If you dream of working on your own terms and on a schedule that fits your lifestyle, you are not alone. In 2020, over a third of the American workforce freelanced, contributing a whopping $1.2 trillion to the United States economy.
While some people are attracted to full-time freelancing for freedom and flexibility - who doesn't want to choose their own work projects and hours? - others find themselves looking for a stop-gap way to make a living while in-between jobs. Still, others hope to find a contract work side hustle that will allow them to earn extra income while continuing with full-time employment.
Whether you have decided to explore freelancing as your primary income source, to fill in the financial gaps between jobs or as a way to supplement your current salary, there are several factors you should consider as you pursue your new freelance career. This article will help you understand:
- What freelancing is
- Options for freelance jobs
- How freelancing works
- The benefits and drawbacks to becoming a freelancer
- How you can effectively manage your freelance enterprise using business solutions like Skynova's software products
What Is a Freelancer?
Freelancers - also referred to as independent contractors, consultants and 1099 workers by the Internal Revenue Service (IRS) - are self-employed business owners who work for clients (companies or individuals) on a part-time or as-needed basis.
Freelancing encompasses a lot of different occupations and lifestyles, but it does have some common threads, regardless of what type of freelance worker you are. For instance, unlike regular employees, freelancers typically:
- Determine when and where they will work
- Keep a record of the hours they work on each freelance assignment
- Pay for their own work materials and office space
- Invoice clients and collect payments
- Pay their own federal and state taxes
How Does Freelancing Work?
While freelancing can cover a lot of different occupations and services, there are some common elements to how freelancing works. Most freelancers must:
- Procure their own work assignments
- Contract for, produce and deliver the work
- Manage their business affairs
- Become proficient at juggling multiple assignments
Unlike full-time employees (FTEs), freelancers are not guaranteed a paycheck. They must procure their own paying clients by tapping into some type of freelance marketplace. Typically, freelancers find work through:
- Word of mouth referrals from people they know, former employers and colleagues, social media contacts, business and trade association contacts and others in their industry
- Targeted ads placed in digital and print publications
- Answering freelance and independent contractor job posts and ads on sites like Indeed or FlexJobs
- Posting profiles on gig economy sites like Upwork, Freelancer.com and Fiverr
Vying for freelance work can be quite competitive and time-consuming. In some circumstances, you will find yourself bidding against others on a project. Other times, you may be asked to submit a detailed business proposal to potential clients. Fortunately, there are all kinds of time-saving templates you can use to help you compete for the best independent contractor opportunities.
Contracting for, Producing, and Delivering Work
During the hiring process, you and the client must come to an agreement on matters like scope of work, timelines for deliverables, what your fee will be and how you will be paid. You might want to negotiate an advance payment or retainer - a portion of your fee the client prepaid to secure your time and services.
If you and the client did not enter into a formal written contract for the work - which is often the case with smaller short-term or one-off freelance projects - it's a good idea to capture your mutual understanding of the requirements and deliverables in some type of written form, even if it's only an exchange of emails. That way, you can be assured that you and the client agree regarding expectations.
Once everyone is on the same page about the work assignment, you can get down to the business of working the freelance job.
Managing the Business
Unlike full-time employment - where you show up to work, the supplies you need are given to you and a check is directly deposited into your account after your share of taxes are deducted - managing a freelance business takes some planning and effort.
As a freelancer, you are responsible for invoicing your clients, collecting payment and paying your business expenses and taxes. Like most independent contractors, you will want to manage your accounts using accounting software geared toward small businesses.
The Pros and Cons of Freelancing
Like every work situation, freelancing has its benefits and drawbacks. Before embarking on a freelance career, you might want to weigh the pros against the cons.
Pros of Freelancing
Being your own boss definitely has its benefits. Some of the pros that come with owning and operating your own freelance business are:
- You set your own rates. Unlike a salaried position where what you make is set in stone, with freelancing, you get to decide what your services are worth and how much you want to charge.
- You work your own hours. Are you not a morning person? No problem. Work all night if you want to. Do you want to take off summers to be with your kids? Great. Don't take freelance projects when school is out. Freelancers get to choose when and how much they work. Many people are attracted to freelancing for the work-life balance it can provide.
- You work where you want. In the freelance world, as long as you get the work done on time and to the client's satisfaction, you can choose where you work. Many freelancers create elaborate home offices, while others work while traveling, under an umbrella at the beach or in bed in their pajamas.
- You choose who to work for. As a freelancer, you get to pick who you work for. You don't have to put up with unreasonable demands. And if a potential client's mission doesn't line up with your values, you can just walk away.
