When I started freelancing as a writer, I thought that my job would be to write. It ends up my job was to write and manage a business. Even if you’re the best at providing your service as a 1099 driver or freelance consultant, there’s a lot more to freelancing than your particular skill. Here are five practical tips I gained from a year of negotiating, invoicing, accounting, and managing my income as an independent contractor:
1. Invoice Immediately
If you’re contributing ongoing work for an organization or company, it’s easy to forget to invoice. Freelancers who charge by the hour would benefit from a digital time tracker. I charge per projects, and so I keep an excel sheet of my contributed work. I send invoices along with deliverables — it enables organizations to look at my contributions when I ask for payment.
2. Share Your Rates
When it comes to the difficult task of choosing my rates, I collaborate with other freelancers. Knowing how and what other people charge for the same work enables me to get comfortable with my prices, which is an important part of valuing your services. As Emma Siemasko wrote in a recent piece on freelancing for Creative Class:
In order to support ourselves, we need to make livable wages. And, if we want companies to see that good creative work is worthwhile, we need to charge accordingly. The only way to ensure that our community is charging appropriately and working to de-commoditize creative work is through sharing.
When it comes to your prices, don’t be afraid to shoot high. A freelance expert recently reminded me, if 100% of your prospective clients agree to your rates, you’re not asking for enough.
3. Follow the 60/40 Rule
This year, I learned to underestimate the time I can give to billable hours every week. The business of running a business takes up more time than I realize. A common mistake for first-time freelancers it to peg their rates based on 40 billable hours over 52 weeks. This allotment doesn’t account for the time needed to tackle flyaway business tasks — reaching out to new prospects, updating my website, and taking care of the financial side of my business. Instead, follow the 60/40 rule: spend 60% of your time on billable hours and 40% of your time on the logistics of running a business. Also — make sure to account for sick days, vacations, and holidays!
4. Take Charge of Your Accounting
When I first started freelancing, accounting really intimidated me. In the process of filing quarterly taxes, I realized it’s not as scary as it seems. I take time once a week to sift through my numbers — the more knowledgeable I am about my week-to-week outlook, the easier it is to make positive changes. Does one client take 20% of my time but gives me 50% of my income? Did my revenue drop this week? Tracking your revenue with Payable while managing outgoing costs empowers you as a contractor.
5. Pay Yourself a Regular Salary
Instead of pinching together an irregular income, pay yourself a salary. Based on my average revenue and costs, I estimate a salary I can deposit into my personal checking account every week. I low-ball the number and make sure to account for taxes and retirement payments. Here’s a detailed explanation of my process:
All of my revenue funnels into a business checking account. Once a week, I split my income in three directions: salary, taxes, and retirement. Even when I take out my income, there’s enough money in the business checking account to cover sick days, vacations, and other expected costs.
1. I transfer my standard, weekly income — which I configured based on estimated revenue and costs — into my personal checking account.
2. I withhold 25% of my business revenue and transfer it into a business savings account for quarterly taxes.
3. Third, I transfer money directly from my business checking to my retirement fund.
At the end of the quarter, if I made more than expected or overshot my taxes, I give myself a bonus or consider a raise. As you embark on a New Year, consider transforming your work practices with these tips for running a freelance business.