As an individual, you might have a burning desire that leads to freelancing, or maybe you think of an idea that you want to get started right away. In either case, it is important that you set up your freelancing business for success from the start. If you have already started, you can still go back and complete all of these steps to ensure that you are compliant and set up to succeed in your endeavors. Here are 9 common places that freelancers often don’t know or forget to set up for their freelancing business.
Registering Your Business
The first step to operating a business is registering that business. Depending on the country and the type of business, freelancers may need to register their business and obtain a license or permit to operate legally. There are different types of business licenses that come with their advantages and disadvantages. Click The 6 Most Common Business Structures to read more about the 6 most common business structures.
Setting Up a Business Bank Account
Separating personal and business finances is important for accounting and tax purposes and helps establish the business's credibility. Read more Importance of Separating Your Personal Account From Business Bank Account about the benefits of separating your business bank account from your personal account.
Setting Up an Invoicing System
Having a clear and organized invoicing system can save time and prevent misunderstandings with clients regarding payment. Click Setting Up an Invoice System to read more on how it can also help with getting paid on time, record-keeping, professionalism, avoiding payment disputes, and providing a breakdown of services.
Keeping Track of Expenses
Keeping track of all business expenses throughout the year will save you hours of time when it comes to tax season. When keeping track of business expenses you will be able to identify where you can save money and file your taxes correctly. Read more Keeping Track of Expenses about how tracking your business expenses can help you with accurate accounting, budgeting, cost control, reimbursements, and tax deductions.
Developing a Contract or Agreement
Freelancers should always create an agreement or contract that will detail the current scope of work, payment details, and any other important details that could be misunderstood. This can protect you as a freelancer and will also save you time and money in the long run! Click Developing a Contract for Freelancers to read more about why creating a contract or agreement for every client is important
Marketing and Networking
Freelancers often underestimate the time, effort, and skill it takes to market their services. It is important to have a strong marketing plan that both is effective and budget conscious. If marketing is a skill gap for you or your team, we would recommend hiring a freelance marketer to help with those efforts. At a very very minimum a freelancer needs a professional-looking website. How to Build a Website you can read about how to create a website in no time!
Managing Time and Workload
With limited resources, it is vital that freelancers manage their time and workload effectively. Managing Time and Workload as a Freelancer will help to avoid missing deadlines and experiencing burnout. Seven Ways to Manage Your Time as a Freelancer are five ways to manage your time as a freelancer.
Benefits & Retirement
Traditional employees have access to employee benefits such as 401(k) plans and health insurance that freelancers have to obtain on their own. This is a very easy thing to put off or ignore because it usually doesn’t immediately affect you. It is vital that a freelancer finds ways to fund their retirement so they are not stuck working past 65.
Understanding Tax Obligations
It is important that freelancers understand their tax obligations from the start. The percent of income that a freelancer should save for taxes varies depending on their income level, tax bracket, and location. However, a general rule of thumb is to save between 25-30% of their income for taxes.
As a freelancer, you are responsible for paying both income taxes and self-employment taxes (Social Security and Medicare taxes). Self-employment taxes are typically around 15.3% of your net income, and income tax rates can range from 10% to 37% depending on your income level and filing status.
It's important for freelancers to consult with a tax professional to determine the exact percentage they should be saving for taxes, as there may be additional deductions or credits they can take advantage of to reduce their tax liability. It's also recommended that freelancers make estimated quarterly tax payments to avoid penalties and interest charges.
It is important to note that the information provided in this blog is for general informational purposes only and is not intended to be legal or professional advice. When setting up a business we recommend that you consult a lawyer or utilize a service like Collective that sets up your business for you!