Start a Freelance Business – 9 Critical Things You Must Know

As if you needed another reason to work for yourself, here’s one that might just make you want to jump ship:

 54 million Americans are now choosing to forego traditional careers and start a freelance business instead. 

This is a lot of people, and it’s only going to get more popular. The reason freelance businesses have multiplied in recent years is due to the rise in telecommuting. More and more people are working remotely—and they love it.

A recent study found that 30 percent of workers would rather make $40,000 a year in a job they love rather than $100,000 in a job they hate.

Hiring freelancers is becoming more acceptable and attractive for many businesses. Companies that might not have considered hiring freelancers five years ago are being won over by the flexibility and cost savings of an independent workforce.

After all, freelancers are more than just replacements for traditional W2 and 1099 workers. They possess the same skills as full-time employees.

Still, some freelancers can be hired on a project-by-project basis, allowing businesses to scale back their staff during slow periods and expand during busy seasons.

As the traditional job market continues to struggle under the weight of the global recession, a new type of economy is popping up all over the place.

We’re calling it the “gig economy,” and it’s being driven by the same technological advances that help people connect with each other in new and exciting ways. Among the biggest winners of this revolution are freelancers: people who have learned new skills and set up businesses to sell their services to other people.

“If you can create a product that is small, targeted, and solves people’s problems, you can become an expert in that area and make money from it.”

There is so much buzz surrounding entrepreneurship, both in the news and among the people we know. But, how often is it that we have to pause and ask ourselves the question:

“What does it really mean to be an entrepreneur?”

Being an entrepreneur has a lot of different connotations, depending on who you talk to.

Some people think of entrepreneurs as people who have started their own businesses, while others think of entrepreneurs as people who have a lot of nerve and are willing to take calculated risks.

Still, others view entrepreneurs not as people who have their own business but as people who work for themselves.

Chances are you’ve heard about and read about the idea of starting a side business. Heck, you may even have some side business ideas of your own that you’ve been mulling over for a while now.

Unfortunately, the idea of starting a business from home can seem pretty intimidating.

There are many things to take care of – you have to set up a business bank account, establish legal identity, and figure out what type of business structure to use.

This can all seem like too much to tackle on your own.

1. Understand What You Want Out of Your Freelance Business

Freelance Business Lifestyle

You need to have a clear idea of what you want out of your freelance business.

Do you intend to make it full-time, or do you just want some extra money?

There are many reasons to start a freelance business, such as freedom and financial security. Some freelancers want the challenge of running a full-time business, while others simply need extra money from time to time.

As a freelancer, you are in complete control of your business.

But this can also be one of the biggest challenges as there is no boss to answer to or co-workers that will help you out if things get tough.

To ensure you thrive in this environment, you need to understand what success looks like for your freelance business and how much time and effort it takes.

The biggest challenge most freelancers face is having no one to answer to. This can be both a blessing and a curse. You are in complete control of your business, but you also need to take care of the marketing aspect.

Freelancers need to be self-aware because it’s inevitable you will find yourself in situations where you’ll have doubts about whether or not what you’re doing is good enough.

Unless there’s someone else who deems your work successful, only YOU know when it needs improvement – which means that maintaining morale is often more challenging than anything else!

2. Make a Plan

Goal setting is a critical component to financial success.

Without clearly defined, easily measurable goals, you’re going to have a tough time getting to where you want to go. It may sound like a cliché, but the truth is that you can’t get to the next step without the first one.

Goals need to be set in a way that makes them easy to track and measure.

Otherwise, how can you know if you’re achieving them? Second, how can you tell when you’ve reached them?

The first thing you should do before quitting your day job to freelance full time is to determine your living expenses. A vital part of this step is to include your savings as part of your living expenses.

If you don’t have enough money saved up to cover a few months of living expenses, you’re much more likely to give up on freelancing after your first couple of months when you’re not making enough money to cover all of your expenses.

While your living expenses are a significant consideration, it’s not the only factor to consider.

Freelancing is a business with all the risks and opportunities that go along with it. You can mitigate some of the risks by being conservative with your income targets, but there’s no way to totally eliminate it.

There’s also the risk of overcommitting to clients and projects, which can burn you out or leave you with a ton of work that needs to be done in a short amount of time.

3. Choose Your Freelance Business

Let’s assume you have a skill such as graphic design or web development, and you’d like to freelance with those skills.

There are many competitors in your industry that’ll be willing to charge much lower rates than you, no matter what you do. Because you’re trying to compete on price, you’ll have to work even harder to make your product look desirable.

You might get clients at a lower rate, but the clients you get won’t pay you very much, and they won’t be loyal to you.

Feeling desperate about this, you decide to work even harder and end up working 90 hour weeks and not spending much time on anything else. This leads to burnout.

