What's difference between running your own home-based business and freelancing? (tick, tick, tick ...) Give up? Me too. If you want to work for yourself from home and have a special talent or skill that you think others would be prepared to pay for on an hourly or per-project basis, why not stop thinking in terms of traditional "home business" paradigm and start thinking in terms of freelancing instead?
WHAT IS A FREELANCER?
Quite simply, a freelancer is an independent contractor who earns his or her living by contracting for projects on a project by project basis. A freelancer is not an employee of anyone and so he or she must actively seek out work, negotiate terms and conditions of project (the contract) and complete work to satisfaction of client. Once project is complete, freelancer seeks out and enters into another contract for another project.
Alternatively, freelancer may have obligations under a number of different contracts with different clients at one time.
Another variation involves freelancer producing work and then seeking buyers for that work. A freelance writer of magazine articles, for example, would fall into this category.
WHO HIRES A FREELANCER?
Those who hire freelancers are as diverse as freelancers themselves. In some cases, companies will hire freelancers to complete a short-term project as an alternative to hiring a new employee. This is often case where work in question is spasmodic or ad hoc and company cannot justify hiring an employee for such work. Companies also hire freelancers to help smooth out peaks and troughs of workload. Again, where there is a temporary oversupply of work, company will hire freelancer on a short-term basis to help cope with backlog.
In other cases, companies hire freelancers for their special expertise in a certain area. A company may want to create a new website, for example. Hiring a freelance website designer for such a project makes more sense than hiring a website designer as an employee since once website is complete, function will no longer be required.
Magazine and newspaper editors also hire freelancers or, more precisely, buy rights to freelancers' work. A freelancer in this type of situation may write a piece and submit it to a number of different editors in hope that his or her work will be "picked up" by that editor and published, in return for which freelancer receives payment. By its nature, such an approach is speculative since freelancer can't be sure that anyone will actually buy work. Of course, once freelancer has been published, it is relatively easier to get editor to buy freelancer's work in future and, as freelancer's reputation grows, so too do opportunities for future business.
WHAT QUALIFICATIONS DOES A FREELANCER NEED?
To be financially successful, a freelancer obviously needs marketable skills. A freelancer therefore needs same qualifications, skills and talents as someone who had been hired as an employee to do job would need. In other words, if you are seeking work as a freelance website designer, you must possess same skills and qualifications that a full-time employee website designer would possess.
IS A FREELANCER RUNNING A BUSINESS?
In short, yes. If you do not have an employer, if you have to source your own work and negotiate your own terms, if you have to chase payment, if you have to pay your own taxes (i.e. no one is withholding them from your check), you are, in essence, self-employed. Ergo, you are running your own business.
There are a number of consequences you need to think about. The first is taxation. You need to set aside from every payment you receive an amount sufficient to cover your state and federal taxes on income you receive. Likewise, you need to keep proper books and records so you can claim deductions and expenses you are entitled to as a self-employed person.
As a freelancer, like any independent contractor, you will also be expected to provide your own equipment and supplies. If you are a website designer, you need to have your own computer, software and other tools of trade. The party hiring you will not provide this stuff for you. Similarly, if you are a freelance editor, you will be expected to have all reference materials and style books, word processing programs and other sundry items any editor would need to do job.
From a legal point of view, you should also give some thought to legal entity of your business. Will you be a sole proprietor or will you incorporate? If you incorporate, will you choose S-corporation status? There are important tax consequences of each of these alternatives so be sure to get advice from your accountant before starting.
Think also about what licenses you may need as well as insurance (health, life and liability depending on nature of work).
WHERE DOES A FREELANCER FIND WORK?
OK, onto nitty gritty. You've decided to start work as a freelance website designer. You have appropriate qualifications, training, experience and equipment and you've consulted your accountant to determine most tax-effective business structure and your lawyer to set up your new company and advise you in relation to issues such as business licenses and fictitious business names. You're ready to hang out your shingle. Now what?
=> Approach Your Warm Market
Start with who you know. Where did you get your website design experience? If it was with an employer, consider whether that employer may not be a source of business for you. That will obviously depend on circumstances under which you parted company but if you left on good terms and didn't burn any bridges on your way out, by all means contact your former employer and let him or her know that you are now in business for yourself and ready, willing and able to take on new projects. If possible, get a reference or testimonial too. That will come in handy when it comes to touting for new business from strangers.
Next, turn to your network of business associates you developed while working for your former employer. Note, we're NOT talking about clients of your former employer, rather your own network of colleagues. Contact them and let them know about your new venture and your availability for project work.
Be extremely cautious about approaching clients of your former employer if your current business puts you in even indirect competition with that employer. You may be constrained from approaching former clients if you signed a non-compete covenant in your employment contract, for example.
=> Create Brochure/Resume
Go to time and expense at this stage to prepare some sort of resume of your experience and services. Get this professionally printed as a brochure and send it, together with your business card, to your former employer and colleagues as a follow-up to your conversation. By giving them something tangible about you, it is more likely that you will come to mind when next they have a need for your services. If you've already provided them with your brochure/resume, when time comes, person concerned will think "hey, Joe's doing this sort of thing now. Where's that information he sent? Oh, here it is. I'll give him a call and see if it's something he might be able to do for us."