By Amanda Wegner
Workers are trading the independent work: writing, designing, consulting and building businesses on their own terms. According to the Upwork Research Institute, 28% of skilled knowledge workers have gone independent as freelancers.
“I’d be honest about it being a significant adjustment,” says Maggie Thorison, a freelance content writer and strategist. “But I absolutely love creating my own schedule and the ability to have my aging rescue dogs snoring at my feet while I work.”
Adds Morgan Counts, owner of toldwell marketing: “There is absolutely nothing like being your own boss.”
PROTECT YOURSELF FROM THE START
The most common early mistakes small business owners make aren’t about finding clients, but skipping business basics.
“Almost all freelancers start with an informal business agreement, because they are working with friends or family,” says Carolyn Jahnke, founding attorney and CEO of Athena Legal Solutions. “[But] to protect yourself, you need a clear contract that outlines expectations on both sides.”
Jahnke recommends talking with a lawyer to have an “educated understanding of your risks” as a freelancer.
Victoria Thayer, president of Novii CPA, adds that opening a dedicated business bank account is “the single most important thing to set up in year one.”
FINDING CLIENTS
Referrals are a primary source of new business and they start with relationships — not marketing.
“A surprising amount of clients come from simply having conversations,” says Counts. “I’ve gotten clients from chatting with boutique owners while I’m shopping or introducing myself to someone at a coffee shop.”
For Rochelle Ratkaj Moser, owner of Ratkaj Designs, it’s about exceeding expectations so clients recommend her to others.
“Find one client and exceed their expectations,” she says. “You want to be the one that they recommend.”
FIND YOUR PEOPLE
Many freelancers admit this work can be isolating and community is one of the most underrated tools available.
American Family Insurance’s DreamBank is highly recommended for its free expert talks. (Note: In late June, American Family announced DreamBank will be closing its physical space in The Spark building and offering only virtual events.)
Madison Business Collective, co-founded by Counts, is a free group offering twice-monthly meetups focused on strategy and peer support. It meets at various locations around Madison.
Another option is The Grove, which small business coach Katy Ripp describes as “an open coaching community of female small business owners.” Ripp offers several membership tiers.
There are also national organizations, such as SCORE, a nonprofit and resource partner of the U.S. Small Business Administration, that’s specifically for small business owners. The nonprofit provides mentors, education and free resources to entrepreneurs.
TAXES WITHOUT FEAR
Thayer recommends setting aside 25% to 30% of every payment for taxes — immediately — into a separate account.
“Taxes were definitely a challenge during my first couple of years,” says Thorison. “Do your future self a favor and save for your quarterly taxes!”
Thayer and Counts also recommend tracking income and expenses monthly rather than scrambling at year end. This simplifies tax filing and surfaces potential deductions more easily.
For business structure, most freelancers start as a limited liability corporation (LLC). However, if you’re consistently earning a net income of more than $100,000, an S-Corp election may reduce your self-employment tax burden.
“You can always change your tax status as you grow your business,” Thayer says.
OPTIONS FOR HEALTH CARE
The Affordable Care Act marketplace at healthcare.gov is the most common starting point and, depending on income, you may qualify for subsidies, says Thayer. Freelancers can also deduct health insurance premiums on their tax returns, helping offset the cost.
Importantly, review your plan annually during open enrollment, because subsidy eligibility and plan costs shift as your income changes.
SECURE YOUR RETIREMENT
No 401(k)? No problem. Two common accounts for freelancers are the Simplified Employee Pension (SEP) individual retirement account (IRA) and Solo 401(k). The Solo 401(k) has extra flexibility because you can contribute as both employer and employee.
“Retirement contributions can be a powerful way to lower current-year taxes while building long-term financial security,” says Thayer.
TOOLS TO WORK SMARTER
Recommended tools include:
- HoneyBook for contracts and invoicing; alternatives include Dubsado and 17hats.
- Wave has a free starter plan for invoicing (and paid plans for more add-ons).
- Asana and Trello are popular project management tools.
- MileIQ tracks mileage for tax deductions.
Also, when administrative tasks start eating into work time, that’s the signal to hire a virtual assistant, says Rochelle Ratkaj Moser, owner of Ratkaj Designs.
