Considering Your Business Structure

Feb 16, 2009 Excerpts

This is an excerpt from the book, The Principles of Successful Freelancing. Sample chapters are available for downloading from this page.

When setting yourself up as a business, you should consider the implications of different business structures. If you intend to take on staff within the first few years, you may wish to set up a corporation. If you plan to remain a solo worker, having everything set up as a sole proprietorship may be the best solution.

Having said this, consider speaking to an accountant and possibly a lawyer to seek advice about your particular scenario. You could also speak to local business bureaux (such as SCORE) or associations. They’ll take into account your current personal and financial situation, as well as your legal jurisdiction. Requirements for different business and company registrations will vary depending upon your location.

Each different structure can have a considerable impact on your taxation benefits, your licensing and governmental costs, and your ability to grow the business in the future.

The main differences between a limited liability company (an LLC) and a sole proprietor arrangement reside in the varying levels of possible taxation benefits, legal protection, ability to obtain finance, and your legal requirements.

Setting up an LLC structure has both advantages and disadvantages. The advantages include:

• greater legal protection—If a client sues the company, only company assets can be seized to pay any judgement, not your own car or house.
• greater ability to obtain credit—Many financial institutions and lenders have a preference for a company, rather than an individual, for business finance.
• tax benefits—In some states and locations, a company receives more taxation benefits than a person.

This option isn’t entirely free of disadvantages, of course. An LLC costs money to set up, and there are ongoing company-related fees. Also, financial reporting is usually more involved than for an individual.

Being in a sole proprietor structure has its fair share of benefits, mostly to do with cost. When compared with an LLC, there’s less financial reporting for most situations, fewer start-up administration costs, and not as many licensing or business costs.

There are disadvantages though, which are easily recognizable as the other side of the LLC advantages:

• zero legal protection—If a client should sue you, the court can order that your assets be taken to pay any legal judgment.
• less access to credit—Business loans are likely to be harder to get for a sole proprietor than for an LLC.
• tax burdens—You may be taxed more than if you were a company.

Ideally, whatever structure you create now will mean that you aren’t paying more than you need to in fees and costs, yet allow you to be flexible enough to accommodate change as your business and your direction evolve.

It’s also a very good idea, regardless of your structure, to open a bank account for your freelance business that is separate from you as an individual. This way, you can pay yourself as if you were an employee, and allow a small nest egg to grow in the business account for those quieter months.

This account will also be used to pay all of your running costs, making the bookkeeping side of your new venture easier to manage.

Speak to as many other freelancers and small business owners as well, and ask them how they set up their own structure—people will soon tell you the pros and cons of their decisions, and this can save you a fortune in reorganization in the future.

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Tags: freelance blog, freelance book, freelancer help, freelancing, posf, successul freelancing

Creating Your Brand: the Preliminaries

Feb 9, 2009 Excerpts

This is an excerpt from the book, The Principles of Successful Freelancing. Sample chapters are available for downloading from this page.

We’ll talk more about branding yourself in a later chapter; however, it’s very important that you carefully consider the business name you plan to use, when first kicking off your freelance career. There are two typical approaches: use your personal name, or create an entirely new trading name.

Let’s look at these options in more detail.

Using Your Own Name

Using your own name is a fantastic way to build a personal brand. Taking this option depends on what your vision of the future looks like—if you plan to hire staff at a later date, you may want to avoid using your own full name, but there are still options available even if you do; for example, Burke Design & Development; Miles Burke & Co. On the other hand, if you have every intention of remaining a one-person show, giving yourself a name like “XYZ Corporation” can be considered misleading, as it won’t take long for your clients to realize that you’re a solo worker.

Note: Anything’s Possible!
Many people start off never expecting to take on staff. Don’t rule this out, unless you feel strongly against it. I once couldn’t picture myself hiring employees … and at the time of writing I have 16!

This theory assumes your name is unique enough to be memorable, and that it’s easy for your clients to pronounce. If your name is Bob Smith, you may find that it’s too common for business registration and other registrations, such as domain names or intellectual property.

To recap, the advantages of using your personal name include:

• it builds a reputation around you
• it’s normally easier to recall, since clients already know your name
• it can avoid misleading clients if you plan to stay solo
• it looks far more personal and (depending on the uniqueness of your name) can make you easier to find on the Web

Disadvantages of using your own name include:

• it limits you in terms of hiring staff and possibly even selling the business, if you reach that point someday
• it can make it harder to rank on search engines if your name is very common
• it may be hard to pronounce if your name is very uncommon

Using a Fictitious Name

Irrespective of the business structure, having a business name unrelated to your personal name has a number of considerations that need taking into account.

