There was a recent post over at Freelance Sprout naming the “7 Things Not to do Before Starting your Freelance Business“. After reading it I felt compelled to write a reply to the post and offer some constructive criticisms and an alternative opinion in the topic. Most of my points are situational depending on what a freelancer’s plans and goals are but I have tried to explain these as well as possible. My intention is not to dispute the valid points of the author, but to offer another point of view and help guide readers further.

Dont setup a corporation

If you are just starting out, setting up a corporation may not be immediately necessary until you are aware of your potential success. However if you are going to be freelancing full time I think having a “corporate veil” is extremely beneficial especially in the event of a legal problem. If you are a sole proprietor as suggested and you are sued for a large sum of money, you are personally liable for that money. If you don’t have the funds to cover the ruling you are SOL. This could lead to selling your assets or even claiming bankruptcy. If you were registered as a corporation however, the corporation itself would be liable for the dues and you would not have to worry about losing your house.

You may not think you could be sued especially if you are working on smaller projects, however this is foolish to consider. Slander, copyright infringement, failed deadlines (causing lost revenue) and actual problems with your workmanship can all lead to a costly lawsuit. And if you are being sued by a larger company you better believe they will have a better lawyer unless someone in your family works pro-bono.There is a good article over at Associated Content about registering your business with a lot of great information.

Don’t get a separate business checking account

The author names this as “heresy” and that is exactly what it is. Assuming you are registered as a business (see above), while you don’t need a “business” checking account you definitely should have your freelancing funds in a separate account from your personal funds. Being able to take a glance at your avaiable funds will give you a decent idea of how you’re doing and if you can cover this month’s overhead. If all of your cash is in one account you will have to open up your accounting software (you are keeping your personal finances straight right?) just to see what is freelance money and what is leftover from your Birthday gifts. Checking accounts are free with most banks these days, and can even be opened online. Go get one!

Don’t pay an accountant

This point I can agree with for the most part if you are working as a sole proprietor, however tax laws change all the time and you need to be informed of anything that may be affecting you. Maryland has proposed a sales tax on computer services although it has not gone into effect yet. If you were unaware of a new law such as this you could find yourself paying some hefty end-of-year taxes or even fines. Lets just hope you don’t get audited. I enjoy personal finance, especially reading blogs such as Wise Bread and Get Rich Slowly. If you are well-versed in the finance world then an accountant may not be worth the money, however I like having a professional available to answer a few questions at the beginning of the year and to help me achive my personal goals. Plus I don’t like doing taxes so I’d rather pay someone to do them for me.

Don’t pay an attorney

Yes attorneys are the single most expensive start-up fee you will encounter, but there are a lot of benefits to having one other than the legal guidance. If you are a registered company you need a primary address listed with the federal and state governmental agencies. In the case that you are renting an apartment or house you may find solace in having all court filings to go directly to your attorney so they don’t get sent to an older address. Also if you are registering as a corporation the paperwork is a bit overwhelming and sometimes worth the fees to have a professional file for you.

Don’t apply for a business license

This doesn’t apply to all types of business, but you definitely need to check the regulations in your state and make sure your business does not require a license. If you are operating (as a business or as a freelancer) without a license you could face legal rammifications such as fines and JAIL TIME. Your attorney should inform you of these requirements when you register. Otherwise check with your state for more information. If your service involves physical therapy or working “on” people that is a pretty good indication of needing a license.

Don’t pay to get a logo designed

I agree that you shouldn’t get caught up in designing a logo and forget about the more important steps of getting your business running. At the same rate, don’t undermine the importance of a great logo. This is an essential part of any serious business as it provokes immediate subconcious emotions in the customer. When someone says “McDonalds” you most likely picture those golden arches. UPS is identified by their golden shield. Do some research and create something memorable that properly identifies your company and it’s services. Even better, hire someone else to do it for you…ahem.

Don’t write a business plan

I love the business side of running a company so I have no problem researching and writing up official business plans. While you don’t need anything formal it is a good idea to go to the local library and borrow a book about writing business plans and what is included in them. Just having a “plan” is not sufficient if your plan has not covered all bases: target market, financial forecasts, servicies offered, etc. A business plan should serve as a living document that you review and update each year so that you are aware of your progress and outlook. If you have a written plan - even a basic one - having the essential elements of a formal business plan will ensure you have properly thought out your business.

Again this is only constructive criticism and my opinion of Freelance Sprout’s original post. Though a relatively new blog I do enjoy the existing posts and suggest to anyone that is starting a freelance business to subscribe to their feed. You can never have too much knowledge.

Tags: freelance, planning, reaction

This entry was posted on Saturday, February 16th, 2008 at 3:08 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.