For the curious minds and side hustlers: here is my story of how I opened (and later closed) a business after freelancing for a while.
TL;DR: You don’t need to have an elaborate plan to start a business, but if you are or planning to make a lot of income it’s smart for tax purposes to pass your profit and losses through a business. I highly recommend consulting a lawyer or a certified public accountant (CPA) even if you are at super early stages of your business idea, just so that you are well-versed on the subject.
My story is about the time I decided to take a break from full-time employment (mainly: full-time commitment to just one company) to transition to the freelance game to have the flexibility to jump from project to project, work with dream companies, gain new skills and expand my networking rolodex.
So, the first freelance gig was about 10 months long. Good times, great oldies. It wasn’t until I was about to take on the next one (a 6 month contract), when my CPA said: “You are making a lot of money. Good for you. We need to incorporate you. Think of a name for your Corporation. Let me know of a name you’d like to incorporate and I will be in touch.” — and just like that— I started to think about this suggestion. I was very happy with my job, the type of work I was doing and excited about the prospect of what was ahead. Did I have a strategy? a vision? a plan? Nope. I purely followed my instinct and gut on opportunities and relationships. Did I feel pressure about having a more buttoned up approach before incorporating? Absolutely. The more I talked it over with fellow freelancers and my CPA, the more educated I became on the matter and decided to go for it.
What was most exciting about this, was that I was committed to being self-employed (at 29 yrs old), yet what was most terrifying was that I had zero long-term finance planning in place with this structure. But having opened up about my decision, the support came in ten-fold. I opened an S-Corp (you can get the skinny on LLC vs S-Corp here, but I recommend you talk to a lawyer or CPA to decide together on the right approach. Lots of them offer free consults!).
Here are my hot ‘Starting off’ takeaways:
• My first freelance gig was via a friend referral. I literally said “hey I’m looking to transition to freelance, let me know if you hear of any opps” and he got back to me to the next day with a connection that lead to the offer of my first freelance gig. All subsequent gig-finds followed the same suit! I’d either proactively reach out and say “Hey my current contract ends in about a month, let me know if you hear of any opps” or folks knew I was on the freelance market already and would hit me up.
• There are a few setup fees (~$500–800 depending on location) and paperwork up front. Make sure you have copies and back ups (I’ll come back to this later).
• Understand how to file for taxes and fees associated with that as well (I paid ~$800-1,500/yr total).
• I originally chose to pay out my taxes quarterly but ended up with yearly in the end (It’s ok to change your mind after all the initial paperwork is done).
• Pick a cool or boring name, doesn’t really matter — make a long list for your lawyer/CPA to check availabilities for you.
• Have health insurance. Be it on your parents’, spouse or your own — don’t skip this one. (I had Oscar at the time and it was roughly ~$300–400/mo).
• Put 30–40% of your earnings aside for taxes (yep, about the same that’s taken out of your full-time paycheck!).
• Put whatever % makes sense for you into savings (personal, emergency, retirement, IRA etc.). I aimed for 20–30%.
Now from here, I wanted to shed some light on how flexible your contract work can be — you can draft up your own contracts and bill folks hourly, weekly, monthly, fixed or you can work for other companies under a 1099 Independent Contractor or W2 Temporary Employee status. 1099s are usually set up hourly and you can charge more and W2 Temps are usually fixed into a weekly fee but the plus here is that you get benefits (you can take holidays, paid time off per company policy etc.).
The flexibility and supplemental income opportunities are for you to dream up! I remember consulting for one great company 20hrs a week and on the side I was helping recruit talent for old contacts and exploring what my next opportunities might be.
Starting off, it’s best to take on a bit more secure and long term work so that you can create a financial cushion (even if you started off freelancing with one). Sometimes, client work stops, or companies change their minds for whatever reasons so that 6 month contract can very well come to a halt after 30 days. You have to be flexible, understanding and prepared for such commotion.
Here are my key ‘Midway learnings’:
• Spend a % of your time reconnecting, checking in and catching up with peers, contacts and colleagues that inspire you. Update your portfolio, resume and be crisp on what type of work you are looking for. The work just comes to you once you nail this!
• Take time to do things to stay inspired; be it subscriptions to reading material relevant to your work, attending a conference or meetup or anything else to expand your mind — museums, walks, writing etc.
• Update your financial expenses at a cadence that works for you. If you have a good CPA or friend in the same business, they can share a worksheet for you to track your expenses. So depending on the volume and variety of your expenses determine if you should update this weekly or monthly or quarterly.
• Be flexible yet smart about your rate. You can be hourly at your lower end with one gig but then make 3x more in a fixed weekly rate with another gig later. Work out what you need to be making total a year, including the savings for taxes, your own savings and other other goals and then break that down to a monthly, weekly and hourly rate. Then create ranges. This way you can see what range you can play in when negotiating your rate at the start of a new gig or while renewing an existing one!
• You can get promoted as a contractor! Wacky, huh? Yep, it’s possible and delightful.
• Plan your time off between gigs and stick to it. That’s the beauty of this setup. When you outie, you out! And you can come back when is good for you. This power, of owning your own time and terms is a magical feeling (one I wish full timers lived into more)
• My original CPA dropped off the face of the earth. Not kidding. So the backup note I made earlier, yeah, do it. I ended up finding a new CPA via a friend and have been working with them ever since!
Reflections from the other side
After almost 3 years of being self-employed, here are some reflections— I felt excited to wake up every day like no other time in my life. I was responsible for the outcome of each day and my own definition of balance between work and play was mine to design.
- I made 2x more money than my previous full time/salaried role.
- I took 2.5x more time off for myself.
- I committed to prioritizing goals for my wellbeing. (See: I trained for and rode a couple stages of the Tour de France my first year of freelance. I fell in love with weightlifting because of this experience.)
- I was the healthiest and fittest I ever was.
- I got to work with people I wouldn’t have been able to if I was working full-time.
- I started and ended a start up!
- I got married.
- I started my most favorite life-project: a cabin renovation.
Last stop: Why did I stop? Why did I go back to full-time work?
As you may have noticed, I had no plan all along. From beginning, middle and end, I looked for opportunities that were exciting, challenging, that had great teams and leadership and just took them. At every corner, there was a better one and a better one and just kept going. I kept wondering up front if I should have a brand built out, a niche way to go after work, something that helped me lay out what 5 years from now look like and just couldn’t do it. It organically happened and I loved the whole journey. The agency work was familiar to me; had been in it for 10+ years at this point and even though I stretched into more strategy and ux while freelancing, I was thirsty for something different. The IBM opportunity presented to me at the time via an old acquaintance was truly unlike any other ‘gig’ and after weighing things out, it was the best new adventure ahead.
I kept my S-Corp open for a while as I kicked around a few more business and side hustle ideas. I was able to expense the building of these new ideas under my S-Corp even though I was employed full time. There was no conflict in the work with IBM so it was great to have that outlet and setup. Once I passed that threshold at IBM where I realized I was staying there for a while (I’m there almost 6 years! WHAT!) and that my side hustle ideas weren’t the next million dollar idea, I decided to close the S-Corp as the money to maintain it and pay taxes on a loss didn’t make sense long term.
That’s it! A story of trial, learnings, rinse and repeat. Here if you have any questions. Thanks for listening.