A business name which when read phonetically is still pronounced correctly is perfect. Pfizer could be a challenge; Sigma is fairly unambiguous. Don’t get too clever with creating crazy business names—most people would regret having to answer the phone with the greeting “Smelly Shoe Design” before long.

Having your main service as part of the name makes sense as well, although be warned against making it too specific. For example, perhaps you’re a designer whose short-term plans are to design web sites only. You’ll need to consider whether you plan to expand into other forms of design in the future. Having a name like “XYZ Web Design” when you’re pitching for a logo design project may not help you beat your competition, so beware of suggesting that you’re only capable of providing one service.

A good business name should be easy to recall, evocative, pronouncable, and unique. You’ll want to register the domain name, so run a WHOIS on your shortlist to rule out those already registered. Don’t just consider your own country extension—register as many extensions (including the top-level domains, .com and .net) as possible.

Warning: Unexpected Domain Names
Take a step back and look at your domain name carefully! There’s been more than one business that has come up with a great trade name and bought the (in)appropriate domain name to match:

• Experts Exchange: expertsexchange.com
• Powergen Italia: powergenitalia.com
• Therapist Finder: therapistfinder.com

The advantages of creating a new name for your business are:

• It keeps your personal and business lives further separated.
• It allows infinite choice of business name.
• It allows you to tailor the name according to domain name availability.
• It’s easier to sell your business or client base in the future.

Disadvantages of using a custom name include:

• You’ll need to exert some energy to get a new name to stick.
• You could have issues finding one that you feel comfortable with and fits you well.
• It’s not an easy process to change the name later on.

If you do decide to use a created name, start by creating a shortlist of options, and then create a spreadsheet. Populate the first column by doing a WHOIS search and finding which domain names are still available (both geographic and top-level).

Then, fire up your favorite search engine and search for those business names. What are the results? You wouldn’t be the first start-up to make it this far, only to find another product or business using the same name. It’s better to do this research now, rather than when the business cards have been printed … Try predictable misspellings of the words, too—often a business name may be only one letter different from another, so make sure you check first!

Thirdly, consult your local trademark database and see if there are any trademarks of which you need to be aware. Even very similar words may be worth avoiding.

You should also speak to some friends and colleagues. Ask them what they think of each name in your refined shortlist, and narrow this list down even further. It’s better to do this face to face to observe an immediate reaction, rather than by email or phone, where they may have a longer time to consider it—you want their gut response.

Finally, go with your instinct. After all, it’s your creation, and you have to like it. If, after hours and hours of soul-searching, you just aren’t happy with your choice, try again or consider using your own name.

Example 2. Bam Creative
When considering my own business name, I had a multitude of options. I liked the idea of incorporating my name in the business identity; however, I did want to leave my options open in case I ever hired staff.

Although my name (Miles Burke) is fairly unusual, the domain name milesburke.com was taken at the time, and I didn’t want to tie it in so closely to me in any case.

My initials are MB or MAB in full, and I didn’t believe these really stood out. However, when you reverse them, you end up with BAM, which I felt suggested impact. I knew that Bam was a very popular word, though, so I assumed there was no chance of getting those domains using it by itself.

Although most of my work at the time was web site design and development, I was occasionally brought in on corporate identity design or consulting projects. I’d already decided that I planned to stick to creative work, so I ended up choosing the business name Bam Creative.

This allows my business to work on anything from web sites to logos and anything else that can be broadly considered creative, and still be true to the name. The word Bam is generic enough for most people never to make the connection that it’s someone’s initials, and certainly not the reverse of someone’s initials!

Funnily enough, I did manage to register the domain bam.com.au, but I had no chance of getting any top-level domains (.com, .net or .org). Luckily, I got the full bam creative business name versions of these.

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Tags: branding, consultant, freelancer, freelancing, small business

Bob Sawyer on Freelancing

Jan 21, 2009 50 Words

Bob says…

Spend at least two to three hours a week on networking and relationship building. The relationships you make may not pay off immediately, but you never know when someone will pop up with a job or referral. Join LinkedIn, get involved locally, and always be willing to collaborate on jobs.

About Bob
Bob Sawyer is the owner and head bottle washer of Pixels and Code, a web development shop in Atlanta, Georgia. He has freelanced on and off for about eighteen years.

