Thinking about turning your passion into freelance income? You're in good company—the 2018 "Freelancing in America" study by Upwork and the Freelancers Union estimates that 56.7 million Americans freelanced in 2018.
What you may not realize is that even if your paying gig is a side hustle, you're running an official business. That means planning for not only formalities like business licenses and taxes, but also aspects like working capital and marketing.
If you're getting ready to join the gig economy, these are some of the top mistakes to avoid.
1. Treating your gig as a hobby
Kaitlin Morrison, a full-time freelance technology writer based in Moses Lake, Washington, says she wishes she would have learned a long time ago that “you don't earn respect in business—you have to 'take' it." Morrison, who previously worked in retail, quit a full-time job in 2015 to freelance, starting out part-time.
“Respect yourself first and treat your career like a business, and demand that from the people you work with," she says. “If you treat your work like a hobby, so will your clients, and even your relatives, for that matter."
A big mistake is thinking, 'If you build it, people will come.' The truth is, people are busy and distracted.
—Paula Onysko, money and business coach
Your road to self-employment should start by checking local laws and regulations to ensure you're “legit" before you open your virtual doors. A few required or strongly suggested things to consider include:
- Business license: Your state and local jurisdiction may require one even if you're a home-based, sole proprietor (a.k.a. freelancer).
- Home business permit: Some jurisdictions require a special permit for conducting business out of your home.
- Income taxes: Besides federal income tax, you may have a local or state business income tax.
- Business structure: A sole proprietorship works for many freelancers but depending on the type of contracting you plan to do, you may need a limited liability partnership (LLC), which also has some benefits.
- Sales taxes: Most states have sales tax for product sales (and in some cases, services) that you'll have to collect and remit.
Paula Onysko is a Calgary, Canada-based money and business coach who helps women entrepreneurs grow their businesses to six-figure incomes. She says that getting out of the hobby mindset means “creating a simple business plan, setting goals and tracking the numbers."
“Profits matter. The sooner you turn a healthy profit, the more sustainable your business is," she says. “So focus on that, and not just your passion."
2. Not understanding your market
Knowing what you're good at is not that same as knowing who your target audience is. Many freelancers research the market before they get started, but don't take the time to understand the core needs of their ideal customer, or target audience.
Onysko says that without that understanding, you won't be successful at selling your products or services.
“Trying to sell to 'everyone' dilutes your marketing message, such that you don't sell effectively to anyone," she says. “Take time to understand your ideal clients—both their pain and pleasure points."
Learning their challenges and desires will make you a more effective marketer. Which brings us to mistake No. 4.
3. Making marketing a low priority
Word of mouth is the best way of marketing, but don't expect to be there for a while. Before you launch, have a marketing plan, even if it's a simple one-pager. At minimum, the marketing plan should include your target audience, business goals, marketing activities and metrics.
“A big mistake is thinking, 'If you build it, people will come.' The truth is, people are busy and distracted," Onysko says.
She recommends focusing on building visibility and a following of interested buyers and loyal customers.
“Ensure that your product or service serves a particular problem people will pay for," she says. “You can begin to attract that fan base even before you jump fully into your business."
4. Not implementing business processes
When you're only making some side money here and there, you can get away by flying by the seat of your pants. But why not have processes and systems in place, avoiding chaos when you do grow?
Morrison learned that the hard way. When she recently had her busiest month ever, she realized the lack of business systems such as accounting was causing problems.
“My husband and I literally spent hours overhauling everything and organizing our invoicing, bookkeeping and communications," she says.
When creating business processes, one aspect that freelancers often overlook is client onboarding. You're not as likely to forget to invoice or collect money when your livelihood depends on it. But you may not remember to ask your client about a referral so you can continue building your marketing pipeline.
A few things to consider including as part of your onboarding process include:
- Vetting questionnaire to qualify inquiries
- Signed contract and deposit, along with 1099 form
- Welcome email outlining next steps
- Project intake form or kick-off meeting
- Project post-completion follow-up
- Testimonial or referral request
For Morrison, just getting an accounting system in place lifted a burden, as now she knows both who owes her business money and how she's doing month to month.
“Getting my business organized cleared my mind to focus on more critical stuff, like doing client work," she says.
But there was one additional benefit: Knowing how well she's doing gave her a better perspective if she's having a bad day.
“I think every small-business owner has days where they just want to quit and they think they're doing terribly," she says. “Without the ability to see your quarterly and monthly earnings, you may have a bad week in the midst of a fantastic month and lack perspective."
Photo: Getty Images