As the gig economy has been steadily growing in the last decade, more and more people are pursuing their careers as freelancers.
If you’re planning to leave a steady job to get more business freedom, you need to get familiar with the challenges that this switch will bring, as well.
From estimating projects and setting deadlines to organizing tasks and handling the finances, rookie freelancers have many duties on their plates.
In this article, we’re going to share five tips that will help new business individuals to improve their financial conditions.
1. Register a business entity
Most freelancers decide to start out their freelancing work as sole proprietors. Some freelancers work via freelance platforms under their personal names. They pay fees to those platforms and deal with income taxes without registering a business.
It pays off more to launch a limited liability company (LLC) in terms of tax deductions and security of assets. That way, every expense you make for business purposes can qualify for deductions.
Also, your asserts will enjoy a higher level of protection if you hide them behind a business name.
As an LLC owner, you won’t guarantee for your business propertywith your personal assets.
To top it all off, you’ll most probably get more respect from potential business partners and clients when you have a registered business. Larger companies are more likely to collaborate with established and registered business entities than with beginner freelancers.
For all those reasons, go for an LLC instead of a sole proprietorship and you’ll enjoy more benefits as a freelancer.
2. Track all your payments
People who have been working for companies all their lives might experience certain difficulties once they become responsible for their business finances.
Unlike the times when you did your job and received a salary, now you have to follow different financial channels to get the full image of your assets.
If you lose sight of any accounts payable or receivable, you won’t calculate them into your tax return. This may lead to issues with the tax administration.
You can avoid that potential hassle if you meticulously track all your expenses from day one.
This is where proper accounting tools for freelancers come on stage.
You can connect these solutions with your bank accounts and payment methods. As a result, every single payment made to and by your business will be tracked by that accounting software. It minimizes the risk of omitting a payment and increases your financial efficiency.
Once you get familiar with the tool you choose, you can automate invoices and set other features that will help you cope with your finances.
3. Settle the taxes on time
The accounting software above will not only help you automate some payment procedures. If you pass all the payments through this solution, you can rest assured that you’ll have your taxes calculated accurately and on time.
In the US, freelancers need to pay an income tax and a self-employment tax. The amount of the self-employed tax depends on the state you live in.
In most federal states, those taxes are paid quarterly, starting on 15 April for the previous tax year.
In other countries, those taxes vary, which is why new freelancers should contact the local tax administration to learn the local rules.
It’s vital for freelancers to pay their taxes on time, and not to evade any taxes. Avoid receiving payments in cash, because you’re going to expose yourself to unnecessary fines and harsher penalties.
If you handle all your tax obligations on time, you’ll always know how much money you have at your disposal for your business needs.
4. Set some assets aside
New freelancers can’t be sure that they’re always going to have a high level of income. Even if the first few months go well, there will be ebbs and flows in terms of your projects and earnings.
What’s more, you should go through several financial criteria prior to becoming a freelancer to see when you’ll be ready to start this journey at the right moment.
Once you go that way, you should open several different business accounts from day one to always remain financially independent:
- Basic business account. You’ll make your payments from and receive money to this account. Your taxes will be paid from it, as well.
- Savings account. An account to which you’ll put aside a portion of every payment that you receive as a freelancer.
- Emergency funds account. An account for money that you’ll use in case of emergency (temporary work disability, low season, health issues).
5. Increase online visibility
No matter if you’re a rookie freelancer or you’ve already gained some experience, you always need to keep yourself exposed to potential clients.
For starters, join freelance platforms, such as Upwork, PeoplePerHour, Hubstaff Talent, etc. Depending on what you’re doing, your growth may vary, but they’re a good starting point.
Once you’ve decided what you’re going to focus on with your work, don’t miss social media groups. There are thousands of different groups of business professionals on Facebook where you can follow discussions, learn the tricks of the trade, and land your first clients. Also, LinkedIn is a must for new freelancers. It will give you a chance to connect with other similar professionals or potential clients.
As your business network starts growing, it would be clever to launch a portfolio or a full-scale website.
In that light, the designers from a web design company in Houston highlight that you should adapt the size of the website to its purpose. So, a mere portfolio should contain your previous works and testimonials. A full-scale website is recommended to freelancers who have already finished a large number of projects and have transformed into a successful enterprise.
Novices in the world of freelancing need to choose the right business type to exercise all the rights you’re entitled to. Also, track all your payments and always covers all your taxes on time.
In addition, set some money aside and promote your services on various platforms. All these moves will significantly improve your financial condition and ensure a fast start on the global freelancing track.