Stepping out on your own and freelancing is a huge step, but there's a lot you should think about before you take that leap. We've discussed some of them, but one thing worth considering are the startup costs associated with working on your own. They're there—and some of them you might not expect.
You might think that if you're going to work on your own from home—whether you're going to be a consultant, a freelance developer, or a writer, you can just hole up at home in front of your computer and run your business. To an extent, that's true, but there are other costs you should remember to budget for when you start out on your own. If you prepare for them before you strike it out on your own, you can avoid being blindsided by them when you're already stretched thin financially.
Outfit Your Home Office with the Equipment and Supplies You Need
You don't have to outfit your home workspace like the palatial corner office you never had, but you will need some things that you may not have needed if you only worked from home occasionally. Working from the couch or the bed may be fine occasionally, but when it's time to take a video call from a client or do some serious, heads-down work, nestled up in your blankets and pillows may not be the place you want to be. You'll need a decent desk, useful peripherals, and the right tools for your job. You'll need a good office chair and a reliable printer.
In fact, one of my surprise expenses when I was a full-time freelancer was the sudden need for a multifunction printer/scanner/copier. I had contracts to sign and documents to scan and archive—things I used to borrow the company machine to do at work. Suddenly, I needed my own gear, and it had to last the long haul—which means your purchase should be carefully considered and your dollars well invested. We could get into the weeds with things like monitors, laptop stands, and so on, but those all vary from person to person. Do make yourself comfortable, but don't throw your money away. The important thing is that you should consider the costs of setting up your home office with all the tools you may have taken for granted at a corporate office. There's no mailroom, no package receiving or shipping department, and no supply closet or IT department with spare keyboards and mice when you work for yourself. It's all on you, and investing in those supplies earlier rather than when you need them can save you money.
Buy the Software You'll Need to Do Your Work
Depending on what you plan to do, you'll need more than just office equipment: You'll need tools. For those of us who work with technology, that often comes down to software and peripherals, and that stuff can get expensive if someone else isn't paying the bills. Of course, if you're self-employed, much of it can be written off on your taxes, but you'll have to wait until tax-filing season to do so. On the one hand, try to stick to free options (eg, if you're a writer, Google Docs and Drive are great tools for document creation and management, and it's free) that are available anywhere, anytime, on any device. On the other hand, specialized tools like code editors, dev kits, web and application hosting services, and accounting or financial software all cost money. Still, you'll need some iteration of them to do your job. Brace yourself for the costs in advance, and save the receipts.
Watch Out for Higher Household Costs
Everyone likes the idea of working from home, but one thing often overlooked when your home is also your office is that you have to pay the increase in heating, cooling, power, and other household costs associated with someone being in there all the time. Most of us leave home in the morning and return in the evening, which gives us a break on things like energy costs. When you're inside all day, sucking down power at your home workstation and keeping the temperature comfortable enough for you to work, that's a change you'll see on your electric and gas bill at the end of the month. Personally, I didn't realize how much power I actually used until I was home all day with lights on and computers running. At my old job, I would have put them all to sleep, turned out the lights, adjusted the thermostat, and headed to work.
Expect your grocery bills to head up too. How much depends on you, but when I gave up a job that had free coffee and drinks and a cafeteria where I could pick up a sandwich when I didn't bring my own lunch, I found myself buying that much more coffee at home and that much more food to make my own meals every day. When you freelance full-time, especially from home, you don't get to just chip in with coworkers or scavenge the pizza from someone else's meeting—you get up, go brew your own coffee (which can be a good thing, all things considered) and cook your own meals out of your own groceries.
Consider a Coworking Space
If you have a little cash to throw around, consider joining a coworking space and renting a desk or office. We've discussed the pros and cons of coworking in the past, and services like the Coworking Directory wiki and Jelly can help you find an affordable coworking space near you.
Coworking spaces cost money though, and you'll have to budget for them if you plan to rent a desk, but the benefits can be great. If you're the type who wouldn't mind an office environment if it were on your terms, look into one. In many cases, the food, kitchens, and coffee are enough, but don't forget that many give you and your clients places to meet, space for you to network with or bounce ideas off of other people—often freelancers or entrepreneurs themselves—phone lines for business calls, studios for video shooting, podcasts, or conferences, and more. For example, one space near me offeres all of those things in addition to project "garages" where teams can build their own skunkworks-style secret projects, a complete fabrication lab with 3D printers, CNC routers, and laser cutters (much like a hackerspace would have), and classes and guest speakers on a schedule. If you can afford to be a member while you freelance, not only does it give you some human contact and an office to call your own, a coworking space can be highly enriching.
Save Enough for a Good Accountant or Tax Professional
You don't have to run out and hire a CPA (Certified Public Accountant) on retainer at all times, but it does help to take your taxes to an accountant at the end of the year and have them help you with all of your deductions, write-offs, and business expenses. Similarly, you'll need their help, since you'll likely be paid cash—with no deductions for taxes or benefits. Many of my freelance friends explained that some of the best money they spent was on an accountant who helped them manage their self-employment tax burden over the course of the year with estimated payments so they didn't find themselves with a huge bill from Uncle Sam every April. When you're a full-time freelancer, you're subject to completely different tax rules than your W-2 friends, many of which we outlined in this post. Don't overlook that—and don't skimp on a financial professional who can help you manage it.
Similarly, you may ask their help with your books. After all, you're the HR department when you work for yourself, which means no one's going to put money off to the side for health care or retirement benefits unless you do. A good accountant can help you choose the best vehicles for the money you will be making, and help you refine your budget so you don't forget to save for emergencies and dry spells—not to mention your financial future.
When Things Get Serious, Consider a Lawyer
Many freelancers don't bother with this—and honestly, I didn't when I was freelancing full-time, but if you're starting a business or have ideas, trademarks, or copyrights you need to protect, it may make sense to hire a legal professional well versed in business law.When Destroy Today's Jonnie Hallman stopped by to talk about his experiences, he made a convincing case for not just hiring an accountant, but also a lawyer—someone who can handle all of your client contracts, speak legally to your best interests, defend you in case someone else or another business decides to make your life miserable, and guide you through any region-specific legal hurdles to you working for yourself.
Of course, not all of us can afford to have a lawyer on retainer, so we'd say this is a step best saved for when you're already on your feet and have need for legal guidance, not if you're an individual looking to do some freelance coding or writing out of your spare bedroom/home office. Still, we have shown you how to find a repubable lawyer and how to work with one when you find one.
Prepare Before You Leave Your Day Job, If Possible
Many of these costs can turn up at different stages of the freelancing process, but it's best to prepare for as many of them as possible in advance. If you have a steady, full-time gig, freelancing before you quit your job is the way to go—and it's the way I went. It gives you the flexibility to save up that "extra" cash as a safety net before you take the plunge. We've even gone into detail about how to start your side project without quitting your day job if you need help making both ends meet.
The earlier you prepare and set the money aside for costs like these, the easier your life will be when it comes to tax season, or you have a client that needs you to use some specific piece of software but won't pay for your license. You can't prepare for everything obviously, but a little forethought goes a long way—and gives you the freedom to focus on doing what you're best at.
Title image by Tina Mailhot-Roberge. Additional photos by Sean MacEntee, Remy Sharp, Josh Hallett, Found Animals Foundation, The Community-Pop Culture Geek, and Eduardo Otubo.
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