The internet and the rise of remote work have turned freelancing into a much more accessible option. This is so true that, in many cases, those who start freelancing part-time eventually want to shift into a full-time freelance lifestyle.
The primary hurdle in this transition typically revolves around handling the business expenses that come with full-time freelancing. Here are a few tips to help you manage your finances as you attempt to launch your own startup as a freelancing solopreneur.
Start with Two Budgets
If you want to set yourself up as a full-time freelancer, you have to start by establishing two clearly defined budgets. The first is a strict personal budget that takes into consideration what you need to live. This can help set a baseline for what you need to earn each month. It can also help you understand where you have expenses you can trim if money gets tight.
The second is your business budget. This should take into account business expenses, revenue, taxes, and the like. You should also have a business entity and bank account to keep your finances separate.
If this sounds overwhelming, you can always ask a professional for advice. Accountants specialize in things like financial statements, cash flow, and expenditures. Once you’ve cleared up your initial questions, you can take on the budgeting aspect of your freelancing on your own.
Identify Your Expenses
Next up, consider the expenses that will come with starting your freelancing venture. If you’re a freelance writer, there are some costs you’re going to face as you get started. For example, you’ll likely need to pay fees to create your business entity. You also may need to pay for time tracking or project management software.
As you calculate these expenses, find a place to track them to help you project what it will cost to run your business.
Use Taxes to Your Advantage
One of the best ways to counterbalance the costs of starting a business is by writing off your expenses. Along with basic write-offs like buying equipment, there are many other ways you can use taxes to your advantage as you get things off the ground.
If you pay for LinkedIn for networking purposes, write it off. If you invest in advertising, write it off. If you take clients out for lunch, write it off. You get the idea. Once again, having a certified accountant available can be really helpful here. A good lawyer can help with legal questions, too.
Build a Financial Buffer
If you’re currently working a full-time job and freelancing on the side, think twice about your timeline. Don’t just jump ship on your current paycheck in a reckless manner.
Instead, use your existing stream of income to build a financial buffer that can help you through any lean times that might be ahead. If you find that you need all of your current income for living expenses, crank up your freelancing efforts to get that extra financial cushion in the bank before you start your business.
Investing can be a good option, as well. A well-diversified portfolio can provide stability, fuel financial growth, and offer a safety net for your business if you need cash in the short term. Just be careful not to tie so much money up in investments that you can’t avoid pulling from them if they’re down in the short term.
Always Stay Two Steps Ahead
Finally, make a conscious effort to stay two steps ahead with your financial activities. In other words, don’t wait for money issues to arise before you address them.
Of course, there are going to be curveballs you don’t expect. That’s true with any business venture. But whenever it’s in your control, do your best to avoid — or at the least mitigate — future financial threats.
For instance, if you have enough money now but know you have seasonal swings in revenue, work extra hard and save more in the present to prepare for any foreseeable reductions in your future income.
Success is equally dangerous. If your company is booming and you’re thinking of hiring more people, you might consider moving into an official workspace. Think through all of the financial implications that this involves, from lease terms to expandability to the general increase in overhead that a rented space entails.
Creating a Firm Financial Footing for Your Freelancing
Freelancing is a viable full-time career that tens of millions of Americans are cashing in on. If you find that you’re among their ranks, make sure to look before you leap — especially where finances are involved.
As you gather your entrepreneurial tools and set the stage, it’s important that you consider the financial implications of your career move. If you can nail your finances right out of the gate, you can put your fledgling solo enterprise in the best possible position to ultimately succeed.
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