Though being a freelancer isn't all rosy, there are a number of benefits to going this route -- namely, that you get to make your own schedule, control your own workload, and act as your own boss. But before you leap into freelance work, you'll need to make sure you're prepared both logistically and financially. Here are some critical steps to take.
1. Establish an emergency fund
We're all supposed to have emergency savings to cover the unknown. But if you're about to lose a steady paycheck, having that safety net is all the more crucial. Remember, though you might think you'll earn a certain amount of money each month as a freelancer, until you get into a steady workflow, those payments might be staggered and less easy to come by. And the best way to keep up with your bills during that transition is to have a decent chunk of savings on hand.
Most people are advised to stick anywhere from three to six months' worth of living expenses in the bank for emergencies, but if you're going freelance, you'd be wise to aim a little higher. If possible, put nine, or even 12, months' worth of expenses in the bank. This is especially crucial if your line of work is such that you'll be fronting the cost of certain expenses and waiting to get reimbursed from clients.
2. Build a client base
It's hard to work on promoting your freelance business when you're fully employed at another job. But before you embark on a freelance arrangement, it helps to do some legwork and start establishing a list of potential clients. If you wait until you're officially out on your own to market yourself and network with various contacts, you could end up waiting even longer to start making money.
3. Determine the scope of your services
The beauty of being a freelancer is getting to decide which projects to accept and which you'd rather not undertake. But before you officially kick-start your independent venture, it helps to establish a solid list of the services you will and will not be providing. For example, if you're a freelance marketing copywriter, you might have clients call and ask for both website content and development. If you're unable, or unwilling, to do the latter, you'll want to make that clear from the start.
4. Figure out what you'll charge
Establishing a rate for your services is one of the trickiest challenges you'll face as a freelancer. Though it's important to keep your pricing competitive, you won't want to sell yourself short, either. The solution? Do some research. Find out what other freelancers in your field are charging, compare your experience and skill level to theirs, and establish a rate that represents the value you offer.
Furthermore, you'll need to settle on a fee structure that works best for you financially. This means deciding whether it makes sense to charge clients by the hour versus by the project, and whether you'll be requesting a certain percentage of your fee up-front versus along the way.
5. Create a system for managing your finances
One advantage of working for someone else is being able to sit back and collect a regular paycheck. But once you go freelance, it'll be on you to invoice clients, record payments, and manage your business's cash flow. You'll also need to do a thorough job of tracking your business expenses for tax purposes. Before you start taking on clients, find an accounting software or system that works for you and is easy to maintain. It'll make your life easier to have this in place as your venture kicks off.
Becoming a freelancer can be an exciting change, but a stressful one too -- at least in the beginning. Check these items off your list before diving in, and you'll be doing your part to set the stage for success.
The Motley Fool has a disclosure policy.