From freelance to founder
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- 02 May 2013
So, you’ve already flown the relatively safe coup of a large company, and decided to go it alone as a freelancer. Fantastic! But what happens when you want to take the next step, and turn your freelancing into a fully-fledged small business?
Like setting up any business, preparation is the key. Although you’ve already taken the first scary step, and left the security of a bigger company, there are many more potential risks involved with setting up your own business. If you’ve already considered passing work onto other trusted freelancer friends, it may be time for you to take the next step - delegating in this way is often the beginning of a small business.
We’ve put together a guide for freelancers who’ve found themselves thinking about expanding and starting a business. But, before you decide to expand, there are several things you need to consider:
Do you have the right mindset?
We won’t lie - starting a business won’t be easy, so you need to be sure that you have the kind of personality that can deal with the lows as well as the highs. It’ll be a lot of work, and you’ll end up spending a lot more time working (more than you already do!) in the initial stages, especially on tasks not immediately related to the nature of your business, such as admin and project management.
Do you have enough work lined up?
There’s no point starting a small business if you won’t have enough work to go around – and no work means no money! If you can’t guarantee that you’ll have enough work to ensure the finances of the company will be fine, then it might be a better idea to stay as a freelancer until your customer base (or workload), is bigger.
It’s best not to just judge this on the past few weeks or last month – you need to know your workload is stable, and you’ve not just had a crazy few days! However, if you do have a large surplus of potential work, and you’ve had to turn clients away, passing work onto other freelancers is a great way to start, and as we mentioned, can often be the start of your business empire!
Have you planned ahead/thought through cashflow issues?
Money is likely to be the most important factor you consider at this stage: even if you were making a fair amount as a freelancer, you may now have to consider additional costs: salaries, rent, utilities, business insurance, and of course, cake and beer.
Before you make this decision, work through your finances very carefully. Do you have the money to cover start-up costs? Where will you source any additional money? What will your profits and losses be like? At the start, consider hiring other freelancers, rather than employing people, just in case money is tight. This is the perfect point to look back on your business plan; just to double check you’ve got all the bases covered. Be thorough and realistic: the main reason for small businesses failing is a lack of money!
Will you be able to spend sufficient time training employees?
If you left your job because you didn’t like having to compromise your ideas, or have to explain them, think about how you’ll train new people as well as how you’ll feel about their input on your ideas. If you prefer doing things your way, you might want to ensure you have very clear processes in place that all employees can read and take on board. Remember, at the start, it will also probably take a while to get new recruits settled. If you’ll be hiring people with skillsets that you don’t have, you won’t need to worry about training!
Once you’ve made the decision to turn into a small business, you’ll perhaps want to:
- - think about your brand and set up a business name
- - write your business plan (we've got some tips for you!)
- - register as a corporation/business – the essential legal stuff
- - sort out your finances!
The good bits:
- - starting your own business is something to be truly proud of, and a massive achievement
- - you can get back to doing what you love – whether it’s writing, designing, or doing accountancy, and let someone else deal with the ‘business’ side. (However, it may take a while to get this stage, and only if you hire for certain skillsets).
- - you can attract those “big” jobs and clients/companies who may have overlooked you on the basis of being ‘too small’
- - hiring more people will result in a bigger talent pool, meaning you can accept more work, and problems can be solved more easily
- - you can take a holiday!
The bad bits:
- - more people = more costs = more risk. Being a freelancer is risky as it is, so when you add more people to the equation, the costs will rise, and so will the risks. Unless your income rises too, you may find yourself in trouble
- - similarly, your responsibilities will grow as well – it’s not just you depending on yourself anymore. As a limited company, you need to have an accountant, sort out your taxes, and make sure you have all the legal bits covered
- - you may find you’ve got to work 9 ‘til 5 again: no more waking up at midday and working until the sun comes up (unless you find employees with a similar body clock pattern)
- - it’s a lot of extra work, for potentially not a lot of money (at the beginning, at least!). Expect to be working 100-hour weeks at the start, and don’t assume that you’ll be a millionaire in a month!
- - just because you succeeded as a freelancer, doesn’t mean a small business will work out as well – it takes a certain kind of person to run a business, and sadly, there are no iron-clad guarantees that it’ll work out.
Think you’d rather stay freelancing?
Regardless of whether you want to employ other people, it can be a good idea to set up as a limited company to legally cover you and your freelancing.
Or are you ready to take the plunge?
If you’ve decided you’re going to start your own business, what do you need to do next? Apart from writing a business plan (which you can find some tips on, here soon), you need to figure out how you’ll get the finances to make your dream a reality.
In the coming weeks, we’ll be looking at the best ways to approach the bank, or the various other paths you can take while searching for funding, so keep your eyes open!
Already taken the plunge from freelancer to founder? We’d love you to share the most useful piece of advice you've received (or lesson you've learned) along the way. Tweet us using the #MOOStartupKit hashtag and pass it on!