Everything you need to know about going freelance

Written by Anna King

#freelancers #entrepreneur #guide

Freelancing is booming, with a community of 2 million solo workers across the UK - a staggering 43% increase since 2008. Talented professionals across a range of industries are making the jump to freelancing in droves, trading in the corporate life, 9 to 5 and daily commute for a lifestyle of flexibility and freedom.

Forging your own freelance path undoubtedly has its advantages, but that doesn't mean it's a walk in the park. It takes guts to make the leap into a different way of life, being your own boss and surviving without the comfort blanket of an employer. But with the right preparation, there's no reason why you won't be thriving in no time.

This guide will help you get off on the best possible start, covering off everything you need to think about before you take the plunge.

Everything you need to know about going freelance

Weighing up the pros and cons

No job or way of life is perfect, so it's important to go into freelancing with your eyes open - to the risks, as well as the rewards. Here's some of the major pros and cons to weigh up:

Pros

Flexible hours: Freelancers have much more control over their hours and workload than traditional employees, which means you can fit your career around other areas of your life, whether that's a family, hobby or another career.

Flexible location: The same goes for where you work, whether from home, a co-working hub, or the other side of the world! With freelancing, anything goes.

It's relatively cheap to start up: Most freelancers need little other than a laptop and a phone, making it cheap and relatively risk-free to get started.

It's getting easier all the time: The boom in freelancing means that it's easier than ever to get started, with tonnes of services, job sites, freelance networks and tech tools designed especially for you.

Cons

It can be insecure and unpredictable: Goodbye monthly pay cheque! As a freelancer, you're fully responsible for bringing in your own earnings, so can't rely on that monthly salary anymore. You'll inevitably have busy and quiet months, so factor that in.

It can get lonely: Most freelancers say they miss the camaraderie of having a team around them, so make sure you're okay with that. Although it's much easier to stave off loneliness nowadays, due to co-working spaces and social networking groups.

No employment rights or benefits: This is a big one. Be prepared for a world with no holiday or sick pay, no maternity or paternity leave, no company healthcare or pension and few employment rights.

Extra admin: As well as doing your job, you're also running a business, albeit it a small one. That means managing invoicing, taxes and other bits of admin, on top of the service you're already offering.

Getting started

Still want to go for it? Great! Then here are the main practicalities involved in getting started:

Sole trader or limited company?

This is one of the first decisions you'll need to make and both options have advantages and disadvantages. Becoming a sole trader tends to be quicker and simpler – you just need to set up as a sole trader with HMRC within your first three months of trading. However, the tax structure isn't quite as beneficial as a limited company approach and if you get into debt you're personally liable for any losses.

With a limited company, your business is recognised as a separate entity so you're not personally exposed if your business gets into debt. It can also be more tax efficient, as you'll pay corporation tax and take dividends, rather than paying income tax on earnings. On the downside, running a limited company involves a bit more paperwork, including annual company filings, which means you're likely to need an accountant to help you. Either way, it's worth having a chat with a small business accountant to decide on the best option for you.

Everything you need to know about going freelance

Managing invoicing and accounts

A professional invoicing system will make billing your clients easy and efficient, while simultaneously giving you a way of managing your business accounts. You could use Microsoft Word and Excel for this in the early days while you get set up, but you're likely to benefit from accounting software, such as KashFlow or FreeAgent, particularly once you become more established and your accounts become more complex. You should also look into setting up a business bank account, which will help you manage your business income and outgoings ready for your tax return. A good option is Coconut, the new bank for freelancers, which has loads of features to help you manage your money better.

How much to charge?

It can be difficult to know how much to charge when you first start freelancing, and it's tempting to set your rate low in the early days to get a foot in the door and win business. But make sure you bear in mind that you won't have any holiday or sick pay, or the benefits you would have with a proper job, so what you charge needs to account for this.

When deciding on your rate, you can start by looking at what similar freelancers are charging, while also considering how much you want to earn. Always remember that you need to allow for holidays and administration time (and some time for faffing!), i.e. you're unlikely to be able to bill all the hours of the week.

Most freelancers bill by the hour or the day to begin with, but over time you may want to start billing by the project when you have a better idea of what clients will pay for certain packages of work. It's also totally fine to charge different rates for different clients, depending on their size, ability to pay and how much you want to win the business. You're the boss!

Winning business

The ideal situation is to have at least one, or a couple of clients ready to go – or at least in the pipeline - before you quit your job and take the plunge. But either way, you'll need to get into the swing of marketing yourself and winning business soon enough. Maximise your existing network to begin with, making sure any old clients know that you're now available for freelance gigs. Then with time, you may want to consider setting up your own website, networking proactively and joining online freelancing marketplaces such as Upwork, The Work Crowd or Elance to pitch for business.

