I currently work as part of a worker-owned cooperative and run the bookkeeping and financials at my company. I have been a freelancer in the past and run a small arts organization…for fun. In my coaching & teach financial literacy classes, people who run their own businesses have lots of questions so here’s a basic set of tasks to get your finances biz-ready.
1. Get an EIN so you don’t have to throw your SSN all around
You can do this online, for free with the IRS: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online
Note, you can only order one EIN per “responsible party” [eg person with one social security number or LLC, etc] online, EVER. Additional ones would need to be done in person. FYI 🙂
2. Set up a business bank account to separate your freelancer income and expenses. This will make taxes a LOT easier later. Save your receipts, and read up on Schedule C write-offs.
3. Prepare for taxes & costs: expect to pay anywhere from 15-35% of your income in taxes, so save — and set your rates! — accordingly. There’s a 15% self-employment tax that is applied to freelancers, which you need to be ready for on top of income tax, state tax, quarterly taxes… Then of course you’ve got your costs of doing business: supplies, office, travel, etc. Don’t let this stress you out; just prepare 🙂
4. Track your income. Keep notes, try this income tracking spreadsheet, use an app, tape a napkin to your wall… I care less about how than if you do this. It will save you headaches, searching through emails, frantic missing check dreams… And time not wasted is client time or you time. Isn’t that better?
5. Remember that working for yourself as a freelancer can be awesome; and written agreements and contracts help preserve that awesomeness. Rates, deadlines, expectations, who signs off, who writes checks, when you expect to get paid. Do you want 1/3 at project start, 1/3 at 50% done, and 1/3 at completion? That’s normal: just define what constitues 50% and done in your contract. Even as things may change in the project, you have the protection of knowing when you can bill.
I love talking about this stuff and strategizing with other small business owners & hope it’s all good and helpful info.
Want more support? Feel free to reach out for one-on-one coaching or sign up for one of the Freelancer Special classes! Or, check out this video that lists all this stuff + two bonus pro tips, all in under 3 minutes.