Posts Tagged ‘posf’

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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Melissa Ek on Freelancing

Feb 4, 2009 50 Words

Melissa says…

Keep a buffer of cash on hand. When that big client doesn’t pay on time, it helps to have something to fall back on.
Hire an accountant. The peace of mind is worth it.
Be nice to EVERYone. You never know who your next client will be.
Network, network, network!

About Melissa
Melissa Ek is a designer (web & print) based in Austin, TX. She can’t believe she’s been freelancing for nearly TEN 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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First Bookstore Sighting

Jan 9, 2009 Book

 

The first photograph to make it’s way to me is from long time friend, Kim Davies, who spotted the book in the Barnes & Noble Manhatta Beach store, Manhattan Gateway Shopping Centre, Manhattan Beach, CA.

Strangely, it was located in the ‘Windows & Office Applications’ section, tucked between Excel and Access titles.

Have you seen the book in your local store? Please take a photo and email it to me - it’s a buzz to see the book on shelves around the world.

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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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Weekly Book Excerpts

Jan 2, 2009 Excerpts

To celebrate the start of the new year, from next Monday (Jan 5) I’ll post an excerpt from chapter one of The Principles of Successful Freelancing, every Monday for eight weeks. I hope you enjoy them!

I encourage you to comment on each of them, and let me know what you think - it’s a great opportunity to discuss the subjects I cover in the first chapter of the book, with each other.

You can get the entire first few chapters now, by clicking on the ‘Free Preview’ menu item on the SitePoint page for the book.

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