The recent dips and swerves in the economy have left many IT types looking for solid ground in their careers. And as some have found, it can be easier to just create terra firma than keep searching for it.
The recent dips and swerves in the economy have left many IT types looking for solid ground in their careers. And as some have found, it can be easier to just create terra firma than keep searching for it. That means the freelance life has become more attractive than ever. Although there may still be a few naïve souls who believe freelancing is all about naps, working in slippers, and ducking out for daily matinees, most people who investigate working solo realize how much work it can be, and how difficult time management can get. But yes: You really can work in slippers. Before you decide on fuzzy vs. suede, however, there are some planning issues to tackle. When embarking on a freelance consulting and support path, the more strategy that can be done, the better, and that usually means working out financial challenges, marketing tactics, and logistic concerns. Here’s a look at the five most common stumbling blocks, and how to avoid them.
Finding the money
It seems simplistic, but it’s something that some new freelancers forget: Have enough money in the bank to get started. Even if you have a robust client roster and you’re owed thousands of dollars, be careful not to start freelancing until you have a comfortable cushion in the bank that isn’t needed for bills, rent, or mortgage. How much is needed depends on your expenses, but the general rule of thumb is to have enough to float you through two months of no income. That means figuring out exactly how much you need for bills, groceries, gas–the whole shebang of living–and translate that into two months’ worth of savings. If you’ve been downsized and saving isn’t an option, at least figure out where you could get the money if you had to. Ask friends and family about possible loan opportunities, think about taking the bus more often, or renting out that spare bedroom. The focus here is on anticipating crisis. Hopefully, that time will never come, but it’s better to be prepared in advance.
Paying the tax man
Ah, taxes. As a freelance professional, there will certainly be times when you’ll look back at those carefree college days of EZ forms and sigh with nostalgia. But then again, you were probably delivering pizza then, and looking for beer money between the couch cushions. As much as you’ve advanced careerwise, you’ve also entered a realm where taxes can be more than just confusing. They can be downright intimidating. The best thing to do is to get a solid CPA or other preparer (see “Utilizing professional help” below), but in the meantime, gain at least general familiarity with how the process works. Unlike when you were a regular wage earner who could pay taxes on April 15, you must now do quarterly estimated taxes. These fall due in April, June, September, and January. True to the name, they should reflect what a freelancer estimates as a quarterly tax hit. To avoid paying too much or too little for these taxes, it’s vital to employ good bookkeeping techniques, and do quarterly reports. Wayne Davies, author of the e-book “The Tax Reduction Toolkit,” notes that a freelancer should know the bottom line every month. He says, “From a tax standpoint, once you know your profit for a given quarter, you can then calculate the resulting tax liability on that quarter’s profit.” This results in an accurate quarterly payment rather than just guessing. It’s also possible to simply skip the quarterly taxes and pay annually, but beware: The IRS will hit you with a penalty for such laziness.
Getting and retaining some customers
You’ve shelled out cash for software, business cards, maybe even a logo for your car door. Now, it’s time to sit back and … what, exactly? The answer is that you can’t really sit back, not ever, if you want your business to be as successful as possible. The key to happy freelancing is getting clients, and plenty of them. As with finding a job, this involves networking and putting your name in front of other people. If you’re doing freelance tech support, it could mean littering the city with bulletin board postings. Freelance programming could involve calling local businesses and inquiring about their software needs. Often, it’s beneficial to put together an informational packet about you and what you offer, highlighting what sets you apart from similar service providers. Once you’ve got that done and you’ve sent it to relevant prospective clients, don’t get comfortable. Freelancing involves relentless new customer development, so a portion of your time should be set aside specifically for creating new marketing tactics and researching different markets to explore. Once you have a client roster, it’s important to maintain those relationships. This, like many other aspects of freelancing, depends heavily on recordkeeping. Who’s due for a hardware refresh on firewalls? Who needs software integration? Didn’t that guy on the CRM project talk about wanting to migrate to Linux by the end of the year? Keep notes, even if you think you’ll remember later. Then, set reminders in your calendar for periodic note checks, to refresh that trusty memory. Clients will appreciate your follow-through and competence, and that means more jobs for you.
Utilizing professional help
Sometimes when freelancing is going well, with the taxes paid and the client roster growing, you can feel pretty bulletproof. Everything is under control, and that’s a powerful, and often rare, kind of feeling. But even when things are going swimmingly, and especially when they’re not, you can benefit from the sage advice of other professionals. Specifically, get an accountant who knows a good tax preparer, or can do tax prep as well as financial planning. Tapping into that financial knowledge doesn’t have to be a monthly line on your budget; a quarterly check-up can be all it takes to go from fretful to blissful. Basically, professionals make it their job to know about your business. For you, finances or taxes or strategy are merely one component, and a couple of questionable line items or wrong deductions can slip into your books when you’re busy. A second opinion is often a valuable, and easy, way to double-check your work and make sure you’re poised to reach future goals. Freelancing isn’t easy; that’s why not everyone does it, despite the allure of wearing slippers all day. But it doesn’t have to be daunting either. With good records, frequent bookkeeping, and a load of persistence, you’ll be a stellar freelance in no time.