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5 ways to legitimize your freelance business

If you’re one of the estimated 56.7 million Americans that are independent contractors, you’re running a small business — even if you work from your kitchen table.

The good news is, more companies have embraced the idea of working with freelancers. A Learning House survey found that 40 percent of established businesses would rather outsource specialized jobs to an independent contractor than hire or upskill full-time employees to perform that same function onsite.

As freelancing continues to rise in popularity, the benefits of this career path are obvious and the opportunities are plentiful. If you want to continue earning clients, however, it’s crucial to legitimize your business — both on the front- and back-end.

Keep the following in mind as your freelance work blossoms into small business.

Create a formal business entity

As a freelancer, you need to register as a business entity for tax purposes. In your line of work, there are two main entities to choose from — sole proprietorship and limited liability company (LLC). According to the Small Business Association, a sole proprietorship is the simplest and most common structure by which to start a business.

Many independent contractors gravitate toward sole proprietorship because it’s simple, convenient, and costs very little to set up. After filing all legal documents and licenses required by either the city or state, the business is operational. While this sounds like an ideal choice, The Street explains: “On the downside, any financial legal or liability is the [personal] responsibility of the sole proprietor who is now vulnerable to lawsuits, fines, debts and other obligations.”

To protect your personal assets in the case of a legal dispute, you can instead register as an LLC, which transfers risk away from you and onto the business. Since an LLC separates your personal finances from the professional revenue and expenses, the business would absorb responsibility for lawsuits, fines, and debts.

What’s more, you have the option to be taxed as an S Corporation, which can help reduce the burden of self-employment taxes — 12.4 percent for social security and 2.9 percent for Medicare, according to the IRS. While forming an LLC requires more paperwork and money on the frontend, it can also be a smart legal and financial decision.

Enroll in a health insurance plan

More than 40 percent of freelancers cite affordable healthcare access as the primary concern with their jobs, according to a 2018 Fiverr report. While the majority of traditional workers receive a W-2 benefits package that includes health coverage, as a freelancer, you have to get it yourself — which can be both stressful and expensive.

Though it may seem like an easy expense to avoid, an accident or illness could be a financial disaster without the right health insurance in place.

What’s more, the 2019 Freelancer’s Union Health Insurance guide explains that, while the federal penalty for not having health insurance has been reduced to $0, residents of the District of Columbia, Massachusetts, and New Jersey still face state-level penalties, ranging from $300 to over $1000 each year. What’s more, more states are considering imposing such penalties for 2020, so it’s not feasible to opt out of coverage.

The good news is, that as a freelancer, you could be eligible for a tax deduction on the premiums since they are often considered a business expense, according to HealthMarkets. This can reduce your total taxable income at the end of the year, saving money in the long run while protecting you from potential penalties.

Update your business insurance

A recent survey from Qdos revealed that 53 percent of independent contractors don’t think they need business liability insurance, as reported by Small Business Trends. What’s more, 25 percent assume it’s too expensive. Yet, insurance is critical for your growing business.

CEO of Qdos explains, “Self-employed workers are exposed to all kinds of risks on a daily basis — many of which they have no control over and cannot see coming. When running a small business, there’s no escaping the fact that you might have an accident and not be able to work, make a mistake for which you’re liable, or even be investigated by the taxman.”

Most freelancers fall into the category of “professional services.” According to the insurance shopping guide from USA Business Insurance, the recommended types of coverage for this type of business includes:

  • General liability
  • Professional liability
  • Auto insurance
  • Worker’s compensation

At a minimum, general and professional liability are critical, both of which work to protect you against lawsuits related to damages or accidents and disputes related to your professional services. Freelancers Union and Hiscox specialize in customizing professional and general liability insurance for many freelance professionals. Learn more here.

Another type of business insurance to consider—especially for writers—is media liability,  suggests Authors Guild. This will cover any potential claims of defamation and libel, plagiarism, intrusions of privacy, copyright or trademark infringements, errors and omissions, and other risks associated with producing written content online or in print.

Establish your rates and create a rate sheet

Establishing a rate that’s comparable to what your time and expertise are worth is critical. Doing so in advance and up front does a few things. While it reduces the time it takes to create proposals, having a rate sheet also adds to your legitimacy to your work as a freelance professional.

If you’re not sure where to start, benchmark yourself with the average hourly freelance rate — which is $19, according to Payoneer’s 2018 report. Note, however, that that rate fluctuates depending on the line of work. For example, the average freelancer working in tax law charges $30 per hour.

Don’t forget to consider fixed retainers as well, which may provide you with more flexibility and the client with more stability. With a set budget, your time can wane and wax as needed, and their monthly financials are clearly set, with no questions about time at the end of the month.

Before creating your rate sheet, take a look at these seven rate models and consider which is best for your line of work. Outline your pricing in PDF, branded with your logo, and send it to prospective clients.

Build your brand

Your website is the first step in building your brand, but it’s not where you should stop. “A strong personal brand means that clients will come to you instead of you having to hustle to find them,” says Pamela Webber, COO and CMO of 99designs. To develop a brand that clients recognize is to initiate a relationship with them before they ever speak with you.

This means all images and materials associated with your brand should reinforce your authenticity and status as a professional. Thus, it’s important to look at your brand from all angles.

Start with social media, where all images and posts should be both appropriate and professional. Set all personal accounts to private so, in their search, potential clients won’t see personal photos. Don’t forget to be active on the appropriate sites as well. For example, a B2B marketing consultant should be regularly sharing on LinkedIn, where many decision makers are most engaged.

Don’t overlook other tactics like building thought leadership with guest posting. Using this strategy, you’re able to share your expertise with articles and interviews on other websites, which helps you build authority in your space. Not to mention, networking, speaking, connecting online, and sharing testimonials from previous clients all aid in building your brand.

Remember: a great brand is built over time. Make this a priority as your business grows to continue earning more clients.

Legitimize your business

Take your freelance business seriously with these five steps. Get details in order on both the front- and back-end of your work to build a business that’s prepared to grow and thrive.

Jessica Thiefels Jessica Thiefels is founder and CEO of Jessica Thiefels Consulting, a content marketing agency. She contributes to Forbes, Entrepreneur, Fast Company, Virgin, Business Insider, Glassdoor, and more.

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