Self-Employment 101
December 30, 2012 2:15 PM   Subscribe

Self-employment filter: I'm leaving my job to freelance full-time. What do I need to know that I don't already?

I've freelanced part-time since 2010 while holding down a regular job from which most my income came. I've recently expanded my business to several new services, and to my surprise, I'm suddenly overwhelmed with clients that like my work. Business is booming. My regular job is low paying and the schedule is awful, and I'm headed back to school for another degree in a few days, so it's time to leave. I will be giving two weeks notice tomorrow.

I'm looking for advice from other self-employed MeFites. What do I need to know to make this work?

I'm already familiar with taxes, as I've paid them for two years now. I keep a very detailed spreadsheet that I udpate daily with projects that I'm working on, how much money I'm making, who's paying me and when, how much more money I need to make this week to meet my pre-tax minimum goal, etc. I'm not the primary breadwinner in my family, but I do need to bring some money in to keep us afloat. I have a list of all my clients, as well as several fairly dependable "back up" (i.e. low paying) agencies that I can get some work with if business is slow to at least ensure I have some money coming in.

I'm working on getting a website up. I doubt the site itself will generate much business, but I'm hoping a nicely done professional website will help lend credibility to proposals. I use a variety of freelance websites to find clients, and have in the past done a little local advertising in relevant publications. I am currently investigating other affordable advertising options as possibilities.

I have a lengthy list of more freelance sites and relevant agencies to apply to, so at least in the short term I have a good list of places to seek work.

I use PayPal most of the time and let a few trusted clients mail me checks. I just got a Payoneer card as well, but I haven't yet figured out if that is something I want to use.

I work from home with my own computer and equipment. It's very unlikely that I would ever have a real reason to rent office space. Thus my overhead is fairly low.

What else do I need to know? What could go wrong here? Are there any huge pitfalls that I'm forgetting about?
posted by wansac to Work & Money (23 answers total) 30 users marked this as a favorite
Response by poster: Forgot to add: I do not totally have health insurance figured out yet, but I don't have health insurance at my current job. I can get on my husband's health insurance, but it's pricey. Any advice on where to look for other coverage options is appreciated, although I know pretty much everything is going to be expensive at this point.
posted by wansac at 2:43 PM on December 30, 2012

Best answer: Have nothing to say about most of this- except that I'm really excited you asked this question.

I do want to remind you to check out the health insurance offered at the school you'll be starting up at and compare it to your other options.
posted by saraindc at 2:53 PM on December 30, 2012

Another option is to check if there are professional organizations in your field that offer health insurance group plans for freelancers. Your local Chamber of Commerce or small business association might also offer buy-in to a group plan.
posted by Sidhedevil at 3:00 PM on December 30, 2012 [1 favorite]

Generally speaking, what field will you be freelancing in?
(or did you note that and I missed it?)
posted by lampshade at 3:31 PM on December 30, 2012

Since you're working from home, you may want to check into what permits your local jurisdiction requires. Some communities require you to obtain a business license, and even if your local community doesn't require a business license, it may require that those operating a home-based businesses apply for a "home occupation permit". An then even if they don't require home occupation permits, they may still place restrictions on what you can do with a home business. For example, Seattle doesn't require home occupation permits, but it does place a series of restrictions on home occupations.
posted by RichardP at 3:48 PM on December 30, 2012 [1 favorite]

Response by poster: lampshade: I started out just doing Spanish translation and interpreting. I got training as a medical transcriptionist at my job (I've worked in healthcare for a while, and am now premed), so I've started doing medical and general transcription and have been making surprisingly decent money doing that at home. Then by chance I got a couple projects editing and writing in English (my native language). I now do some of that and have been getting good feedback from clients, so I'm running with it and offering a couple different types of writing and editing services in addition to the other stuff.
posted by wansac at 3:53 PM on December 30, 2012

Get some general business liability insurance (about $500 a year for $1 million coverage here in MA, ymmv) if there's even the slightest chance a client could sue you in your line of work.
posted by dayintoday at 4:05 PM on December 30, 2012 [4 favorites]

Best answer: I was going to say liability insurance myself. Check also about your home/renter's insurance to see if it covers objects/space used to make money, and check your auto insurance coverage if you'll be using the car for business reasons.

Also, investigate local tax stuff in depth- you'll probably have to collect sales taxes (which I didn't see you specifically mention.) This can get extra complicated if your business crosses state lines, and even county/municipal lines.

