Questions to ask as you start a freelance business

My friend Merlina McGovern — the smartest copy editor I’ve ever worked with — got laid off from my old company last month. After 16 years working for Forrester, she’s starting a business as a freelancer. She had questions, so we talked. Since any freelancer starting a business might have similar questions, let’s walk through those questions and how they might affect your strategy as you launch a freelance business. This is heavily based on my own experience in eight years as a freelancer.

How urgent is your need for revenue?

As a result of her long tenure at Forrester, Merlina had a substantial severance package, and she is covered under her husband’s health insurance. (When I was let go from Forrester eight years ago, it was similar for me.) Merlina was moving with urgency, which is a good idea — there’s no value in waiting, and it takes a while to build a business. She was reassured when I told her that it takes a while to succeed: Not counting my book advance or severance, I earned less than $65,000 per year in each of my first two years as a freelancer.

If you’re desperate for revenue, you might need to take lower-paying jobs or lock yourself into a long-term contract with a client that wasn’t ideal. If you’ve got more runway, you can concentrate in a more deliberate way on building a business.

What is your ideal freelance workload?

New freelancers tend to have one of two goals. They may want to build a rapidly growing business, perhaps even including expanding and hiring people at some point. Or they may prefer to embrace the flexibility of freelancing, taking the best jobs, not the ones that generate the most income, and allowing time for other things in life like children and hobbies.

Both are valid alternatives, but they require different strategies. Much of the advice out there for new freelancers is about hustling, working long hours, and building up a big book of business in a mad hurry. As it was with me when I started, Merlina preferred to making a good living without the extreme stress that was common in the full-time job she’d been let go from.

How do you generate business?

There are two basic strategies here: network like a demon or generate attractive online content that drives inbound leads. (You can, of course, do both.)

Both Merlina and I had extensive lists of trusted contacts after working at a research firm for a long period. I’d estimate that half of my business comes from people I used to work with at Forrester, both ex-colleagues and former clients. In Merlina’s case, I suggested that she regularly reach out to people she’d previously worked with who had moved on to other companies. I also referred her to several hybrid publishers I’ve worked with, since I know they need copy editors. I told her to reach out to a former mutual colleague who is making a good living as a copy editor; that colleague is at full capacity and often must turn down jobs she can’t get fit in. (In general, freelancers are more likely to help other freelancers than to compete with them.) Our mutual colleague has already referred some work to Merlina.

Over my decades at previous jobs and with a background as a thought leader, I developed more than 3,000 solid professional connections on LinkedIn. While Merlina didn’t have that level of prominence, it was clear that her LinkedIn was missing hundreds of professional connections from her own decades of work. So I told her to send LinkedIn invites to legitimate contacts every day, since I knew her LinkedIn presence was key to potential clients becoming aware that she was now available as a freelance copy editor.

Regarding thought leadership, I think it would be difficult to build business by sharing content about copy editing. That may still happen — Merlina is posting on Medium — but at least for now, she’s more likely to get what she needs from networking her extensive set of past contacts. It’s been my experience lately that LinkedIn generates the most valuable buzz and discussion, more than Twitter, which rewards those with the biggest followings who generate the most controversy, or Facebook, which isn’t completely focused on work. Not everyone you want to make a work connection with is on Twitter or Facebook or Instagram, but everyone is on LinkedIn.

What kind of jobs should you pursue?

Merlina is much more than a copywriter. She’s also a good writer and has managed an entire offshore outsourced graphics supplier. She’s also developing her technique in painting and drawing. Plus, she regularly contributes videogame reviews.

We discussed how important it is to occupy a clear niche in your clients’ minds. In her case, copy editing is that niche; not only is she good at it, she finds copy editing to be quite enjoyable and interesting. So I suggested she focus professionally on copy editing first. With the relationships she could build from that, she could potentially interest other clients in her abilities as a writer or project manager. (I also think it’s possible some small publishing outfit will snap her up as a potential production manager, she’s got great skills for that job.)

Breaking into freelance writing is challenging, and generic writers don’t get paid much. I suggested that if Merlina wants to develop a writing business, she could start by writing analysis of the video game business. Such articles could appear on the same sites where she currently contributes reviews, but would position her better as a thoughtful writer on professional topics with a specialty that could generate a higher hourly rate.

Her current website includes her artwork as well as professional content. I recommended that she create a site specifically for copy editing and professional work, so that potential clients would have a place to see her professional work and connect with her.

Should you incorporate?

It’s possible to create a whole S- or C-corporation or a partnership for your business, but for most freelancers, it’s not necessary.

For people like Merlina and me, however, there is a benefit in creating an LLC. It insulates your personal assets from work-related liability (this is not legal advice; check with an attorney for more detail). For me as a writer and ghostwriter, and for Merlina as a copy editor, there is the possibility that we’d make an error and a client would attempt to sue us for the resulting damages and go after personal assets like a house.

It’s relatively easy to create a sole-proprietor LLC. You get a tax ID from IRS, register with your state, and set up a separate bank account for the business. This has the added benefit that, when sending invoices or other tax forms, you don’t need to share your Social Security Number, you can share your company’s tax ID.

How do you do the accounting?

The obvious answer here is to sign up for a package like Quickbooks. But I found that for a freelance business with ten or 20 clients per year generating maybe 100 invoices per year, an accounting package is not necessary.

I track all my invoices on a Google sheet, noting when I send them out and when they get paid. I generate the invoices themselves with a simple Microsoft Word template, storing them as PDFs before sending them out.

The other key for tracking is to put all expenses through a company bank account and a company credit card. For a simple business like Merlina’s or mine, the total quantity of itemized expenses in a given year is no more than a couple hundred. It takes maybe two hours to download those from your bank’s online account access into a spreadsheet, assign them to categories, and then total those categories for use in filing taxes. That’s cheaper than Quickbooks at the cost of a couple of hours of time.

One more thing: you have to remember to file and pay estimated taxes four times per year, both federal and, if your state has an income tax, state taxes as well. More than one freelancer I know has gotten to the end of their first tax year and suddenly realized they’re out both taxes and penalties for failing to pay estimated taxes.

How do you balance the feast or famine nature of freelancing?

It’s easy to describe what to do: don’t take more work than you can handle, and spend downtime networking and prospecting.

I wish it was as easy to do that as it is to describe, but what’s most important is to keep a focus on how things are going. Then balance your work and your efforts to create future work.

Lessons from all this

There are two things to learn from all this.

First, it’s easy to set up a freelance business, but you have be smart about what your eventual goals are, and build a strategy to accomplish those goals.

And second, if you need a copy editor, hire Merlina!