My Freelance Journey: Blog 2 – Practicalities

So decision made – I’m going freelance.

Where do I start?

Luckily, I had a friend who made the same decision 2 years ago, and we agreed to meet for a play date (child lingo for cup of coffee) to get the low down.

“It’s great,” she tells me. “You can work your hours around the kids (or traveling if you’re young free and single) and if you’re too tired to hit the gym after work, you can go during the day and make the hours up on your sofa watching Bodyguard.”

“It’s awful,” she continues. “Clients call me round the clock and they never remember which hours I work. You can have one baby on your hip, one hanging off your trouser leg, oven gloves on, and just as you are about to get the chips out of the oven, a new potential client calls you. It’s enough to tip you over the edge.”

It was hard at first - I felt I needed to respond to everyone immediately - but I soon realised it was essential to buy a separate phone that I can switch off at the end of the day, separating work from home life.

The next big decision is whether to become a sole trader (self-employed), or to start your own company. This is a massive decision, and it is worth taking your time over. I used this website to understand the pros of becoming a limited company and this one for understanding the pros of becoming a sole trader.

My biggest fear was getting to the end of the tax year and being hit with a massive tax, NI and student loan bill I couldn’t pay. I decided to become a sole-trader, but put in place very strict rules to discipline myself.

I then had to organise my finances. I have a personal bank account into which clients pay me and through which I pay company expenses, and a personal savings account. (Some people prefer to have a separate business account.) I take one third of my fee and transfer it into the savings account to cover my tax and NI at the end of the year. Finally, at the end of each month, I give myself a monthly salary, which I transfer into our family bank account.

Now, about paying yourself – I explored two options:

1. a) Take what I earn that month
2. b) Set myself an agreed salary that stays the same.

I went for option B because there will be some months where work is hard to find (January, February and August are notoriously bad, apparently), and as a sole trader you don’t get holiday or sick pay - I didn’t want my family finances to come into jeopardy. But how much should I pay myself? This was my approach:

1. Calculate the number of days I want to work a week
2. Multiply that by 47 (not 52, because of holiday pay)
3. Multiply that by my daily rate
4. Take off 20% to cover any quiet periods. This is my base line projected annual income as a business
5. Take off the 3rd for tax and NI
6. Take off 10% to accommodate work expenses. This gives me my annual income as an individual
7. Divide this by 12 and pay it to myself monthly

Point 6 may well lead to a seemingly low salary but don’t forget, this is my net, not my gross.

Hopefully, you will not be out of work completely for three months (if so, this might be a good time to take a holiday), and your business expenses may decrease. Over time, funds will slowly start to build in your bank account.

Getting work takes lots of sheer hard grind at first; if possible, give yourself a phased entry into the freelance world. For me, this meant looking after the baby during the day and working every evening for two months building my website, getting legal and joining networks.

If you are currently employed you might consider dropping a day a week or condensing your hours to free up time. But don’t underestimate the toll working every day and launching a business in the evening takes on your family life, grumpiness levels and ability to make a cup of tea without putting coffee beans in the cup by mistake.

Then, it’s all about organisation. I recommend making a spreadsheet to list your clients, your working log, your income and expenditure and your invoice numbers.

I use Trello to organise my time because it enables me to schedule my work, create check lists, add notes, and keep clients up to date on my progress. It’s worth checking best practice for invoicing as well.

Ok, that’s done – what’s next?

Beckie Smith, Directing Consultant, Flying Geese 

Follow Beckie's journey as she adapts to the challenges and opportunities of freelance life. Next time, Beckie discusses how to work out your unique place in the market.