So you’ve decided that freelancing is the right career move for you. Bravo! You’ve become part of the growing number of people making a living in the gig economy.
But where should you start? And what should you know about setting up your own business before you dive right in? Here’s how to set up a business entity as a freelancer.
Decide how you want to organize your business
Whether you’re an Uber driver or a graphics design professional, a piece worker or a consultant, one of your first tasks is to decide what kind of freelancer you want to be. You can organize your business as a sole proprietorship, a single-member limited liability company (LLC), or a corporation.
There are a number of pros and cons to each. A sole proprietorship, for example, is the easiest of the three to set up and requires the least amount of business registration and tax filing documents. On the other hand, an LLC and a corporation both provide you with a way to put a firewall between your personal and business assets, protecting your home and other belongings from being taken in the event of a lawsuit being filed against your business.
File your paperwork and get a tax ID number
If you opt for an LLC or corporate business structure, you typically file your business entity paperwork in the state in which you live. You can obtain copies of the forms you need from your state government. Just fill them out and send them in, along with a filing fee that usually ranges between $100 and $500, depending on your state.
Figure out how much income you need to make
It may go without saying, but it’s important to know how much income you need each year from your freelance business. The answer to this question can help determine the amount of work you take on and how much you charge for it. It may also help to determine whether you need to take out a business loan in order to get your business up and running.
Open a bank account for your business
You should consider opening a bank account for your freelance business, especially if you file your business as an LLC or corporation. A separate bank account can help to keep your personal cash distinct from your business dealings. Even if you decide to go it as sole proprietor, a separate account can help you better monitor how well you’re doing in your business day in and day out.
Market your services and engage with customers
You can’t freelance without customers or clients, so you will likely need to do some kind of marketing, advertising, or networking to let people know you are open for business. Professional journals, websites, and list serves are great places to meet clients or customers and generate leads for work.
Consult an accountant
Bookkeeping, accounting, and paying taxes can be some of the more confusing tasks you have to accomplish as a freelancer. Consulting with an accountant may be one of the smartest decisions you make. A knowledgeable accountant can keep your freelancing business on track by offering services and advice that optimizes your business success.