Many people crave the freedom that comes from working for yourself, be this as a freelance individual or a small business owner.
The reality is that many people today, and particularly in the new year are making the transition from being employed to being self employed, but the two worlds are so disparate it can be useful to learn some of the freelancing core principles in order to set yourself up for success.
In this article, we’re going to take a look at some of the differences between employment and self-employment with a view to helping you set yourself up for success as a freelancer.
The Safety Net of Employment
The majority of people have financial commitments and a lifestyle to maintain, perhaps even a family to provide for, so starting up as a freelancer is something that should be considered carefully because whilst there are many benefits to being a freelancer, one of the greatest concerns is that you will be trading the financial security of a job that pays you regularly with the uncertainty associated with working for yourself.
Of course, with a decent plan and fantastic execution, you can secure your own future and there’s no reason why you cannot replace your full time income as an employee with freelance work; but it’s important not to “bite your nose off to spite your face” which is why many people set up a freelance business whilst remaining employed.
This way, as the freelance side of things picks up and grows over time, you can start to reduce your hours at work or even quite altogether – but it allows you the safety net of keeping a basic income whilst setting up your freelance business. In the alternative, you could consider an insurance policy that pays out if you are unable to work due to ill health – something many employees take for granted, in terms of statutory sick pay in addition to company specific policies.
With that said, freelancing can be a great way to earn money as you are more able to have your work fit around your life, rather than having to fit your life around your work – or rather, your boss’s demands!
Feast or Famine
The freelance lifestyle tends to be associated with much more freedom and flexibility, however, many freelancers work seven days a week, as there’s a touch of “feast or famine” when it comes to freelance work.
There will be periods of feast where you are overwhelmed with work and can barely keep up with demand, whilst at other times, there will be very slow periods where there’s barely any work.
There’s a saying about making hay that is appropriate for the freelance lifestyle, as akin to how a squirrel works very hard to gather nuts in autumn, you need to gather as much money as you can, when the demand is high.
The challenge, however, is that you can find yourself running into periods of exhaustion due to responding to high demand. You therefore need to focus on pacing yourself, and considering ways to maintain a steady flow of work. This can be challenging as most people want their project to be completed almost instantly.
Keeping Costs Down
When it comes to making money, revenue should be a secondary aim to profit – and one of the best ways to maximise your profit is to keep your costs down.
Interestingly, as a freelancer, one of the most expensive costs associated with business is the cost of marketing your services. Whilst word of mouth is one of the most effective forms of marketing, it takes some time before word of mouth starts to reach a level which can sustain your business – meaning, at some point, particularly in the early days you are going to have to pay for advertising of some description.
This is where platforms such as Freelancer and Fiverr come in. Admittedly, they charge a fee in terms of a percentage of the revenue derived from the project – but as they only charge you when you are making money, it’s cashflow positive, meaning you don’t have to shed out lots of money with a risk of getting nothing back in return.
There’s something about being a freelancer that feels a lot less formal than having a business in the conventional sense, it feels a lot more “free” in the sense of it’s free from regulations associated with having a limited company where you must publish accounts and annual return documents.
However, freelancers are still subject to stringent rules around paying tax, and laws such as contract, negligence, and misrepresentation.
If you’re used to being an employee then you won’t have had to deal with tax matters before, as this tends to be done by your company’s HR department. Yet, as a freelancer, this responsibility falls on you – and if you fail to comply with tax law, it can have very serious consequences.
That said, the benefit of being a freelancer is that it means a lot of your expenses are tax deductible which means you are likely to be paying much less tax on your income. For instance, when you consider that driving to a meeting is a tax deductible expense, but the cost of your daily commute as an employee isn’t – shows how much of a better deal freelancers tend to get.
As an employee, it can be easy to stay motivated, in the sense of staying on track – because you have someone breathing down your neck to make sure you reach targets and are accountable for your performance.
As a freelancer, however, you have more freedom, meaning you don’t have this burden… yet, in some ways with more freedom comes more responsibility – and in this context, you have the responsibility to keep yourself motivated and on top of your workload.
This is where goals, and goal planning comes into play, as this will keep you on track to perform at your optimum.
In summary, starting out as a freelancer has many benefits from time freedom to tax advantages, yet, it is a completely different world to employment and lacks some of the security and structural advantages.