Everything you need to know about going freelance

Budgeting

You also need to start putting money away for a rainy day, not to mention saving for when it's time to pay your tax. Unlike employees, whose income tax is deducted automatically every payroll, sole traders and limited companies get to pay theirs a bit later in the year, in one lump sum. But whatever you do, don't forget and spend all your money!

IR35

It may sound dull (and it is!) but it's important to know about IR35 as it can catch freelancers and contractors unawares. For those not in the know, IR35 is the short name used for the 'intermediaries legislation' - a set of tax rules that apply if you work for a client through an intermediary. That could be a limited company or a personal service company. It was introduced to avoid what is known as 'disguised employment', whereby a freelancer or contractor can avoid National Insurance and pay lower income tax, by being paid through an intermediary rather than the employer's payroll. But that doesn't mean all freelancers and contractors are affected. It will only apply to you if you are treated much the same as a normal employee, despite being an external supplier. So, if you're planning to take on longer, more stable contracts working within a client's business, it's worth finding out more about it.

Avoiding late payments

Late payments are the bane of many a freelancer, and they can be a sensitive subject to deal with. To avoid the trauma of tardy clients, here's a few tips:

Get all agreements in writing: Most clients are totally trustworthy and wouldn't dream of doing a runner without paying for your hard work, but that doesn't mean you shouldn't take precautions. So, even if you don't have a formal contract in place, make sure that you have agreed in writing the activity, deliverables, how much you are charging, payment terms and any late payment fees* before you start work. That way, if there are any disagreements down the line, you have something to fall back on. For ad hoc projects, it can also be a good idea to charge 50% of the fee upfront, to give you additional security.

*All companies have the right to charge interest on a late payment under the Late Payment Debts (Interest) Act 1998 and more recently the EU Late Payment Directive 2013. While this isn't advisable for every client who pays a few days late, it's an option where late payment is persistently occurring, as a means of covering your costs and inconvenience.

Keep a record: It's always best to keep track of any correspondence with the client, firstly to ensure clarity on what's been agreed and secondly, so you have credible evidence if you need to take legal action later on. If you agree something in person or over the phone, ask for email confirmation of everything that was discussed, or provide it yourself for the client to approve.

Everything you need to know about going freelance
Invoicing tips: Invoicing on a consistent and timely basis will help reduce the risk of late payments. Check with your client when is the best time for them, based on their own payment schedules and, for those clients you're concerned about, ask whether invoicing more regularly will help. An accounting system or invoicing app such as Albert, which is free and easy-to-use, will save you time when raising invoices, while also alerting you promptly to any late payments. Remember, the quicker you send them, the quicker you'll get paid, leaving you more time to do what you love!

Dealing with late payments

While improved admin and processes will reduce the amount of late payments you receive, it's inevitable that it will happen every now and again. When it does, it's important to broach the situation sensitively to prevent damaging your valuable client relationships. Then after 30 days of non-payment, here are some simple steps you can take:

Stay visible: Don't be afraid to send a friendly email reminding your client of the outstanding fee that needs to be paid.

Pick up the phone: If the client is still not responding, call them. It's much harder to say "no" on the phone and you're more likely to get an answer as to why they haven't paid yet.

Stop working: Put all further work on hold until you receive payment.

Consider a payment scheme: This may be a helpful option if your client is struggling to pay because they simply cannot afford it.

Take legal action: This should be the last possible resort. If the client continues to ignore your requests, you can take the dispute to a small claims court.

Everything you need to know about going freelance

Do freelancers need business insurance?

Freelancing exposes you to certain risks that you wouldn't face as a traditional employee, including responsibility for any damage or legal claims that arise. That's why investing in the right insurance is essential, so you won't be saddled with a crippling bill if anything goes wrong.

Yet, many traditional business policies aren't designed for freelancers, due to the more flexible nature of what you do. It can be easy to find yourself with insufficient cover, or paying way too much, if you don't shop around carefully.

To help you navigate your options, we've put together a quick guide to some of the policies you should consider, and how to make sure you get the best cover to match your needs:

Professional Indemnity cover

Many freelancers are in the business of offering consultancy or advice, which means that professional indemnity insurance (PI) is a good place to start. Professional indemnity insurance will protect you if you make a mistake, or if a client suffers – or claims to suffer – a financial loss as a result of your work, covering legal expenses and compensation you have to pay. So, if you're a software developer, IT consultant, PR, advertising or design consultant – or something similar - this is a must-have. You may also find that clients insist you have PI – so it could even help you win assignments (or not lose them!)

Watch out for: if you only work for part of the year, you can save money by choosing a subscription-style model that allows you to pay monthly and cancel at any time – such as that offered by Digital Risks.

Read more on PI in our blog on who needs professional indemnity insurance.

