While freelancing has been around for quite some time, the phrase “gig economy” entered our lexicon just a few years ago. The Gig Economy describes this new labor market where more and more people are taking on freelance work in addition to their full-time jobs or cobbling together several part-time or freelance projects.
Historically, freelancing was relegated to artists, writers, etc. But now, freelancers can be found in almost every industry, which is great for the small business owner that needs an extra hand or an aspiring entrepreneur who wants to slowly transition from their current career to full-time entrepreneurship.
Related Post: Make Sure You Actually Own The Work You Pay Contractors to Produce
Here’s what you need to know if you are looking to freelance your way into entrepreneurship:
Get paid what you’re worth
If you have a full-time career, you may be tempted to accept a low fee for your services because you have a safety net, and for you, extra money is extra money. But if the plan is to eventually transition from a full-time employee to a business owner you should properly price your services from the beginning.
If you are hired for your expertise, charge the proper fee. If this is a new field for you, charge the novice rate. Whatever you propose, don’t forget to include relevant expenses in your fees.
Take care of your business
If you are thinking about using a trade name, and if it’s clever or unique enough, consider applying for a trademark (we can help with that!).
Give yourself a timeline (a reasonable one, i.e. 6 months) to determine if you have a viable business, and more importantly if you enjoy entrepreneurship. Once you know you are in, even if you plan to remain in your current full-time position, set up a separate business entity.
Finally, start using contracts for each client. A simple contract will protect you and your business.
Understand your tax responsibilities
As a 1099 or independent contractor, the person or business that hired you simply pays you according to the terms you agreed to, but federal and state income tax as well as social security and Medicare tax will not be withheld as in a run-of-the-mill payroll check.
You must still pay these taxes based on your annual income.
Keep good business records
Even as a freelancer, you should start off on the right foot. Put a system in place to keep your client files and client emails organized before you have a need for a system or CRM program that you have to pay for.
You will also need to create a system (online and offline) for all of your business and banking records. This will make like much easier during tax time, if you find yourself applying for money (loans or grants) or applying for various certifications (e.g. MBE, WBE, DBE).
What started as a way for students to make money, has now become a way for most to supplement or replace their income. Especially now during a global pandemic, the gig economy is booming, and it is even projected that 9-5ers who transitioned to freelancing will stay in those positions indefinitely.
If you would like assistance in protecting your business and creative genius as a freelancer, schedule a complimentary consultation with MC Law below. You can also check out our Business Planning page for more information about how we can help solopreneurs and small business owners.
