After working for over a decade as an engineer for companies that design and install commercial heating and air-conditioning systems, Jay Hein longed to have more control over his career and thought he might be able to make more money working for himself.
In 2005 he took the leap and became a freelancer. “It was part financial and part wanting to have control over whom I work with, when I worked and where I worked,” he says.
The arrangement was a success for Hein, who recently moved both his home and his business from Ohio to North Carolina, but it was an unusual move — at the time, few engineers freelanced. That’s changing, both for engineers specifically and across a variety of industries, fueled by the rise of the sharing economy and the ease with which technological platforms now match independent workers with potential clients. One in three American workers — more than 53 million people — now earn some freelance income, according to the Bureau of Labor Statistics.
The introduction of Obamacare makes it possible for freelancers to get quality health insurance (although they may have to pay a hefty sum for it), and more than a quarter of freelancers say that they’re able to earn $75,000 to $100,000 on their own, according to a report released last summer by MBO Partners. Nearly 80 percent of those who work for themselves said they were happier that way and plan on remaining independent, and one in seven non-independent workers is considering going freelance.
Still, there are drawbacks to going out on your own. Two-thirds of freelancers feel that they have sacrificed the benefits of traditional employment, according to a recent survey by TD Ameritrade. More than half say they work long hours, 41 percent say they never completely turn off and the same number report being under constant financial pressure.
So does it make sense for you to make the leap? Answer these questions to find out:
1. Are you good at working alone? Independent contractors often do live up to their name. If you enjoy the social camaraderie of an office, or aren’t great at holding yourself accountable for meeting goals and deadlines, freelancing may not be the best career path for you.
2. How do you feel about accounting? In addition to providing services to others, when you’re a freelancer, you’re also in charge of bookkeeping for your business. While there are some great software programs that make this easier, it’s up to you to keep detailed records and receipts, not only so that you know how much the business is making, but also so that you’re prepared when it comes time to file more complicated freelancer taxes. Plus, you’ll need to set aside enough money to cover your tax bill, which is likely to be due on a quarterly basis.
3. Can you handle dealing with clients? Making your clients happy is the key to repeat business. In addition to providing the agreed-upon service, that may also mean biting your tongue if a client becomes critical or frustrating. Still, you don’t want to be a pushover when it comes to getting paid.
Part of your job as a freelancer is to negotiate the best possible rate, and stay on top of clients that haven’t paid in a timely manner. Figure out what the going rate is for your service in your area (get tips here from the Small Business Association) and be ready to say ‘no’ to clients who want too deep a discount. “You have to project confidence when you’re setting terms with clients,” says Corrie Shanahan, CEO of the Beara Group, a Washington, D.C.-based consulting practice.
4. Have you had success moonlighting while at your full-time job?
Start out doing a few projects on the side while you’re working at your current job. That will not only give you a portfolio to show future clients, but it will also give you a sense of whether there is demand for your services. If this is possible (and doesn’t run afoul of any rules at your current employer), it will also make the transition easier.
“If you quit your job with a client in hand, you can be in business for yourself right away,” says Marco Perry, founder of Brooklyn-based design and invention firm PENSA, who regularly hosts workshops providing advice and guidance to would-be entrepreneurs and freelancers.
5. Do you have a solid network of potential clients? Focus on networking now so that when you leave your job you’ll have plenty of potential clients to contact. Ramp up your attendance at industry and alumni events, update your LinkedIn profile, and see whether your local Small Business Administration has resources that can help. Start checking in with former employers and clients and letting them know that you’re going to be freelancing and to send any potential jobs your way. Your biggest potential client may be your current employer, so be sure to tell them if you’d like to continue working together after you’re on your own. With that in mind, keep up the quality of your work until the very end.
6. Have you covered your financial bases? Even the best freelancers have slow months, and if you’re new to the game it could take you several months to get up and running. Freelancers should have six months to a year’s worth of expenses set aside to cover costs. On top of that, you may need additional cash to cover the startup costs of your business, like marketing materials and equipment. “When you work for a company, you don’t have to worry about overhead costs, but now you’ve got to make sure you have enough capital to cover unforeseen costs from the start,” says Steve Azoury, a Troy, Mich., financial planner who started his own business last fall after 35 years working for a large insurance company.
Also, consider how you’ll get health insurance (most likely via either a spouse or by buying a policy on the exchanges), and have a plan to continue saving for retirement even without an employer-sponsored 401(k).