About this Post
This post is one of a series, written by various people within the web industry. They are responses to my request for a maximum of 50 words on the topic of tips for freelance success. You can use the 50 words category to see all the answers so far.

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Tags: freelance tips, freelancer, freelancing

Deciding How Far to Jump

Jan 5, 2009 Excerpts

This is an excerpt from the book, The Principles of Successful Freelancing. Sample chapters are available for downloading from this page.

Now that you’ve made the decision to become a freelancer, we’ve reached the point of short-, medium-, and long-term preparation. If you’re anything like me, you’ll want to jump in running as fast as you can. However, it’s been proven time and again that to ensure the best chance of success, you should expend plenty of effort in planning and preparation. This raises the question of which work mode to begin your freelance life with: full-time or part-time.

If you’re a student nearing the end of your studies, you’ve got a distinct time to work towards. (That said, I recommend that unless you have run a business previously, don’t go freelance straight after graduating—spend some time in employment in your chosen field first, to get those skills polished.) This also applies if your current work is coming to a close—you may be on a fixed-term contract, or the company you’ve been working for is winding up. However, for many people, the entry to freelancing is a case of juggling full-time employment with preparations to exit the rat race.

There are advantages and disadvantages to both situations, and you’ll need to weigh these up carefully. Let’s take a moment to look at some of them.

Freelancing on the Side

There’s a lot to be said for freelancing “on the side,” at least in the beginning:

• This is a great way to test the waters without making that big jump.
• You can spend as much after-hours time as you need on planning your business.
• You can save just-in-case money for as long as it takes for you to feel comfortable before venturing into the unknown.
• You’re able to be choosier with the work you take on, as your salary is still coming in to help with costs.
• If you don’t have any good recent work to show, part-time freelancing allows you to build a great portfolio before you move to full-time.
• The clients you groom now are likely to be with you once you make that leap, helping with immediate cash flow.
• It allows you to take your time to fit out the home office, without blowing your starting budget.
• Freelancing part-time after hours, as well as holding down a full-time position, gives you the authentic taste of a busy week as a freelancer. This can help you determine your ability to cope with that amount of work at any given time.

There are a few disadvantages to this practice, though:

• Depending on your employment contract, you may be restricted from doing work that directly competes with services offered by your employer. It’s best to approach your boss to discuss this.
• Most clients will want to contact you during their workday hours, which tend to be when you’re busy at your full-time gig.
• You lose out on the all-important downtime hours of evenings and weekends. If you attract lots of work, you may end up exhausting yourself trying to work two jobs.
• You’ll be cautious of growing too fast, given you have restricted hours in which to work. It can become tricky trying to keep everyone happy, and you may have to turn down new work in order not to fail existing clients.

Freelancing Full-time

There are some compelling advantages to jumping in with both feet:

• You’ll have the freedom to set up your freelance life, instead of juggling it with a full-time job.
• Full-time start-up mode means that you have plenty of time in which to network, make important contacts, and meet prospects.
• There are no issues with your employer being aggrieved about you working freelance on the side, and you’ll have no hesitation in taking on as many new clients and projects as you can handle.

There are, however, some disadvantages to full-time freelancing straight away:

• Nothing feeds self-doubt more than work failing to come in during those first few weeks.
• The cash drain while you rush around making contacts and courting business can really hurt your back pocket.
• The all-important planning tends to be the first casualty when those projects come in—understandably, you’ll be more interested in taking an opportunity to earn some much-needed money than mapping out your legal business structure.

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Tags: excerpt, freelance guide, freelance tips, freelancer, freelancing, posf

Myles Eftos on Freelancing

Dec 29, 2008 50 Words

Myles says…

Multiple bank accounts. It is very tempting to throw the money you make in your personal bank account and start spending big. DON’T DO IT. Go and get a business account, and get your clients to deposit the money there, then pay yourself out of that account. It’s much easier to partition that way. You can even take it one step further and get a interest bearing account and transfer your tax into it, then at the end of the year you won’t get surprised by a huge tax bill!

About Myles
Myles Eftos is a Perth-based web developer that jumped on the Rails express and never looked back. He is the event coordinator for the Australian Web Industry Assocation, which explains why most of their events are at the pub near his house.

About this Post
This post is one of a series, written by various people within the web industry. They are responses to my request for a maximum of 50 words on the topic of tips for freelance success. You can use the 50 words category to see all the answers so far.

If you enjoyed this post, please subscribe to the RSS feed!

Tags: 50 Words, freelance, freelancer, freelancing, web designer, web developer, web industry