Business contents and equipment insurance

Chances are there's some kit that you rely on as part of your role, whether that's a laptop, filming equipment or more technical machinery - so, protecting this should be a priority. Business contents insurance covers everything in the office, including your fit-out, computers, office equipment, furniture and documents. You should also consider portable equipment insurance, which covers everything you take out and about with you, such as laptops, mobiles, cameras and tablets.

Watch out for: if you're based in a co-working space, you may find that insurers won't cover you, stipulating that your belongings must be kept in a separate, locked office. So to make sure you're fully protected, go for a policy like ours, which covers property left unattended in a co-working space, providing it was stolen through forcible access to the building itself, an office, locker or desk drawer. If you work on a desktop, you simply need to make sure they are attached to the desk with a Kensington Lock.

Find out more in our blog on how to insure your stuff in a co-working space.

Public liability insurance

PL protects you if you cause injury or property damage to a third party, either at your home office, co-working space, at a client's offices, or when out and about. The need for this, and your level of cover, will depend on what you do, for example, if you're a freelance photographer, you're likely to require a higher level of cover than say a designer or IT contractor working from an office. Similarly, if you spend a lot of time going to events and visiting clients, this will increase your risk exposure.

Read more here about why you might need to review your public liability insurance.

Cyber liability insurance

If you work remotely and handle a lot of client data then you could also be at risk of a cyber-attack or data breach, in which case cyber cover should be a consideration. Cyber insurance will protect you for a breach of data protection laws (where insurable by law) and your liability for handling data, as well as cover for extortion, system rectification costs, plus PR expenses and financial loss due to system downtime. If you tend to work within clients' offices, using their files and equipment, then you're unlikely to need it, but if you operate more independently, it could be worthwhile.

Watch out for: take note of the new data protection regulations that come into force in 2018, meaning the potential impacts of a breach will become even greater, with fines set to increase to as much as €20m.

Find out more here about where to start with cyber security.

Everything you need to know about going freelance

8 top hacks for freelancers

With the basics out of the way, here's some clever tricks to help make your freelance career a success:

1. Start it as a side project: To minimise the risk and cash flow worries while you're getting established, why not start off small in your spare time. It will allow you to build up a client base and iron out details around your rates and budgeting before jumping in head first.

2. Nurture your network: As a freelancer, your network is even more important to bounce ideas off, ask advice and get intros to the right people. So, make an effort to nurture and maximise all your existing contacts, while also spending time finding new ones by attending events, groups and online forums. Even if somebody isn't immediately useful, you never know where they'll be in the future – plus you might be able to help them out in the meantime!

3. Focus on the mission critical: Trying to fit everything in can be a challenge for freelancers, so look at your 'to do' list and be ruthless with your prioritising. If it isn't going to move your business forward or make you money then ditch it, or outsource. Your primary focus should be on customers and cash flow, so tasks relating to these two areas should always be paramount.

4. Ditch the drudge: Those time-consuming admin, low level or back-office tasks – find somebody else to do them! Whether that means your bookkeeping (find a good account) or your laundry and cleaning (invest in a housekeeper), in this day and age, it's easy to find people to pick up odd jobs for you. Try using sites such as PeoplePerHour or Task Rabbit to find reliable local (or not so local) help.

5. Find a mentor or coach: Isolation is the biggest enemy of freelancers and while a strong network is a bonus, it's nice to have somebody who's dedicated to listening to your concerns and problems. Working with a coach or mentor allows you to air the issues you're grappling with and work through a solution, giving you the confidence to make decisions and move forwards. Have a think about whether anybody you know fits the bill, or consider looking on a site such as mentorsme.co.uk to get connected to the skills and experience you're looking for. For more info on the benefits of a mentor, check out our blog post here.

6. Hack your skills: Lacking an important skill you need for your freelance career? There's no need to invest in an expensive training course. Whatever it is, chances are you can find loads of free guides and advice online to get you started, whether through YouTube videos, articles or by asking around in relevant business forums. A few hours dedicated study time and you'll be an expert in no time, adding new strings to your bow, not to mention potential new revenue streams.

7. Tech tools: There are loads of online and smartphone tools designed for freelancers, that can help you hack pretty much any area of your life. Some of our favourites include the online CRM system, Contactually, time management with Toggl, and Trello, the task manager which keeps your lists super organised. Freeing up valuable brain space for more important stuff!

8. Join a co-working space: Co-working has revolutionised the lives of solopreneurs everywhere, giving you a ready-made network for support, collaboration and to win new business. Many co-working spaces also offer mentoring, training and events, plus there are loads of good value packages designed with solo workers in mind. Find out about some of London's best co-working options here.

If you've always dreamt of a more flexible way of working, or of being your own boss, then freelancing could be the answer you're looking for - and there's never been a better time to give it a go!

Go on, take that first step – you won't regret it!

For more freelancing and insurance advice, check out our blog and to discuss your insurance needs, drop us a line at hello@digitalrisks.co.uk or give us a call on 0333 772 0759.

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