There’s no denying it— leaving the world of financial security, benefits, and stability that a traditional 9-to-5 offers can be a little bit scary and intimidating. You might also be feeling excited, dreaming of what it will be like to free yourself of a boss, or overwhelmed by an intense awareness of the “unknown”.
We can’t take the fear away, but we can help you prepare to make the freelancing leap! One of the biggest mistakes that a first-time freelancer can make is not properly planning and preparing. Before jumping in, it’s worth it to research, strategize, and make a plan for managing your career.
If you’re wondering when to start freelancing and when to quit your job, you’re not alone. To help you out, we’ve compiled a list of some of the basic tasks to prepare. These can be applied to any type of freelance career.
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1. Tighten up your business plan.
Going freelance without a business plan is like going into the desert without a map. Before you quit your day job or start ordering materials, take a serious look at your business plan. This will include things like:
- What products / services you’ll offer
- Pricing of goods and services
- Cost of raw materials, furniture, renting a space, and other overhead
- Competitor research for your area or industry
- How much money you’ll need to borrow to get off the ground
- Your break-even point (the amount of sales needed to start profiting)
- How much salary (if any) you’ll pay yourself at first
- How you’ll pay for health insurance
- Your game plan if your projections fail or if you run out of money
- Your goals for the first year
This is the bare minimum that you should consider—a thorough business plan involves many more details. If you’re struggling to come up with these answers, take some time to think this over and run some more numbers. It might also help to ask someone else in your field about what they charge and what obstacles they encountered in the first year.
Your business plan isn’t meant to be a crystal ball—who can see the future? It is meant to shed some light on what problems might be ahead of you, and roughly how you’d solve them. A lot of freelancers fail because they don’t have a business plan. You don’t have to be one of them!
2. Establish a pricing system.
This is technically part of your business plan, but it’s so important, it deserves an entire section.
Establishing your rates from the outset can be so difficult, especially if you haven’t done this exact type of work before. Freelance rates vary by industry, location, experience, and more—so we can’t tell you how much you should charge. But here’s where to start:
- If you’re in a similar industry and role, take the last hourly rate you were paid (including benefits!) and double it. And then:
- Do some competitor research. It’s time to dig in and look around to find comparable services in your area. What do they cost? How many employees are there? How big is their agency or shop? All of those factors change their profit margins considerably.
- Remember: you’re unlikely to find a 1:1 match for what you do, but by looking at what’s out there, you can evaluate how much your future business might actually be worth.
Here are some other considerations:
- Will you be paid by the project or hourly?
- Do you have special rates for long term contracts or retainers?
- What is the absolute minimum amount that you would take for a project or client? (Don’t advertise this, but it’s helpful to have in the back of your mind, especially when first starting out.)
When you get a firm idea of your pricing, try it out on some other folks in your industry. Try to gather as many reactions as possible and adjust from there.
3. Get your personal finances in order.
One of the biggest risks involved with freelancing is the lack of financial security. Your income depends on your ability to get clients or sell goods, and that isn’t easy when you’re trying to establish your business.
You’ve filled out your business plan, you have your goals in mind—now it’s time to make sure that you can support yourself while pursuing your dreams. Sit down and assess:
- Your current budget
- Your debt
- Your savings
- Future expenses
- How long you can last without income
Experts typically recommend a savings of three to six months of living expenses for a suitable emergency fund, but you may want to save up even more if you feel like business might be slow going at first.
After making your business plan and looking at your finances, if you find yourself worried about money coming in and supporting yourself—consider keeping your current job or going to part time while you make the transition. There are plenty of freelancers that do this long-term, whether it’s for the financial stability or for benefits like health insurance.
4. Speak to a tax professional.
It’s all too common that folks get so carried away with the creative aspect of starting their freelance career that they forget the business side of things. There are some serious surprises involved with freelancer taxes, including:
- You need to be tracking expenses for business write-offs
- Write-offs aren’t free money
- You might need to form an LLC (or other entity)
- You’ll probably pay more taxes as a freelancer
- You’ll most likely be responsible for paying estimated taxes on a quarterly basis
If anything on that list surprised you, you definitely should consult a tax professional or accountant. They can give you helpful tips on write-offs, expense tracking, and what type of business entity makes the most sense for your business. Getting this sorted out beforehand will save you a lot of headache, frustration, and money down the line. It always helps to have a tax whiz in your corner!
5. Set your schedule and boundaries.
You might already be kicking off your shoes, yearning for the freedom and flexibility of the freelance life—but wait! It’s still important to set up some sort of schedule for yourself. Depending on what sort of clients you’re dealing with, you may need to make sure you’re available during traditional work hours. At the very least, consider how many hours a week you’d like to work and figure out what each day might look like.
When you work as a freelancer, the line between work life and your personal life can become a little blurry. Sometimes your home is your office, warehouse, or workshop—making it almost impossible to step away from your business. Two pieces of advice:
- To avoid burnout, make sure you’re giving yourself plenty of time to have a healthy personal life as well.
- Keep an eye on the income you’re generating in an hour’s worth of work. It’s too easy to work all the time and then figure out that you’re paying yourself the equivalent of $2 an hour.
6. Find a way to keep track of your money.
You can hire a professional for this, but if you’re looking to keep expenses to a minimum, there are a ton of useful software programs designed for business owners. Quickbooks, for example, has a lot of tools designed for small businesses, including tracking for invoices, expenses, mileage, and more.
Don’t wing it and don’t stuff your receipts in a box for “later”. Keeping track of your daily finances is the best thermometer of how your business is succeeding or failing. It can also give you a sense of whether there are rough patches ahead or you’re about to experience a boom in business.
7. Build a client base.
Testing the waters before you quit your job is an excellent idea, specifically because it allows you to build a client base before you even need one. Many freelancers start their business as a part-time gig or side hustle, which allows them to build up a portfolio, network, and clientele before taking the leap. Knowing that you will have work lined up makes it easier to leave behind the financial security of your current job.
Word of mouth is a powerful thing, so once you’ve got a few clients under your belt, you might find it easier to land new clients. Don’t be afraid to reach out to your existing network to let them know about your exciting freelancing services. You’ll never know what may come your way!
Be Prepared to Learn as You Go
No matter how much you prep, you will likely still encounter roadblocks and obstacles in your new career. You can certainly expect a fair share of ups and downs on your freelancing journey. But if you’ve worked through this article at least once, you’ll have a much better idea of where you’re going. If you struggled to come up with some or all of the details we talked about, it might be worth it to slow down your jump to freelance until you can answer with confidence.
Don’t stop with our article, either. Research is your greatest tool in the freelancing game! You might not find exact answers, but you’ll be able to find what works for you and your young business. Best of luck to you!