If you are toying with the idea of quitting your 9 to 5 and winging it on your own as a freelancer, the first thing you should be doing is planning out your finances. Freelancing can be very stressful and takes a lot of effort and grit to stay afloat. Being the master of your destiny comes at some costs such as sleepless nights, no concept of work hours and unpredictable income.
Since being a freelance is going to be very stressful, the last thing you want to worry about is staying afloat due to poor financial planning. Making the decision to go freelance shouldn’t be a decision made on the whim. You should plan diligently and set a date and target amount that you would like to have before you take the freelance plunge. Since you will not be earning a salary as you did from your employer you will need to have money that enables you to live (albeit modestly) while you are building up your freelance services.
Saving Money: The rule is to save double the money that you anticipate you will require to stay afloat during your freelance careers first 12 – 16 months. Remember there will be costs to being on your own. Saving money needs to be well entrenched in your DNA in order to be successful as a self-employed individual. Saving money doesn’t only mean putting money aside in cash, but it means being able to come up with cheaper alternatives to getting the work done. Lastly, it is important to have a rainy day fund. If you have managed to put together a stash of money, please make sure this money isn’t lying around in low-yielding savings bank account. You are better off putting it in a government securities mutual fund or a liquidity mutual fund. Do not touch this money, and live off what you are paying yourself from the freelance work or business.
Pricing your services: Majority of businesses fail because they get their pricing strategy wrong. Make sure you research what your services are worth to your customers and ensure you have a solid counter in the event you have to negotiate. Always, factor in tax implications on your products and services and if possible pass on the tax implication to the purchaser. Furthermore, if you are dealing with clients who aren’t very informed about what you are selling you will have a harder time convincing them on your pricing. Some clients will even have the audacity to ask for your services on a ‘trial basis’, never agree to this. Terms like these are unfair trading practices and you should stay clear of such clients.
The cost of doing business: Factor in all costs like rent, power, salaries, legal, printing and lastly in Pakistan something we refer to as ‘cost against personal assistance’ (applicable for government departments). It is always recommended to keep at least a buffer of 30% over what you intend on spending. Before delving in knee deep be sure to list and identify the costs that are most relevant to you and your line of work. Always document and list your expenses. Do not just keep a mental note of expenses, costs, payments etc.
Tax: Always document your expenses and income. Do not skip taxes as these can come with legal costs, implications and added penalties in the event you are audited.
Have a Plan B: The only thing certain in venturing out on your own is that there will be a period when you’re not making much (or any) cash. Be sure to have a backup plan for the times when you aren’t generating little or no cash from your core services. Try to collaborate with individuals or people whose skills complement your work. This way you will have access to opportunity. For example, if you are a blogger attach yourself to an SEO professional, in case you are a full stack developer, then try connecting with a UI/UX designer. Having an arrangement for the slow times will keep you from surrendering and running back to the workplace the moment you hit choppy waters.
Breaking out on your own requires courage and confidence. If you are someone who is enticed by being your own boss, be sure to weigh in all the options – it isn’t for everyone. For one to be successful you need to be great at time management, resource management, planning and execution. When you work for yourself, things don’t just play the course – you have to make them happen. I hope the above tips act as reference points of where to start if you are toying with the idea of quitting your day job. Whatever you do make sure to weigh all your options and compare the cost and benefits of your endeavours.