There are a number of things to do before starting a freelance business.
Going freelance and starting your own business is an exciting venture. Freelancing lets you do what you love, work with whoever you choose and take your income into your own hands.
If you’re thinking about handing in your notice and going freelance, you won’t be alone as there are around 2.2 million freelancers in the UK. But before you take the first step in your freelance career, you should prepare yourself for the journey ahead. Freelancing isn’t always plain sailing, and preparation is crucial to success.
To help you get started freelancing, here are seven things every potential freelancer should do before starting a freelance business.
1. Work out your finances
Unless you decide to start your freelance business while still employed, your finances will likely be tight at the beginning. It can take between two and three years for a small business to make a profit and so working out your finances before you start is crucial.
Depending on your industry, the startup costs of launching a new business can vary greatly. To work out the costs of your business, you’ll need to ask yourself questions about what you and your business will need to succeed, such as:
- Do I need office space?
- What office equipment will I need?
- Do I need any specialist equipment?
- What do I need to market my business?
But it’s not just business costs you’ll need to consider if you’re planning to work full-time as a freelancer. You’ll also need to assess domestic costs, such as:
- Utility bills
- Council tax
- Food and drink
Running your own business and being your own boss can be a great experience, but it can be stressful when money is tight. You can reduce that stress by planning thoroughly before starting your freelance business.
2. Stay on top of everything
Another way to reduce stress levels and boost productivity as a freelancer is to get organised. This will be important throughout your freelance career, but it’s crucial when you’re getting your business started.
Before quitting your day job and jumping into freelancing, get everything in place to hit the ground running. While you’ve got a steady income from your job, you can lay the groundwork for your business. This can include:
- Putting together a compelling portfolio
- Investing in any equipment, technology or software you need
- Find a space to work (at home, a local cafe, flexible office space, etc.)
- Designing a website
- Building your professional image
3. Work out how to source work
Finding work can be one of the most enjoyable but also one of the most stressful elements when you’re a freelancer. It’s essential for your survival as, without work, you won’t have a steady income and will struggle financially.
One of the biggest challenges, when you’re just starting, is finding clients. Depending on your industry, there are some great resources available to get your first clients and start earning, such as:
Another way to find work is to ask your friends and family. Often, you’ll find that somebody you know — or somebody they know — needs your services. It’s also worth reaching out to small businesses in your local area and offering your services.
4. Decide how much you’ll charge
One of the most challenging but essential parts of being freelance is working out how much you’ll charge for your work. Before you land any client, you need to nail down how much you will charge, whether it’s a flat, project-based fee or a daily/hourly rate. To work out how much to charge, consider:
- Your experience level
- Your absolute minimum income
- The average freelancer charge for your industry
It can be tempting to undercharge to get clients and exposure when you start, but this can quickly backfire. For example, if you charge £50 for a project but realise this is too little later on, it’s challenging to increase your prices significantly.
It’s also important to remember that clients associate cost with quality. If you are undercharging for your work, potential clients may interpret this as a signal of low quality work and decide not to hire you.
5. Prepare for a rainy day
Unlike full-time employment, freelance income is unsteady. When you start freelancing, you will have times when you’ll struggle to keep up with the volume of work and have plenty of invoice payments rolling in. Equally, you can have periods with less work and less income.
Due to this, you’ll need to use your successful periods to cover the quiet months. When you start, this might be difficult as your income will be lower, and you won’t know if you’re having a good month or your business is just growing. But as time goes on, you’ll be able to see patterns emerging and so plan ahead and save.
6. Get to know freelance taxes
As if running your own business and keeping clients happy wasn’t enough, as a freelancer, you also need to handle your own taxes. Unless you happen to be a freelance accountant, getting your head around tax can be difficult.
It’s not just tax you need to consider; you’ll also need to stay on top of your National Insurance (NI) contributions. As an employee, all your tax and NI will have been automatically paid through Pay As You Earn (PAYE), but it’s all down to you as a freelancer.
HMRC take the following into account to calculate the amount of tax you pay:
- Your profit
- Any deductible expenses
- Your trading allowance
- Any employment income that tax year
Getting to grips with how freelance taxes work before you start your business is crucial as you will need to set aside tax from every invoice. Failure to do so can result in higher tax bills than expected and fines.
7. Register as a sole trader or limited company
When you take the step to start your business, you have a choice to register a limited company or become a sole trader. Many freelancers begin as sole traders to get their freelance business going before forming a limited company. Setting up as a sole trader is much easier and faster, but nothing is stopping you from skipping that step and registering as a limited company straight away.