Yesterday, I wrote about the inexorable trend toward Uber-style at-will employment as traditional institutions are disrupted by the mobile Internet and its social implications. Technology is neutral; it is our choices about what to do with it that makes for good or for ill in society. Particularly in America, where we tie healthcare to employment, this transition promises a lot of trouble in exchange for a more efficient labor market. Still, I can’t see any way that we can get the toothpaste back into the tube when it comes to this new freelance economy. As more companies can attract labor in this “lightweight” fashion, many will take advantage of the situation, even if on the macro-scale it lowers wages and decreases social stability. What’s more, as companies offer fewer positions in favor of freelance labor, more people entering the workforce will choose to be employed in such a manner, because it will help make ends meet in hopes of finding a “better” job (one presumably with salary, benefits, and legal protections) at some later date.
Increasingly, there are freelancers who really wish they were employed, and they find themselves struggling. Schools feature very little practical training in how to sell one’s services piecemeal, so many people – especially Millennials – are exiting our rigid, hierarchical school systems to discover that, no, the world really doesn’t have a plan for them. But how can you survive the experience of being lost in the free market jungle?
As a long-time businessman, I have noticed that there are some very basic concepts about running a business that could help every person trying to survive as a freelancer until that better job opens up. Most are stupidly simple and will make life much easier – and possibly make a lot more money. In fact, if you follow these 10 tips, you may not be looking as hard for a job, content to work pantsless and happy on a flexible schedule.
Here’s the list.
1. Realize that you are in business.
The school system, combined with the 20th century mythology around stable employment, has prepared you to simply find your place in the economic world. Based on your level of education, you are told that you will arrive in an industry with a title, a salary, and a social position. If you are working as a freelancer, none of that applies.
You are now simply a business entity unto yourself, one that must sell services (your labor) to another organization, likely a private business or possibly a government agency. Now that you know you’re in business, you should go to the business section of a bookstore and look at the titles. Recognize what it is to run a business. Check out the various functions of marketing, accounting, even business law. When you’re an employee, you don’t need to care about this stuff, but as a business person, you’ll a small amount of all of it.
Many people wander into the marketplace, praying to rescued. Bad strategy. You’re in business now, even if it’s only temporary. Get your game face on.
2. Decide what you are selling.
Before you can sell something – in this case, your labor – you have to know what the product is and who buys it.
Are you “a designer?” You need to know specifically what you’re selling. Are you selling pretty websites to other businesses so they can sell their own stuff? Do you sell pretty images so ad agencies can make compelling branding for their clients who want to sell more of their own stuff?
Are you “a writer?” You need to know whether you sell tight copy for advertising, or long-form journalism to magazines. Do you sell ghost written speeches for political candidates? Customized hate mail?
Whatever it is, you need a specific picture of what you are going to do for someone else before you can then sell them on it, charge a fee, and collect the ducats. The more specific you are, the more likely you are to get the gig.
3. Know your client’s business model.
I see this all the time with freelancers – they don’t even bother to ask how much the market currently pays for certain labor, much less the value of the end product. Whether you’re a full-time employee of a company or a temporary freelancer, you’re really just the input cost in someone’s business model.
What are they selling with the help of your labor? A magazine that has ads from watch companies and yacht makers? Furniture? A motion picture? How much does your end client stand to make from your efforts? You’ll be some fraction of that number.
This will prepare you for the next step, where you make a lot of monees!
4. Set your fees according to market rates.
Can you shoot photos this well? Then feel free to charge $175,000 for the day.
Another freelancer blunder is the failure to understand how much people get paid in a given industry, something that leads to low-ball wages that make it hard to pay the rent and actually reduces the client’s confidence that you really know what you’re doing.
For whatever business, you need to know how much people typically make, from entry-level to superstar. The world of freelance photography, for example, varies considerably. If you want a professional portrait done for business purposes, the low end of the market is $150 while Annie Leibowitz reportedly charges $100,000-$250,000. Now, we’d all love to make $200,000 for a day’s labor – but if you’re a photographer, you need to know why she gets that much dough, and more importantly, where you fall plausibly on the scale.
Hey, did you realize that there are no hard and fast rules about fees? It’s really whatever you can convince people to hand over. Make sure it’s reasonable for both you and the client, and name your price. The worst they can say is no.
5. Write proper invoices.
Seriously, these are not that hard.
So you’ve gone in and demanded $120,000 for your massage services, and the client said yes. Hooray! Now you have to ask for that money from their accounting department. The way to do that is to provide an invoice with the name of your business, your address, a description of the services provided, the price, and the payment terms.
