I’ve been asked this a few times, and thought it’d be prudent to turn it into a blog post. I’d appreciate any feedback you had on this, too.
Set up an LLC or S-Corp.
You can operate as a sole proprietorship if you’d like, but that leaves your personal assets open in case something goes south with your business. LLCs are nice, and pretty simple to set up. The forms, paperwork and fees vary by state. You can handle this yourself with a little searching on your state’s Secretary of State website. If you’d rather someone handle it, legalzoom.com or a lawyer can help you with this.
Get the paperwork out of the way.
You’ll need to file for your LLC in your state, and you may have to apply for other local permits in both your city and county.
You’ll also want to get:
- Federal Tax Number
- You’ll give this to people who hire you when you fill out a W9
- Here’s the link to the IRS’ site, where they’re free. There are companies who provide these for a fee, and you can safely avoid them.
- Employment Security number (if you’re setting up payroll)
- Where you go depends on your state
- Articles of Organization if you’re forming an LLC or other company
- Available from your state’s Secretary of State’s website
Get a bank account.
To set up a business banking account, you’ll need to have your LLC officially formed. You’ll want to keep your business’ funds separate from your own, else tax time will become nightmarish.
Get a lawyer.
They can help you with setting up your LLC, creating solid agreements, reviewing client agreements, and being there when things go south.
Get a CPA.
They’ll help you prepare for taxes, as well as find lots of ways to reduce your tax burden. They’ll also help prepare your tax returns, which gets tougher when you have a company and a personal return. They also help you understand what you can write off on your taxes.
Get an agreement.
This can’t be stressed enough. You’re asking for a lot of confusion, anger and stress if you don’t. Your lawyer can help you. Alternatively, you can use our Plain English, lawyer-vetted client agreement.
Find out how clients will pay you, and when.
This is more for your benefit. Usually half down and half upon delivery is acceptable on shorter projects.
For longer projects, it may make sense to bill when you hit certain milestones. For example, on a 6 month project, you may want to bill once at the outset, once when you deliver comps and once when you complete the project.
More than anything, get this figured out before you jump into a project with a client so that your expectations both match up.
Get some invoicing/bookkeeping software.
Billings for Mac, Harvest and FreshBooks are all great. Personal experience: things are a little hairier with Billings Pro if you have more than one person using your software, even if you pay for the extra seat. Using a good old spreadsheet is ok, but I saved a lot of time by switching to billing software.
If you find yourself away from your main workstation a lot and you’re an iOS person, check out Billings or Harvest. It has an iPhone app, which is pretty handy.
Get a website.
Even if it’s something simple, people need to know how to get in touch with you and what you do.
Get on Twitter or some other way to connect with people.
Talk about what you do, and connect with other people who do what you do. Also, connect with people who could hire you.
Plan for taxes.
If you’re not into the CPA idea, make sure you plan for (and pay) your quarterly taxes. In the past, I used 25% as the number I needed to save for taxes. We pay quarterly, and our CPA ended up getting us a slight refund. We dug that.
Pay yourself a salary.
Don’t just take everything (remember, we’re planning for taxes), take a reasonable salary. You can set up payroll for your company, or just write yourself a check each week. Long-time Freelance tip: if you pay yourself via payroll, it’ll be easier for you to get a loan for a house.
There are lots more things to consider, too, and I’m sure you guys can add more. Tweet us and we’ll keep this updated with your ideas.
Photo via bumblebeelovesyou