- You get to work independently. With freelancing, you can enjoy a lot of autonomy in the workplace. As an independent contractor, you will be able to avoid most unnecessary meetings, will be able to make the majority of your own decisions and can fulfill your assignments without having to work on a team.
- You can explore new fields of work. Freelancing is a great way to change your career trajectory with little risk. You can try new things - like turning your talent for mixing tunes into a freelance DJ career- while keeping your bread-and-butter job.
Cons of Freelancing
Of course, freelancing comes with some downsides, as well. Depending on your financial situation and how well you tolerate risk, you may decide to stick with your day job once you consider the drawbacks of freelancing. Some of these cons of freelancing are:
Lack of health insurance or other company benefits. Freelancers are on their own. Unlike most FTEs, freelancers do not receive workplace benefits or perks. That means:
- No paid vacations
- No paid sick leave
- No 401(k) plan or company matching
- No safety net should you become disabled
- No health insurance
- Inconsistent work. Freelancers can feel like they are riding a roller coaster. At times, you may have so many freelance assignments that you worry about how to keep up, and other times, you may wonder if you will ever work again.
- Too much autonomy. The freelancing life can be lonely. If you need the energy and input of colleagues to get your creative juices flowing, you could have a hard time adjusting to a solo work existence. Not everyone is comfortable working in isolation, which is the norm with certain types of freelance work.
- Time needed to find and retain clients. Some new freelancers embark on their independent contractor journeys with an established stable of clients, providing a secure source of income. But that is not the typical case. It takes most freelancers time to find a sufficient number of clients to keep them afloat, and then it takes even more effort to retain those clients for repeat business.
- Challenge of managing multiple clients and projects. Most freelancers work on multiple projects from different clients at the same time. You will need to develop some decent time management skills if you have any chance of consistently meeting the needs of your competing clients' demands and deadlines. If you left your full-time job to avoid a stressful work life, you might be disappointed with some aspects of freelancing.
- Self-employment taxes. Freelancers give up more of what they earn to Uncle Sam than employees do. This is due to the self-employment tax, which is the Social Security and Medicare tax imposed on wage earners. The 2021 self-employment tax rate is 15.3%, payable on the first $142,800 of wages, tips, and net earnings. When a person is employed, their employer pays half of this tax. Unfortunately, freelancers are on their own for paying the entire amount.
Popular Freelance Jobs
Almost any professional can transform themself into a freelancer. Doctors can freelance in telemedicine, accountants can consult as income tax preparers and teachers can moonlight as freelance tutors.
However, special degrees are not needed to become a successful freelance career professional. If you have talents and skills that can be converted into a service that has value for someone else, then you can turn those abilities into a freelance business.
Some of the most popular freelance jobs include:
- Web design
- Web development
- Graphic design
- Computer programming
- Management consulting
- Administrative assistant
- Human resources administration
- Health care consultant
How to Start Freelancing
Getting started on your freelance career is fairly easy. You don't need much of an infrastructure at first, just the tools of your trade, an entrepreneurial spirit and some basic business know-how.
- Tools of your trade. Starting a freelance business doesn't take much in the form of physical equipment or infrastructure. If you are a freelance writer, you will need a laptop and maybe a subscription to a good grammar check program, such as Grammarly. If you are a graphic designer, you will require a computer, probably a couple of large monitors, and graphic design software like Adobe Photoshop. You will need some type of workspace - it can be a home office or a coffee shop - where you can work without too much distraction.
- An entrepreneurial spirit. To be a successful freelancer, you will need to look for ways to sell yourself and your services to potential clients. For example, consider creating a business-oriented social media profile - like on LinkedIn - that is specific to your freelance business. Use your online freelance persona to start networking in groups frequented by professionals who may need your services. Keep an eye on job boards for opportunities that match your skills, and post your qualifications, rates and availability on freelancing platforms - like Upwork, Freelancer.com and Fiverrr, mentioned above.
- Basic business know-how. Learn as much as you can about how to manage a small business, including how to keep track of business contacts, invoice clients, manage accounts receivable and accounts payable, which business expenses constitute write-offs and how to handle periodic tax payments.
Easily Manage Your Freelance Invoices and Accounting With Skynova
Working the business side of your freelance career doesn't have to slow you down. When you have the right plug-and-play software products, you can spend your time doing what you do best: providing your clients with an exceptional work product that will keep them coming back for more.
No matter what type of freelance business you start, managing day-to-day invoicing and accounting functions is easy with the help of Skynova's small business accounting software and business templates.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant to ensure your freelance business is meeting tax and accounting standards.