You won’t believe how few freelancers do this, as if they are expecting to get “a paycheck” like they were an employee instead of a contractor. If you’re a freelancer, you’re a business, and businesses write detailed invoices.
There are ready-made templates on every single word processor. You just fill in all those detail, and boom – beautiful invoice that looks like a professional is asking to be paid.
6. Decide on terms of payment and don’t forget to collect.
Collections improve business cash flow.
If you’re in the employee world you will be paid weekly, bi-weekly, or monthly. Moreover, if the employer shanks you on a paycheck, delaying it for no reason, they can end up in hot water with the government.
Remember, you’re a business, not an employee now, and businesses have terms of payment with no legal guarantee. It’s up to you to set terms of payment and to make sure your client honors them. The terms can be whatever you want – Due Upon Receipt (pay me now), Net 15 (you have 15 days to get me my money), Net 30 (you have 30 days), and so forth. Setting “your company’s payment terms” doesn’t mean your client will pay as instructed, but it does mean that you have an agreement on a document should you ever need to go to court because they shanked you.
Setting payment terms also lets the client know when they can expect you to call up and say, “Yo! Frankie! That was Net 30, it’s been six weeks – what’s up? Do I have to send Jimmy One-Thumb down to see you?” Then you can find somebody called Jimmy One-Thumb – which sounds menacing – and have him do collections.
7. Open a PayPal, Stripe, or other account that will take digital payments.
Get paid, baby.
Make it easy for your customers to pay you using cards, and your cash flow will improve immeasurably. Years ago, taking credit cards was an expensive nightmare. You had to set up a merchant account, get the hardware – ugh – it was awful. Today, you can sign up for a digital payment processor in minutes, link it to your bank account (business or personal) and accept payments by credit card for a small fee. Yes, you’ll maybe lose 2.9% of what you’re owed, but in the business world it’s always good to turn invoices into money as fast as possible.
8. Set up an LLC for your services.
If you are going to be freelancing for a long period of time, it is in your interest to set up a limited liability corporation with a good accountant. They are cheap to establish, don’t require much complex reporting at tax time (as with C-Corporations and S-Corporations), and all income flows straight to your personal tax return.
While there is an added layer of complexity compared to being a single-proprietor business, you’ll look more like a professional to all those clients you want to attract. Plus there are major benefits when you get to the next step.
9. Account for your expenses and pay your taxes like a professional.
“Pay your taxes in a timely fashion, B – but don’t forget to calculate all expenses to offset tax liabilities wherever possible. And keep receipts.”
If like Jay-Z you’re a business, man – then you get to call everything associated with your business an expense, something that will ease your tax burden on a quarterly and annual basis. That computer or tablet on which you’re reading these tips? Tax deductible! Your phone? Tax deductible! Your third bedroom where you do your work? That’s a home office and the square footage is an expense that comes off your tax bill. Software associated with your services? Yup – that’s tax deductible as well.
If you’re freelancing, you are required to pay self-employment tax, the other half of employer contributions that the government is losing out on because of this Uberconomy thing. This is also why your fees must be higher than your hourly rate if you were an employee – because you’re on the hook for the difference, which can really sting.
This is why you can’t miss out on the sheer unbridled joy of buying an iPad as a business expense. You need to offset your business’ gross revenue with the expenses that are required to provide the service. That’s what real businesses do, and now, you’re no different.
Oh, and by the way, pay all your taxes on time and in a legal, ethical manner or the government will crush your soul. You’d rather piss off the Russian mafia than the IRS.
10. Turn your clients into job prospects.
Perhaps, if you’ve internalized the other nine tips here, you’ve built a huge book of business and you’d prefer to remain independent because it’s pretty awesome to make money while retaining the freedom to stop and watch The Princess Bride during the middle of the day. It’s seductive.
But not everyone is cut out to run a business for the long term. Getting a bi-weekly paycheck is way easier in most cases. Incidentally, all this good clean business running you’ve been doing is a great way to find a job. You don’t have to chuck your resumé onto that useless pile in the HR office – you can just run right up to whichever decision maker and directly sell them services. Now naturally you’d be willing to provide a bulk rate for 40 hours a week, and are ready to negotiate.
That’s all getting “a job” was anyhow – looking for businesses willing to buy your labor in bulk on a long-term, stable basis. As technology changes the labor market, these arrangements are getting harder to come by, at least in the short term. That’s why adopting a few of these common business techniques may protect your interests and make you more resilient as you seek a fair exchange of labor for money.