By now, we’ve all seen the impressive numbers on the “freelance” or “gig economy.” Millions of professionals are skipping the traditional corporate structure and turning to freelancing, consulting or temp/on-demand assignments. According to a study by MBO Partners, the U.S. economy currently has 30.2 million independent workers — and that number is expected to hit nearly 38 million by 2020.
While these solo entrepreneurs may not need all the formality of a small to mid-size business, they still need to build their brand and manage their business. Without the same safety net and structure of corporate employees, freelancers are on their own to maintain their finances, define their work strategy and be purposeful with their time.
For those of you who are a part of this growing independent workforce, here are four tips to consider as you manage your business this year:
1. Put your finances on auto-pilot
When you work for a company, much of your “business finances” are handled for you. For example, the company automatically withdraws what you owe the state and IRS in taxes, as well as any 401k contributions with each paycheck. It takes care of these budgeting aspects behind the scenes — and you probably wouldn’t miss that money since it never landed in your bank account in the first place.
As an independent worker, you’re responsible for your tax payments, retirement savings and health insurance. When you don’t proactively set aside money for these things, it can be painful to write the checks and watch your hard-earned money disappear. For this reason, try to automate as much of your finances as possible, following the rationale that you don’t miss money that you never see.
Create a savings account dedicated to your tax withholdings. Get in the habit of transferring 20% of each client check or payment you receive (note: 20% is a generalized number, not specific advice; pick whatever percentage makes sense for your tax bracket and situation). Your retirement account, savings account and checking account will probably let you set up automated monthly withdrawals. Take advantage of these services or find a third-party app to automate this for you.
2. Separate your business and personal finances
With most solo entrepreneurs, there’s a lot of overlap between personal finances and the business. In many cases, there’s usually just one checking/savings/credit card account. However, it’s a lot easier to manage your business’ financial health when you have a dedicated business checking account.
In addition, consider forming an LLC (Limited Liability Company) or corporation to help protect your personal assets from things that might happen in the business. For example, if your business can’t pay its bills. When you operate your business as a sole proprietorship, there’s no distinction between your personal finances and your business. Forming an LLC or corporation creates a wall between the two; this is known as the corporate veil. Keep in mind that this is not a “get out of jail free” card and won’t protect you in all circumstances, but it’s an easy way to put some separation between your personal assets and the business.
When it comes to business structures, a corporation involves much more formality and paperwork than an LLC. If you’re looking to keep things simple, the LLC is probably the better option of the two.
3. Make your personal projects a priority
When you make your living as a freelancer, client work and billable hours often mean the difference between a healthy budget and a missed car payment. However, there comes a point when you can spend too much time on your clients’ needs and overlook your own personal goals and pet projects. Just because you work as a freelancer doesn’t mean you are obligated to accept every project that comes your way. Learning to say “no” is an essential skill in business, as is the ability to discern which projects are worth your time and which aren’t.
Make a pact to set aside some time each week (for example 10-20% of your working hours) for your own website, book, design project, app, business idea or whatever project makes you happy but is perpetually on the back burner while you look for ways to pay the bills. You’ll be feeding your soul and chances are, there will be minimal impact on your budget.
4. Expand your skill set
The other risk with freelancing is you typically get gigs for the same type of work you did the time before, and the time before that. Your skill set stagnates as you churn out the same things month after month. Don’t get complacent with your skill set and don’t wait for clients to push you into new challenges.
Think of adjacent areas where you can expand your current expertise. Take a course, attend a seminar, or find a willing mentor to show you the ropes. In the best case scenario, you’ll discover something new that you love and can grow the business. And if that doesn’t happen, at least you’ll be keeping things fresh.