you should put a lot of thought into what style of business you wish to have. But you should also take into account what kind of filing status your state seems to prefer. Each state has different taxes, and those taxes are very separate from your federal taxes. It’s easy to misunderstand your taxes and underpay for them, only because laws from different states and countries can vary so much from region to region and country to country, or even city to city. So do your research!
Keep Great Records
One of the best things a freelancer can do for their financial and mental health is to keep awesome records of all of the money you make and all of the expenses you incur. Taxes will be much less of heartache without trying to sort through a whole year’s worth of unorganized documents. Keep paper receipts of everything, and keep them filed and organized. It will be more important than anything else during tax time. You also should keep a contract for any client you get as a freelancer. That way, you can protect yourself in the event the client does not follow through on their end. You can buy contracts on the internet at a lower rate than if you would talk to a local attorney.