When you’re making the transition from corporate life to freelancing, one of the first concerns is how to survive without a regular paycheck. (Spoiler alert: Once in a while, you’ll receive two or three checks in a single day!) How often you get paid, however, is only part of the financial equation for running your own business. Here are some additional thoughts about preparing for and taking the freelance leap:
- Experiment with pricing. The answer to “What should I charge?” can’t be found in a rate survey. It requires trial and error to determine the strategy that works for you and your target audience. The best clients are the ones who understand value, and it’s a waste of time trying to convince the lowball prospects who don’t. (Side note: Some thoughts on estimating strategy from an ACES post I wrote last year: “Not All Freelance Project Estimates Are Created Equal.”
- Segregate your accounts. Sure, having dedicated business checking and credit card accounts makes life simpler when tax time rolls around. But there’s also psychology involved: Having your name, or entity name, on business checks or on a card when you buy lunch for a client makes you feel more established and professional.
- Create a war chest. Having some dough stashed away serves a psychological purpose, namely preventing you from taking jobs out of desperation. That’s important for two reasons: 1) agreeing to low-paying or lousy jobs is an opportunity cost; and 2) clients can smell desperation from a mile away, and it’ll hurt your deal-making abilities. Long after taking the freelance leap, this can serve as your go-to-hell fund — enabling you to say no to bad jobs and goodbye to troublesome clients.
- Invest in an accounting program. There are tons of options (QuickBooks, FreshBooks, etc.) that make you look professional and also give your clients the ability to pay instantly by credit card or ACH. This morning, a client paid one of my invoices less than 5 minutes after receiving it, which is pretty cool.
- Start a retirement plan. Self-employed retirement plans — solo 401(k), SEP-IRA, etc. — allow you to not only make a pre-tax contribution, but pitch in a percentage of your profits, too. Maybe not as fun as an employer match at your corporate job, but it adds up and it can dramatically reduce your tax exposure. Talk to your CPA to figure out what makes the most sense for your circumstances.
- Set aside part of your income for taxes. The good news is that freelancing can be quite profitable, since the overhead is generally minimal. The bad news is that Uncle Sam inevitably gets his cut. Whether you pay quarterly or wait until April 15, you don’t want to dip into savings to pay the tab.
One final thought: Taking the freelance leap means selling yourself, but it’s far more important to ferret out what your clients and prospective clients need. What’s their ROI going to be if they work with you, whether in actual monetary terms, enhanced brand or personal image, or simply making life easier? That’s the most important financial aspect of all.
Jake Poinier blogs regularly about freelance topics at DoctorFreelance.com and owns Phoenix-based Boomvang Creative Group and More Cowbell Books. He has written several books on the business of freelancing, including The Science, Art and Voodoo of Freelance Pricing and Getting Paid. Jake presented on the topics of "Understanding Your Freelance Pricing Feedback Loop" and "How to Identify and Deal with Red-Flag Clients" at the 2019 ACES National Conference.
Photo by Fabian Blank on Unsplash