How to Start Freelancing With These 9 Easy Steps

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Ready to join the ranks of the gig economy and start your own freelance business? Being your own boss has a lot of advantages, but there are some pitfalls. From concerns about cash management to worries about being personally liable, a freelancing business is a bit more complicated than grabbing a listing off a job board.

Whether you’re looking to start a freelancing career or you want to create your own business as a side hustle, here’s a step-by-step guide to freelancing for beginners.

What Is a Freelance Business?

One way freelance businesses are a bit different from a traditional business entity is that you’re usually selling services and not physical products. Most start their freelance journey as independent contractors hired for a specific project or paid an hourly rate.

According to the Gig Economy Data Hub, nearly a quarter of all global workers and as much as 11% of the American workforce do some freelancing either as their full-time job or as a side hustle.

Many freelancers may have one or two long-term clients that provide the equivalent of a full-time job, while other freelancers pick up a patchwork of short-term gigs. Some common freelance jobs include being a web designer or freelance writer or illustrator. Unlike other professionals or full-time workers, a full-time freelancer scouts out their own potential clients and usually works remotely.

Looking to start working as a freelance writer? Here are 19 sites that pay contributors.

What Are the Advantages of Starting a Freelance Business?

Before you run out to start a freelance business, it’s worth considering some of the pros and cons.


Pros

  • Set your own hours
  • Work from home or remotely
  • Determine your own rates
  • Choose your own clients


Cons

  • Paying taxes quarterly
  • Higher tax rate
  • Finding your own clients
  • No employer benefits such as health insurance, retirement savings plans and paid time off

Some of the advantages and disadvantages of freelance work will also depend on different factors, such as whether you’re freelancing full time or just taking on projects to make extra income on the side.

How to Start a Freelance Business in 9 Easy Steps

Before onboarding your first client, these are the critical steps you should take to ensure your freelance career will be a successful one.

Step 1: Decide what services you’ll offer.

Often, prospective clients are interested in hiring freelancers because the company lacks the skills or doesn’t have the bandwidth to tackle some projects in-house. The World Economic Forum’s Future of Jobs 2020 report indicates 41% of companies are expected to expand their use of independent contractors in the coming years.

Think about what you are qualified to do, but also other niche interests and insights you might bring to the virtual table and what companies are expecting others in your industry to provide.

Step 2: Determine your rate.

What should you charge for freelancing? For many freelance newbies, this is the hardest part. And what you’ll charge depends on your industry, demand, skill level and experience.

There are two basic schools of thought on freelance rates. One method is to take the annual salary you want to earn and work backward from there to determine your monthly, weekly and hourly rate. The other method, referred to as value pricing, is a little more nuanced and relies on doing some market research.

Step 3: Build a website or portfolio.

As a freelancer, you’re not usually selling a product. You’re selling yourself. And the first step to generating a customer base is to establish a virtual presence. Secure a domain under your name or look to create a freelance site with a name that reflects your focus.

Pro Tip

Don’t have the skills to build your own website? No problem. Lots of sites like Wix, Squarespace and others offer templates and website builders for beginners.

Step 4: Decide whether to start an LLC or an S-corp.

As a freelancer or sole proprietor, the most common way to establish your business is as a limited liability company (LLC). This provides basic protection from personal liability or asset seizure if your business incurs debts or runs into legal trouble.

However, there are some advantages to taking the extra steps to make your freelance business an S corporation. Although the process is more complicated, this business structure can save a bundle on taxes in the long run.

Still unsure whether you want to do an LLC or S-corp for your freelance business? Learn more about the pros and cons in our guide.

Step 5: File for an employer identification number.

You may be wondering if it’s really necessary to go to the extra trouble of securing a federal employer identification number (EIN). And the short answer for most freelance businesses is yes. While you won’t use it every day, an EIN will let you do a few essential tasks like opening a business bank account to keep your personal finances separate.

Pro Tip

Find out more about whether you should get an EIN and how to file for one with the IRS on the Small Business Association website.

Step 6: Get your business licensed.

Even if the extent of your business operations is to pop open the computer every morning and roll up the sleeves of your pajamas, you’ll still be required to register your business in most states. This often means paying a small annual fee for a state business license.

Many municipalities and counties also require businesses, even LLCs operating from home-based offices, to hold licenses or permits. Check with your city, county and state officials to determine what the rules are in your area.

Step 7: Consider opening a business bank account.

Before you start making bank as a freelancer, you’ll have to decide how to manage your finances. While some business structures don’t require it, the IRS recommends having a separate business checking account for tax purposes if you’re an independent contractor.

Step 8: Figure out how to track income and expenses.

Tracking your income, invoices and business expenses can seem like a full-time job, especially if you have more clients than the average freelancer. In the beginning, you may do fine with a well-managed spreadsheet, then find it necessary to graduate to more advanced bookkeeping.

There are also several budgeting apps that specifically offer tools for freelancers, such as You Need a Budget (YNAB) or QuickBooks Self-Employed. The best part is you can write off budgeting app subscriptions as well as software like TurboTax or a project management tool as a business expense.

Step 9: Set up quarterly estimated tax payments.

One of the big adjustments to starting your freelance career is making quarterly estimated tax payments. The federal government and some states require self-employed contractors, LLCs and other small businesses to pay estimated taxes quarterly.

“Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed,” the IRS website specifies.

Calendar the following estimated tax payment deadlines to ensure you won’t forget.

  • April 18
  • June 15
  • Sept. 15
  • Jan. 16, 2024

If you take the appropriate steps to start your freelance business off on the right foot, being your own boss, working from home and setting your own schedule can be incredibly rewarding.

Looking for new clients for your business? Here are nine freelancing websites to try, including platforms like Upwork and Fiverr.

Kaz Weida is a senior writer with The Penny Hoarder and owns her own freelance business.






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