Work when you want
Work in your yoga pants
Choose your own income
Take vacation when you want
No commute if you don’t want one
Sleep late, work late or
Work early, hit the beach early
Those are some incredible benefits of working for yourself. I could certainly add to that list and I’m sure you can too.
But unfortunately, you don’t get the benefits without some drawbacks.
And most of them have to do with responsibilities you never had to take on before.
Some are no big deal.
Like the responsibility to remind yourself to eat lunch because you don’t have someone telling you when it’s lunchtime anymore. Or the responsibility to force yourself to not work on weekends (betcha never expected that to be necessary).
But some new responsibilities are so annoying and boring (unless they happen to be your area of expertise), it’s easy to dust them under the rug and pretend you don’t have them.
That’s what I want to talk about today.
1. Learn about business entities and pay taxes
Terms like “freelancer”, “side-gig”, “side-hustle” and the like are easy to hide behind.
Not treating what you’re doing like an actual business not only deters from your success in how much you’re putting yourself out there and taking it seriously, but can also cost you big bucks down the line. Bucks you aren’t prepared for.
If you’ve ever babysat or mowed a lawn as a teenager- you may just assume this freelance thing is the same. It’s not.
Whether you are making 6 figures or barely paying for your Amazon Prime habit, the moment someone hands you money for what you do, you are, for real, in business.
I’m not a CPA or tax professional, so I will not waste your time by telling you what business entity you should have or what kinds of taxes you can expect to pay as a freelancer (you shouldn’t listen to me even if I did).
But what I can tell you is that it’s something you need to read up on or hire someone to tell you and be sure you’re doing things the best way possible.
It may be doing exactly what you’re doing now. It may mean being a sole-proprietor and not registering anything official. Or it could mean opening an LLC or Corporation, doing lots of paperwork and paying fees to your state (but saving a lot on taxes).
The point is: you’ll never know unless you do your research or get some help. (I highly recommend the later)
Taking some time to sort this out and get some facts — although boring and the last thing you want to do, I know — can make the difference between a big tax bill come April and a delightfully small one, or big trouble with Uncle Sam (or whoever your country’s Uncle is).
Yep, it was much easier back at that regular job. You fill out a form when you get hired, then tax time rolls around and you can just use some online thing to fill out your return for you and you probably got money back!
There are lots of upsides to working for yourself (duh), but this isn’t one of them. Although once you get it sorted, you don’t have to worry about it much.
But you have to take the time to get it sorted.
Resources I’ve used: Be Your Own CFO Course
2. Use contracts
I put this off for my first few clients and I came close to seriously regretting it. After I finally put a contract in place, it saved my ass more times than I can count.
No- I didn’t have to take anyone to court even though that’s the first thought that comes to mind when we think about contracts. And honestly, I don’t plan on ever doing so (knock on wood).
Although contracts could help me do so successfully, the real gem in having one comes into play in these ways:
- To have something to refer to when a client asks you to do stuff you didn’t include in the original quote. Fail to include everything, and you can end up putting in a lot more work than you are getting paid for OR it becomes a battle with yourself on whether to do something the client asks for knowing that technically you didn’t account for it in your pricing. Happens to me all the time- and if you’re a go-above-and-beyonder it’s a constant battle.
- To protect yourself in the case that you need to cancel the project. What happens if you get sick or have to go out of town for a emergency, or find yourself with a client from hell that you simply cannot continue working with? (it happens)
- To protect yourself if the client decides to cancel the project. You put in a lot of work already, you deserve to get paid whether they use that work or not.
- To make sure you get paid for holding a spot in your schedule for someone that ends up cancelling the day before you planned to start. (This too has happened to me, and no, I wouldn’t have been able to fill that time set aside for them and my landlord wouldn’t have appreciated it.)
- To ensure you get paid, when you are supposed to get paid, for the full amount that is agreed upon. (Like if a client needs to take a break before finalizing the project because they’re too busy, even though you’ve completed the work on your end)
- To look pro and have your clients take you seriously! Most clients will think you don’t know what you are doing if you don’t have a contract, and they’ll be scared that they aren’t protected either if there isn’t one.
I can’t tell you how many times I refer to a contract during a project. So if you don’t have one in place, no matter how small your projects are and if you’re just starting out, you need to get on it.
And if you’ve had some dreaded nightmare clients recently, make sure you are adjusting your contract to best control it happening again in the future.
3. Bookkeeping (and using separate bank accounts)
This is probably the easiest of all things to skip.
I didn’t do it for several months when I started. Then when I did, I just threw my income into a spreadsheet because I was only focused on increasing how much I make each month.
I probably spent more time creating the graph to (hopefully) see an upward line than I did actually tracking anything.
Then tax-time came around (in France to make things worse- bureaucratic hell) and I had to set aside a whole week to dig through various bank and Paypal accounts and a Freshbooks account to make sure everything lined up.
Oh and not to forget, expenses.
It was just so easy to sign up for things (like software programs and hosting) when first starting with my personal account here, Paypal over there.
Besides the tax-time headache, I had no idea how much I was spending to run my business. That, of course, can take a huge cut into the profits making that income graph I labored over to make oh-so-pretty, pretty useless.
So do yourself a favor and make sure you are using some kind of bookkeeping system and separate business bank accounts so you can automate it all (not to mention comply with whatever rules you might have discovered after following through on #1 above)
4. Learn how to manage your money so you can pay yourself and invest back in your business
Getting that Paypal notification or check in the mail is pretty exciting right? Yaaayyyy- MONEY!
You can pay your bills now, or buy that new Vitamix or go out to dinner.
It’s easy to look at that payment notification and instantly imagine all the fun things it will enable you to do this month.
The problem: there are things it needs to go to before you even start with your fun-times list.
Like taxes, recurring expenses, Paypal fees, and things that could help you grow your business even more like a coach or Facebook Ads.
You’ve got to pay yourself, you’ve got to pay the tax man, and you’ll be better off if you invest as much as possible back into growing your business (so the next pay check is even bigger).
Thanks to some help in this area (by getting help with #1, #3 and the resources listed below), I’m now paying myself a certain amount twice a month, putting a set amount aside for taxes, expenses and growing, and boy does it help me stay organized financially and bring a lot of piece of mind.
So take the time to get financially savvy, know how much your business is costing you right now and how much you want it to cost you in the future and get a plan in place to pay yourself.
Need More Help?
Although I’m not an expert in all these things myself, it’s important to me that you are aware of what you need to be doing if you’re not an expert in them either.
Most of these came with a lot of trial and error for me. And it’s ok if it does for you too. Late night google searches drove me nuts and caused me to not take action on a lot of things for far too long.
I seriously said to myself so many times, “Why isn’t there a course out there that will just tell me what to do when it comes to taxes, bookkeeping and paying myself?” Because seriously, you never really trust an article from google right.
And I finally found it. The lovely FTFer Amy Northard has read my mind (and certainly a lot of her clients) and put together a full course on how to Be Your Own CFO that I’m a happy affiliate for.
Amy is a CPA for creatives in the US and recently helped me fix a big boo boo in how I setup my WaveApps account and helped me get back on track with my bookkeeping this year. She just launched the Be Your Own CFO for new business owners who just want to be told what to do and how to do it. The course is easy to follow and easy to take action (exactly what I love in a course).
Check out everything she covers and see if it’s a good fit for you here.