By Eyal Shinar
The freelance economy is on the rise–and it shows no signs of slowing down. A study by Intuit reported that by 2020, more than 40 percent of U.S. workers, about 60 million people, will fall into the freelancer category.
Technology and the shifting characteristics of both employers and employees are the main factors driving the freelance economy's rapid growth. While technology has made an appealing career as a freelancer more accessible, cash flow has emerged as a major concern. A freelance career often means inconsistent pay cycles and salary, as well as the added responsibilities of paying insurance, taxes, and overhead expenses.
Is it possible to start out cash flow positive as a freelancer? The answer is yes. Here's how to navigate a successful freelance career.
Focus on products, not services.
What are you going to deliver to your client? Code? Video content? A widget? You're more likely to land clients if you pitch in terms of deliverables (i.e., a game, an app), not services (i.e., hours spent on web design, consulting). Clients usually don't care how much time you put in, they care about the end result. Make sure deliverables are part of your sales pitch and you'll find yourself in a better position to negotiate for advance payment, which will help with your cash flow.
Use your cash limits to your advantage.
There are always going to be roadblocks to starting any freelance endeavor, but for many, the major obstacle is capital. Whether it's the inability to generate personal income while bootstrapping your startup or the bank's resistance to giving you a loan for overhead, the need for capital is a hurdle that's difficult to clear.
But what if you view your limitation as an advantage? If banks aren't forthcoming with loan opportunities, it may be a sign that your business doesn't have a recognizable market. It's up to you to either fix your business plan or go out on your own to prove there's a need for your skills. Shore up this aspect of your business so you're not sweating how you'll generate revenue.
Start selling, but keep expenses low.
There's a popular adage attributed to IBM's Thomas Watson as well as Henry Ford that goes something like “Nothing happens until someone sells something.” The point is that a company, or an entrepreneur, has to sell something in order to exist.
Figure out how to use your freelancing skills to start generating revenue before you launch into it full time. Maybe you offer your product on the side of your regular paying job. Do what it takes to keep your costs low until you up your sales game.
The incorporation advantage.
If you're going to act like a business, then become a business. Other companies tend to favor working with corporations or LLCs (limited liability companies) when it comes to contracting out work. The IRS can target companies that misclassify freelancers who should be considered full-time employees. The IRS doesn't have the same issue when a company hires an LLC, which is obviously not an employee.
Incorporating or forming an LLC can keep your business financials separate from your personal spending and protect your personal assets in case of a lawsuit. Forming an LLC or corporation won't automatically protect you if you are personally negligent when providing services, but it will come into play if you hire employees, contractors, or subcontractors, and are hit with a lawsuit caused by their negligence.
Being incorporated also helps minimize the self-employment tax. Elect to be taxed as an S corporation and pay yourself in both salary and distributions. While your salary is subject to self-employment tax, the distributions are not.
Pursue your dreams, but exploit your skills.
It's a rare and wonderful thing when you get paid to do what you love. More often than not, you'll initially be paid for boring technical skills, not your creative passion. Aspiring musicians probably get paid more for their ability to teach music lessons than for any given gig. Aspiring authors often make more for editing or copywriting than on their first e-book.
Say that your dream is to design an independent video game, but you can't sacrifice a regular paycheck. Start with baby steps. Could freelancing your coding skills for other companies generate revenue as you work toward your goal?
Figure out which of your skills are most marketable and peddle those first, then scale up toward your larger ambitions.
Sign on the dotted line.
Try to get clients to sign on with you for the long-term. It really helps your stress levels if you can land one big client that pays your monthly bills, then you can take on any other work on a per-project basis. Don't forget that peace of mind contributes to productivity, and having a steady source of income will help you sleep at night.
Create a cash flow plan.
Don't guess at how much money is coming in and out of your account-track it. Your business is an airplane flying in the night and your key financial metrics are your dashboard. Track them constantly to avoid hitting a mountain and turning into a fiery ball of death.
Use invoice management software and budgeting apps to manage your expenses. Also, make it easy for companies to pay you. Take advantage if they offer direct deposit or set up an account with a digital payment service so funds don't get lost in the mail.
Navigating the freelance economy.
The continued growth of the freelance economy strongly indicates that contract, temporary, and independent work will become the new “normal” workforce. Freelancing can be a difficult process to navigate; however, with advance thought and insight, it is completely plausible to be cash flow positive from day one.
Tech startups have made outsourcing tasks even easier and can successfully connect freelancers with businesses to find and identify work. Additionally, FinTech services are available to help freelancers overcome billing and payment obstacles that can significantly affect cash flow issues.
The post The Growing Freelance Economy: Strategies to Survive and Thrive appeared first on AllBusiness.com
The post The Growing Freelance Economy: Strategies to Survive and Thrive appeared first on AllBusiness.com.
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