Starting as a freelancer is an accessible option today for most people.
The rise of the digital landscape means that you can interact with a global marketplace of potential clients. Not to mention that the emergence of the gig economy has resulted in a wider range of businesses open to collaborating with freelancers.
Yet, this doesn’t necessarily mean that your efforts are guaranteed to be successful.
This isn’t just a matter of being able to attract clients, either. Many new freelancers stumble on the financial and legal hurdles they find along the way.
We’ve put together five steps to creating a financially and legally sound freelancing business that can help you navigate some of these elements.
Establish Your Freelance Rates
As a freelancer, it can be challenging to keep financially afloat.
One of the key reasons for this is that many freelancers have trouble pricing their services and keeping these updated over time.
Often, the best approach to this involves reviewing the current market rates.
This should focus on both the segment of the market you’re targeting and also the types of clients you’re pitching to.
After all, corporate clients may be more receptive to higher rates than your small business or private clients.
Your rates should also develop throughout the year. Every few months it’s wise to look at whether it’s practical to raise your rates based on your growing skill set.
You may have also ventured into niche areas of writing that allow you to charge based on your expertise in certain sectors. Every year, you should also review the current rate of inflation so you can incorporate this into your fees.
Develop a Marketing Strategy
There is always a lot of competition for freelance writers. After all, this career path can empower you to be your own boss while pursuing an activity you love.
Nevertheless, this competition means that to be financially viable, you need to ensure your services are visible to your target client base. A solid marketing strategy is essential.
With freelance writing in particular, your marketing strategy is likely to largely revolve around outbound contact with potential clients.
This may include creating marketing personas for each type of client and sending your most relevant portfolio samples and messaging accordingly. It can also involve search engine optimized (SEO) website content that attracts clients in specific niche markets.
Alongside your general marketing processes, it is in the best interests of your financial health to maintain methods that protect your business against difficult market periods.
Certain marketing tactics are proven to help recession-proof businesses, as these bolster a business’ relevance even during downturns.
For instance, boosting your marketing input during a recession tends to improve financial performance following the downturn. Social media graphics, like image-based posts and visual stories, also tend to be both cost-effective and engaging.
Register Your Business
While you may have a steady stream of work coming from a few key sources, it’s important to remember you’re not employed by these companies.
Rather, these are your clients and you’re operating as a business in your own right. Therefore, you have certain legal obligations for licensing and registration.
Most freelancers choose to function as sole proprietors or independent contractors, at least in the beginning.
This doesn’t tend to require you to register as a business entity at a federal level.
However, some states and cities require independent contractors to obtain a business license.
You should check with your local tax and business authorities to get details on this, otherwise, you may be risking fines.
That said, in some circumstances, it can be wise to register as a business type other than an independent contractor.
For a start, if you are sued or subject to other legal action, sole proprietors are personally liable for all damages awarded.
However, registering as a limited liability company (LLC) can help provide additional legal and financial protections. It can even open you up to some tax benefits.
The process of registering as an LLC can vary from state to state, but in most cases, this begins with choosing a name for your business that includes the suffix LLC.
From here, you’ll need to file paperwork that includes details of your operating practices, business address, and business dissolution procedures, among others. This can be complex, so many businesses use an agent experienced in the registration process.
Understand Your Tax Responsibilities
One of the most important elements of operating a legally and financially sound freelancing business is your adherence to tax regulations.
Many new freelancers trip up here as they’re used to their employers taking care of this. It’s important to ensure that you understand what your tax obligations are and the administration processes involved.
A key component of this is recognizing that your tax requirements as a freelancer aren’t limited to income tax.
You will also be responsible for paying the self-employment tax rate of 15.3% on 92.35% of your net earnings.
You find your net earnings by deducting necessary business expenses from your gross earnings.
The good news is that you can deduct the same percentage from your gross earnings as an “employer contribution.” This amount goes toward paying your basic social security and Medicare contributions.
With this in mind, it’s important to start implementing a withholding procedure.
The last thing you want is to not have enough money put aside to pay your tax obligations.
In most cases, you’ll need to pay quarterly estimated taxes on your earnings to the Internal Revenue Service (IRS). If you’re not using an accountant, IRS Form 1040-ES can help you estimate the percentages you’ll need to keep back from your earnings to stay on top of payments effectively.
Keep Accurate Records
As a freelancer, there are many advantages to keeping organized. Some actions help make your operations more practical.
Yet, good organizational routines also serve legal and financial purposes. Among the most important of these is maintaining accurate financial records.
You should, therefore, keep strict bookkeeping practices.
This should include a running record of what work has been completed, the rates being charged, when invoices have been issued, and when remittance has been received. You’ll find this bolsters the financial health of your business and also makes it more practical to stay on top of invoices.
This solid record-keeping is also essential for tax purposes.
Particularly if you’re making business deductions, you’ll need an accurate account of what you’ve spent and why.
Maintaining records not only helps you claim correctly, but it also means you’re able to easily present evidence should you be subject to a tax audit in the future.
Navigating the legal and financial elements of freelancing can be challenging.
It’s important to dedicate time and focus to effectively reviewing your payment rates and developing an impactful marketing strategy.
You must also have clarity on what your obligations are as a business in terms of tax and licensing.
Nevertheless, with solid record-keeping and some research, you can ensure you can run an effective freelancing operation.