A profitable client isn’t always the most comfortable client to work with, but it’s often the most rewarding in the long term.

Many freelancers have started turning to niche business models to attract more high-value clients—and it’s paying off. By taking the time to find a profitable niche for your freelance business, you’re actively seeking out an industry and type of client that values quality.

In a world where many clients want to pay as little as possible for as much as possible, it’s a refreshing change of pace to work with a client that values the work you do.

Most small business owners know that you have to charge more for your product or service to compete on quality.

Some continue to sell their services on price alone, mainly because they don’t want to alienate their customer base.

If you’re in a situation where you have to compete on price to survive, you can’t make a deal with yourself where you’re the one offering ridiculous pricing, and the customer is the one getting a discount.

To be a successful freelancer, you need to offer your clients something that they can’t get anywhere else.

To do this, you need to bring a unique skill set to the table.

Although you might have your initial doubts, there is a market for slightly more niche or specialized skills than your average run of the mill graphic designer or web developer.

Once you’ve defined your unique skills and identified the target market for that skill, you’re ready to begin.

In the beginning, start your freelance journey, in short, small steps. Each progressive step will become more comfortable and allow time to plan the next move in your freelance journey.

4. Define Your Ideal Client

It’s easy to get excited about finding a profitable niche.

After all, it’s the step that brings you closer to launching your freelance business. But you shouldn’t forget about the other half of the equation: attracting the right types of clients.

For example, if you’re writing and designing for the finance industry, you should be careful to avoid websites that are either too big or too small for your niche. If your clients are too big, they’ll expect you to have a team of writers and designers working for you.

If your clients are too small, your services will be undervalued.

We recommend taking a “shotgun approach” to getting your first couple of clients. This means you’ll send out lots of proposals and sometimes hear back from potential clients.

Other times you won’t.

This approach can be a bit stressful, but it is also the fastest way to start your business. Just remember, even if you get a few “no’s” at first, don’t let that stop you.

Narrowing in on your target client is not an easy thing to do, but doing it will help you achieve much better long-term results.

You need to first figure out what kind of business you want to run, but you also need to decide who your target customers are. This is especially important if you don’t want to end up with clients you don’t work well with.

Ultimately, if you don’t work well with your clients, you will have difficulty finding new ones.

Niche businesses can be very profitable if you know what you’re doing and you choose a narrow niche that appeals to particular clients. While it may seem counterintuitive, by appealing so well to a smaller niche, your target clients will have a speedy path to deciding that you’re the best person to help them with their projects.

Right now, you’re probably thinking, “But what if I want to appeal to everyone? Doesn’t that make me more successful?”

The answer is no.  You can’t be all things to all people. 

5. Define Your Service Package

The decision you make when deciding what you do and what you don’t do will affect your business for years to come.

If you want to freelance, then you need to be focused. If you have too many things in your business, you will not give enough attention to each item, and you will not be profitable.

There’s a fine line between being too vague and being so specific that your services or products are no longer attractive to potential customers.

The truth is, you want to strike the right balance between being too broad and being too narrow.

When you’re too narrow, you could be eliminating specific customers from your target market who would benefit from your products or services. When you’re too broad, you may not get the attention you deserve since your product or service may not stand out to consumers.

There are many ways to determine what the right level of specificity is.

While there are many ways to get paid for your expertise, the main two are charging an hourly rate or billing based on a fixed price or project. Every business should have a business plan and a competitive advantage.

You will need to think about the unique value you provide to your customers and how you can use that value to charge them more than your competition.

When charging by the hour (or minute), you will want to work out how long each client interaction is likely to take, so you can quote a fair hourly rate. You will also need to decide whether you will charge by the hour or the project.

If you are just starting out, this may seem a little bit intimidating.

However, you can do some simple things to make sure that you are charging a fair price and that you are getting a fair deal. You can compare market rates for services by looking at other freelance businesses on Upwork and the rates they charge or searching on Google for the keywords freelance rates.

You can also talk to friends in related industries and see what they charge for their services and what they feel is appropriate for those services

6. Create a Showcase Portfolio

I firmly believe that one of the best ways to demonstrate your technical skills is by having a portfolio site that shows off your best work.

A portfolio site that is custom coded in your own design and style is a compelling resume. Your portfolio site is interactive and is a snapshot of the projects you have done, your passion for your work, and your technical skillset.

For freelance designers or any other freelancer, the most challenging thing to do is get that first client.

That is why it is essential to start building trust with potential clients by showing them examples of past work. When a potential client sees work similar to what they want you to do, it will give them a better idea of how you work, what you can do, and the value you can provide.

 What are you known for? 

Are you known for your proficiency with Microsoft Office? Or maybe your skill using Google AdWords? Perhaps you’re a whiz at doing online research?