Really, the biggest issues you're likely to run into all involve words like "tax" and "insurance" and "licensing" and "accountant."

Hook up with the SBA and with the state government's regulatory assistance agency and your nearest small business development center (or similar.)

You can also network with the folks from SCORE and other small-business groups.
posted by SMPA at 4:57 PM on December 30, 2012

Response by poster: SMPA: Do I have to collect sales tax on services? I don't sell any goods at this point (or at least not anything I think would be classified as a good).
posted by wansac at 5:02 PM on December 30, 2012

Oh, and a tip for the website: updates and usefulness are more important than prettiness. Google doesn't care much, if at all, about how nice your website looks or how flashy it is; end-users don't care much either.

These people (e.g.) are your competition. Out-do them on the content depth and the frequency of updates, and you'll be just fine as far as the website is concerned.

You should get some certifications to put after your name, also.

RE: Taxes -
Generally, a retail sale is the sale of tangible personal property. It is also the sale of services such as installation, repair, cleaning, altering, improving, construction, and decorating. Other services include improving real or personal property, amusement and recreational activities, lawn maintenance, and physical fitness activities.
posted by SMPA at 5:06 PM on December 30, 2012 [1 favorite]

I think you should open a business bank account and skip PayPal. I always take clients' checks, and whenever I've had to take PayPal, I ask for the fee to be re-embursed. I doubt that you need to charge sales tax, and I wouldn't worry about having a business license, either.
posted by Ideefixe at 5:06 PM on December 30, 2012

If you are in Washington state, wansac, the state offers new business tax workshops. There are five scheduled this month.
posted by SMPA at 5:09 PM on December 30, 2012 [1 favorite]

Get an accountant. Use them. I know, you think "But I can do my own taxes!" which is true. But don't. Pay your accountant to do them. They will save you more money than they cost and will give you peace of mind. And they can answer your sales tax question in about 2 seconds.

If you don't have anyone who can recommend one to you, call up a few and interview them before picking one.

Also, you can't have too much savings.
posted by Ookseer at 5:15 PM on December 30, 2012 [1 favorite]

Best answer: Also, this ("what is taxable") is highly dependent on your jurisdiction. I wouldn't take the advice (on this issue) of anyone other than a tax professional currently licensed to practice in your jurisdiction. Ideally they'd work for the state tax authority and give you a very official written explanation of exactly what you have to do. And you'd make ten copies of that written explanation and save them in a variety of very safe places, one of which being the file your attorney has.

(There is nothing as hard or risky as taxation. It's what they used to bring Al Capone down, it's what Nixon used against his enemies, etc., etc.)
posted by SMPA at 5:16 PM on December 30, 2012

Response by poster: SMP: Thank you for the information regarding taxes.

Ideefixe: I can't skip PayPal (it's also the norm in my industry to pay by PayPal). My clients are all over the world, and typically the only contact I have with a new client is through email. I defintely would skip it if I could since they take a fee out of transactions, but it would be too slow and probably too risky to only accept checks (not to mention all my competitors take PayPal payments). PayPal also lets clients pay me by credit card, which they seem to like quite a lot.
posted by wansac at 5:27 PM on December 30, 2012

Best answer: I sell consulting services to corporate clients in the US and abroad.

Some suggestions:

1. Incorporate as a one-person LLC if you haven't already. This gives you *some* protection of your assets and makes you seem more professional. It won't make your taxes more complicated than they already are as a freelancer -- your LLC will be a "disregarded entity" as long as it's just you, and you'll file the same forms you're already filing (schedule SE, C, yada yada). Once you start making big piles of money, you might want to set up a different type of corporation to get some tax advantages. Talk to an accountant to see what form of incorporation would be best for you now and how you should plan for any future changes. In the state where I incorporated, all I needed to do was fill out an online form and pay $87 and I had an official LLC.

2. Set up a separate business bank account in that business name if you haven't already.

3. Get a merchant account to accept credit cards and stop using Paypal if at all possible. If you just take Paypal, you position yourself as dealing with individuals and micro-businesses (who typically pay the least and are the most problematic), and you could be seen as putting yourself in the same league as eBay sellers. You also open yourself up for being treated like absolute crap by Paypal, which happened to me. A merchant account makes you seem much more professional and protects your money. For me, the fees are roughly the same, and my money is directly deposited in my FDIC-insured business account instead of staying in Paypal's uninsured and capricious clutches. I use Moneris for Visa and Mastercard and also accept American Express (important for corporate clients). I use for the gateway and e-Junkie for the shopping cart, which just means I create a "product" for each invoice and include the payment link for that product on the invoice. Dharma Merchant Services set up the merchant account for me and were easy to deal with.

