September 13, 2009
Flying solo: To succeed, self-employed need to take care of business
Joining the ranks of the nation’s 10.4 million self-employed has been widely touted as the antidote to unemployment this year. But becoming a freelancer or entrepreneur requires far more than a knack for building Web sites, remodeling basements or designing eco-friendly baby clothes.
It requires licenses, an accounting system and possibly the services of a good lawyer and insurance agent -- preferably before you start scrambling to meet client deadlines or fulfill customer orders.
“I started researching the business end months before taking the plunge,” says Liz Andrade, who left a full-time design job in 2007 to open her own home-based Seattle studio, CMD+SHIFT Design.
For would-be solo workers with a solid business plan in place and no full-time job standing in their way, this foundation-building stage often can be condensed into a matter of weeks.
First up: Choosing a business structure and securing the necessary licenses. “The LLC (limited liability company) is the cheapest business entity to set up and is also the simplest to maintain,” says small-business attorney Valerie Farris of Farris Law in Seattle.
Many one-person businesses initially opt for sole proprietor status, which involves no cost or paperwork. But as Farris points out, forming an LLC can protect your home, savings and other personal assets should a client sue you.
So what’s involved? Filing online with the secretary of state ($200); obtaining an employee identification number from IRS.gov (free); and having a lawyer draw up an LLC operating agreement ($700 to $1,500 and up, depending on the attorney), Farris says.
Resources for small startups
Help for new entrepreneurs abounds. Some favorites of local solo workers:
Doing Business in Washington: The state’s Web site covers business planning, licensing, taxes and more.
Seattle SCORE: The local chapter of this national non-profit offers free, one-on-one business counseling and low-cost workshops.
Biznik: Founded in Seattle, this social networking site for independent professionals boasts countless tips and face-to-face events.
Washington Lawyers for the Arts: This nonprofit features a legal clinic for independents with tight budgets.
While Andrade decided to remain a sole proprietor until her design business grew larger, she did purchase an inexpensive business-insurance policy for her computer equipment. “It just covers me in case of something unthinkable happening to my office,” she says.
No matter which business structure you choose, you must apply for a state business license ($20 fee) and, if you’re doing business in Seattle, a city business license ($90 a year), Farris says. For requirements in other cities, check with your city clerk.
Then there’s the pesky matter of taxes.
“Keep copies of all the receipts you’re spending on your business,” from parking and postage to office supplies and memberships, says Elizabeth Mance, founder of Accountability Services in Seattle, a firm specializing in small-business taxes. “Get QuickBooks or another bookkeeping program. This will force you to track all expenses associated with your income.”
Now that you’re the boss, Mance says, you’ll have to pay taxes quarterly -- by the 15th of April, June, September and January. “At a minimum, put aside 20 cents on the dollar for your federal tax payments,” she suggests.
Ventures making a modest profit receive credits on Washington state taxes, and businesses making less than $80,000 annually aren’t taxed by the city of Seattle, she adds.
Once you make it through this laundry list, marketing yourself will seem like a vacation. Think beyond ads and direct mail, advises Andrade. “Search engines are most people’s phone books these days,” she says.
In other words, a Web site is a must, even if it’s just a simple two-pager stating who you are and what you’re offering.
Maintaining a blog and networking with other freelancers has helped Andrade nab new work. “A lot of what pays off in marketing nowadays has less to do with the dollars you’re willing to invest and more to do with the time,” she says.
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