Considering a freelance career? Financial journalist Laura Whateley tells you what you need to know.
How and where we work has been transformed in 2020. Working from home is now the new normal and, with the end of the government’s furlough scheme in sight, many of us are facing the fact that our future as employees might have a shorter shelf life than we had expected. It’s no surprise, then, that the freelance life is looking increasingly tempting; you can finally turn those dreams of a career change into reality; you can choose your clients, you have flexibility and independence; plus there is the real potential to make big money. But as any self-employed person will tell you, sustaining your own business can be challenging. Here are some of the things you need to consider when it comes to making freelance life pay.
Work out what skills you can offer
The question to ask is not what you could sell, but what problem you could solve. What do people still need, and are therefore prepared to pay for, even in a recession? There are so many different careers that suit freelancing, from marketing and copywriting to accountancy or life coaching. You could become a virtual PA, a dog walker, a childminder or a mobile hairdresser, all aided by the rise of tech. More people than ever are happy to book services at the swipe of an app or via social media. That does mean freelancing is not for the publicity-shy. Instagram, LinkedIn, Facebook and Twitter are your most valuable free tools, so use them to advertise your brand and demonstrate how your skills could help make your followers’ lives easier or happier.
Remember that you are not only your own boss but your own finance department, tech help desk, and publicity director. Think through the pros and cons of self-employment and whether they will suit your personality. The flexibility to choose your own projects and how you spend your day, often earning more money per hour than in a salaried job, are huge advantages. But the downsides are insecurity and irregularity of income, and having to budget for all those overheads and costs you have previously taken for granted – goodbye subsidized tea and milk.
Consider your financial commitments
Be prepared for several months of financial instability at the beginning of the freelance journey and pull together a start-up fund. Most financial advisers recommend having at least three to six months-worth of essential living expenses in the bank, in case of unexpected financial shocks. And remember, however brilliant your business concept, it is likely to take a while to gather regular clients. Even once you start invoicing it can take weeks for money to land in your account. Standard payment terms are around 30 days but ask any freelancer and they’ll bemoan how much chasing has to be done, with clients often taking as long as 90 days or more to pay up.
What do you need to earn?
You will need to set your rates, per hour, per day or per project. These should be based on what you think people are prepared to pay, balanced with what you need to have earned over a full year. If you want to match a previous salary, don’t forget that full-time employees get at least 28 days’ paid holiday, sick pay, maternity leave, a generous pension contribution, and other perks such as private healthcare or company car, not to mention costs you’ll now have to meet, like heating your office and a comfortable desk chair. There are useful online calculators at sites such as Contractor Calculator and Freelance Solutions that show, given your expenses, what you need to earn per day to reach your desired salary.
Make a business plan
Create a business plan document, which maps out your goals, potential risks and forecasts turnover and profit. You can get templates for these from online companies such as Sage or via an accountant or small-business bank. Next, consider how best to structure your business. Should you set up as a sole trader, which is simpler but means that you are responsible for all of the business debts? Or as a private limited company, which restricts liability to the business instead of to you personally, but will entail more paperwork? An accountant can offer advice. You must register your new business with HMRC or Companies House and will need to be VAT-registered if your annual turnover is more than £85,000.
Budget like a business-owner
Being self-employed means you have to set aside money for your tax bill, which can be higher than you might anticipate because you owe so-called payment on account (a portion of next year’s tax bill, which you pay in advance). To make it easier to work out how much this will be, and how much you’ll need to budget for it, keep your personal finances separate from your freelance earnings by opening a business bank account. The new wave of freelancer apps such as Coconut, Tide or Starling Bank help you to create invoices and alert you when they’ve been paid.
Stay positive and be flexible
While working on a freelance basis might feel daunting, in the current climate no-one’s job is secure. Being self-employed means you are uniquely flexible, adaptable and able to step in to offer services when they are needed most. Good luck!
For more information on getting the most out of your money, check out our article on how to reset your saving habits.