4. If you're very concerned about lawsuits, consider errors and omissions insurance. General liability insurance is of dubious utility for people who never set foot on the client's site and who never have visits from clients. Errors & omissions, however, protects you in case your translation or writing includes an error that costs the client money. Unfortunately, it's an expensive form of insurance. I've bought it only when required to by clients. A better solution might be to use a contract that makes the client responsible for providing accurate information and for checking the accuracy of the final product, though I suspect this could be tricky for translation gigs.

5. Be wary of health insurance offered through freelance or trade organizations. When I looked at it, it wasn't really insurance but was more like discounts on stuff. I paid out of pocket for my own insurance for years, and then I solved the problem by moving to a country where I can actually afford medical care.

Good luck!
posted by ceiba at 5:52 PM on December 30, 2012 [10 favorites]

Response by poster: I know I'm starting to threadsit, but ceiba: Thank you for that information about the merchant account! I had not even thought of that.
posted by wansac at 6:00 PM on December 30, 2012

Best answer: Keep track of expenses (it's throwing away money not to). Hire an accountant (you can't afford not to-I also keep a spreadsheet but my accountant files for me and I ask him questions on taxes, deductions etc throughout the year). Write a contract (look at the Nolo book). Form an LLC. Get Business insurance. Get health insurance. Get a retirement plan such as a Roth IRA. Open a business checking account to keep things separate (plus that means you get the oversized checkbook which is fun.) Get a credit card for the business (again just to help keep things separated). Look into for your website. Look into fresh books for an invoicing system with credit card processing. Avoid Paypal like the plague. Read Design is a Job. Read Consulting for Dummies and Small Business for Dummies. Start a newsletter. Set up your own domain for email and website ( or something). Don't be afraid to hire others for help outside of your competency: lawyer, accountant, marketing, IT, etc.

(I do all these myself except credit cards: I'm checks only).
posted by ridogi at 6:29 PM on December 30, 2012 [5 favorites]

Best answer: Ceiba covered everything I was going to suggest with one exception - if you don't already have a contract clients sign before work begins, get one drawn up by a competent attorney. (Never ever work without an executed contract - it's not a question of if, but when you'll encounter an unrealistic, batsh*t crazy client. A good contract that protects you is worth its weight in gold.)
posted by muirne81 at 7:00 PM on December 30, 2012 [1 favorite]

Best answer: Set a salary for yourself that you can live on, and then pay yourself that amount just as if you were working for someone else. Whatever money you bring in over and above that you can just keep in the bank. This way you will have money available so you can keep paying your salary whenever you hit a slow patch, or if you decide to take a vacation or something.
posted by spilon at 8:49 PM on December 30, 2012 [1 favorite]

This is totally along different lines but GET THE FUCK OUT OF THE HOUSE as often as you can. Full-time freelance can very quickly devolve into becoming a hermit depending on the field. (hi.) Even working from a coffee shop can let a little air out.
posted by dekathelon at 9:08 PM on December 30, 2012 [4 favorites]

Best answer: As you're translating: don't join the race to the bottom you'll see on freelancing sites ( and the like). Set your rates and keep to them. If you're doing good work, your clients will come for that and not because you're doing a shit job cheaply. It's a much better base to build on. (Actually that should have been: 'It's a base to build on.')
posted by Skyanth at 2:35 AM on December 31, 2012 [3 favorites]

Response by poster: Coming back in to say thank you to everyone who contributed. The advice here was really great and I appreciate it very much.

dekathelon: Fortunately, I'll be a student for a few hours on weekdays and I have some regular volunteering stuff I go to, so I have a couple things to help me be less of a creepy, never-converses-with-other-humans type hermit (I'm very introverted, so believe me when I say turning into such a creature is a real risk for me).

Skyanth: I hear you about the rates. When I first started, I worked for whatever money I could get, thinking that's the only way I would get work. Now I've actually started saying no to anything that is below a reasonable hourly rate, and I'm doing just fine that way.
posted by wansac at 1:30 PM on December 31, 2012

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