Freelancing can be a viable business that grows to suit various needs and circumstances in your life. Although there are challenges unique to the freelancing business, it’s a field that holds endless opportunities to do something you enjoy in the manner that you enjoy doing it.
As with any other business, certain steps should be followed to find the path to success.
Step 1: Determine if you’re ready to be a freelancer
Your life circumstances may make starting a freelancing business the perfect path for you. If you find yourself being laid off from an employer, re-entering the workforce, or needing to work more flexible hours, freelancing can be a perfect choice.
Many of the traits freelancers need to succeed are fairly obvious — self-starters, organized, motivated, creative, and flexible. You should ask yourself if you’re able to avoid distractions and procrastination, and meet deadlines without a boss standing over you.
Being good at budgeting is an important asset as well, because the nature of freelancing is such that often you don’t have a steady stream of income. Much freelancing is done on a project or as-needed basis, and work may only be available intermittently, especially when you’re starting your business.
Step 2: Choose the right freelancing business
When starting a freelance business, the list of possibilities is practically endless. Do you have a specialized skill you have performed for an employer, such as being a paralegal, human resources professional, builder, or technical writer? If you don’t want to be an employee and have always wanted to own your own business, working as a freelancer in a field where you have a proven track record might be an option.
When starting any new business, you should consider whether there is a demand for freelancers in your chosen expertise or whether the field is already crowded. Having already worked in the field, you should be able to find this out. Also, make sure to obtain the proper credentials and/or licensing requirements. For example, say you have worked in a law firm under the formal title of administrative assistant, but in reality, have standard legal forms or client intake sheets regularly. If you would like to run a freelance paralegal business, you should look into obtaining the proper credentials.
Freelancers without special credentials or experience can have very successful businesses if they fill a niche. An example of this type of freelance work is running errands for people.
Step 3: Obtain required licenses, certifications and training
Freelancing businesses encompass so many different types of fields, and some are certain to require professional licensing, certificates or special training. Just because you are “only” freelancing, don’t make the mistake of thinking you don’t need the proper credentials, especially if required by law.
For example, in some jurisdictions, if you want to cut hair out of your home, you may not be able to do so unless you are properly licensed. More and more, state and local governments are requiring the licensing of certain activities. And most localities require a business license of some kind.
Don’t forget zoning issues — if you work out of your home there may be restrictions on what you can do. You may also be required to obtain a home occupation permit.
Just like when you are starting any new business, check with trade industry groups and associations to find out what you need to do to be in compliance Also, speak with local authorities and ask about their requirements If there are restrictions, you’ll want to know about them before you decide to go full-time with your freelancing business idea and quit your day job.
Step 4: Decide on a business structure for your freelancing business
Many people starting freelance businesses often think that running their business as a sole proprietorship is their best or only option. However, this isn't always the case.
When starting any business, you should make an entity form choice based on the needs of your business. Liability implications and taxes are two factors that play a large role in which form you choose to start your business.
A common way to protect yourself from liability is to formally organize your business with state authorities. By choosing an organizational form — such as an LLC or corporation — you are formally establishing the business as a separate entity, separate from its owners. That means the owners generally enjoy limited liability in operating the business and are only held liable for the amount invested in the business. Personal assets are safely protected from the creditors of the business.
As for income taxes, your entity choice will dictate the rules you must follow. Corporations and LLCs file their returns, but corporations pay their taxes, while LLCs’ profits are taxed on their owners’ personal tax returns. Each has different legal requirements for staying in good standing under the law. Sole proprietorships and simple partnerships have no such formal requirements and the business’s profit and loss are determined on the owners’ personal tax returns.
For more information, see Comparing business structures.