The best way to get people to hire you for a job is to highlight your job search materials the services you offer that align with the services needed by the organization seeking an employee.

Your portfolio work samples should also align with the services you’re offering.

If you say you provide social media expertise, then make sure you’ve included some social media marketing work samples in your portfolio. If you say you’re an expert in writing, include some writing samples.

Now that you have created your portfolio, it’s time to spread the word about the site.

The best way to do this is by telling people about it via your social networks and email signature. Add a link to your portfolio site on your email signature and within your social profiles because if someone likes your work, they are more likely to visit your portfolio site.

7. Tap Your Existing Network 

Your network is critical when it comes to getting freelance work.

In fact, one of the most effective ways to land higher quality and better paying freelance work is through leveraging your existing networks.
If you don’t have any contacts yet, it’s not too late to make some!

Just search LinkedIn and other professional networking sites for former co-workers with freelance experience.

Some of your contacts may be just as eager to make new connections as you are and might be willing to hook you up with some of their own clients.

Here’s a simple guideline for freelancers: First, ask yourself, “Could this person benefit from knowing I’m freelancing? If so, then you should tell them. If they would benefit from learning about your freelancing endeavors, that means they’ll gain something from it.

Having a strong network of professional contacts is a key to finding new opportunities, so if you want to be successful, you’ll need to invest time strengthening your connections.

When you keep in touch with your professional contacts, it can help you become a more valuable team player. And when the time comes to ask for a favor, you’ll find that your contacts are much more likely to be eager to help if they know you’re always willing to help them.

If you want to be successful, you’ll need to invest time in strengthening your connections.

8. Continually Pitch Yourself

Successful freelancers know a good pitch can help you lock down a new client, while a lousy pitch can slam the door in your face.

The secret to crafting a pitch that gets you in the door is to understand the other side of the equation. (You may be the expert, but you probably don’t know the company or the decision-maker as well as you think.)

You have a great idea and a lot of passion for it. You have the skills to make it happen, and you know what you want from experience – more money.

You’ve done the groundwork and networked with the right people.

Now you’re ready to put together a contract to hire yourself out to a client.

There are two basic ways to refer to outreach: warm and cold. Cold outreach is outreach with no previous conversation or connection to the person you’re reaching out to. Cold outreach is the most challenging type of outreach because you don’t have any history with this person, and you have no idea what this person’s reaction will be.

If you want to write a warm introduction, you should spend some time getting to know the person you are writing an introduction for.

A friendly introduction is a great way to introduce yourself to a new contact or get to know someone better.

Building relationships with clients requires you to develop a thorough understanding of their business while also communicating your skills and expertise. When you establish genuine partnerships with your clients, they will not only be supportive of your business but also be more likely to refer you to their peers.

9. Dealing With Business Tasks

When you start earning money from a freelance business, whether a part-time or full-time business, it’s crucial to separate your business and personal finances. Otherwise, you can get into trouble with federal, state, and sometimes even city taxes.

IRS rules require you to file a Schedule C with your 1040 tax return every year you earn more than $400 from a business.

You’ll also need to file quarterly estimated income tax payments if you expect to owe at least $1,000 at the end of the year. You’ll also need to pay federal, state, city, and sometimes even county business taxes.

If you are a US citizen, you will be expected to pay federal taxes throughout the year.

 If you don’t pay them consistently throughout the year, you will be charged penalties and late payment fees. 

To avoid this, you will need to make estimated quarterly payments. Estimated quarterly taxes are basically a prediction of what you think you owe in federal taxes by the end of the year.

Because it’s an estimate, it’s usually not too far off, but there are ways to make it even better.

As a freelancer, you get to decide how much to charge for your services. This means that, unlike an employee, you are responsible for your own tax payments.

You don’t have taxes withheld from your check like an employee, but you also don’t get any kind of tax deduction for the money you spend on business expenses.

You have to keep track of your business-related expenses for the year, and that includes keeping tabs on how much income you’ve earned from freelancing. You need to keep these records to take out the tax you owe and keep them on top of your estimated quarterly tax payments.

When you’re self-employed, you not only have to pay your taxes, but you also have to make sure you follow your state’s tax rules.

For example, in some states, you’re required to report your income quarterly, while in others, you have to report every month. Your state may also require you to pay estimated taxes throughout the year or at year-end.

To avoid penalties and interest, do some research into your state’s small business regulations to learn more about how freelance businesses are taxed.


If you’ve been on the fence and unsure if you should venture out and start a freelance business, remember:

You can work from anywhere. You’re your own boss. No one to answer to but yourself and customers who love what you do!

We all know that the world is increasingly connected.

It doesn’t matter where you are or what time it is. You can be in a remote village in Africa and still find someone online who needs your services!