Before You Start

Are you thinking about becoming a freelancer? You would love to set your own schedule, manage your own priorities and work for yourself at home – instead of slaving for a difficult boss in a stressful workplace. But can you successfully make the leap into self-employment if you’ve always worked for someone else?

Here is advice from New York CPA Jonathan Medows for fence-sitters who would like to go freelance, but just aren’t quite sure they can cut it.

Q: What things should someone consider before going freelance?

A: Bear in mind that you have to be able to generate work for yourself as a freelancer. Just building a website does not mean that you will get jobs. You should have some connections or have very modest expectations.

Q: When should someone make the leap from employee to self-employed?

A: Don’t quit your day job until you have so much freelance work that you can’t handle both. This is how I built up my business, working nights and weekends until I absolutely couldn’t do it any longer. Wait until you’re forced to make that leap. It takes time to establish yourself as a freelancer, so give yourself that time. If you quit your day job and go freelance on a full-time basis, without sufficient income, it can be very stressful.

Q: Describe someone who is likely to be a successful freelancer.

A: I would say somebody who has industry experience, someone who is detail-oriented and organized, someone who can stay on top of things without supervision. A successful freelancer has professional confidence and is able to get business and land contracts. You have to be able to sell yourself and make new relationships with potential clients. If you’re not comfortable doing either one, freelancing probably is not for you.

Q: How do you know if you can generate clients before you start out on your own?

A: One way to find out is to assess whether you have good relationships with clients at work. If you do, that’s a good character trait for a freelancer. When I did my MBA at NYU I was only 24 years old. Because I wanted to get school out of the way, I was looking for jobs with only two years’ experience while most other classmates had five years.

I had to really hustle for a job and chase after people. I was miserable and depressed while doing it, but looking back it was the best education I could have gotten for entrepreneurship. That time taught me to be tenacious and bold and it laid the foundation for the good hustling skills that are needed by freelancers.

Q: One of the big obstacles to freelancing is paying for health insurance outside of the traditional employer group.

A: Yes. Buying health insurance privately is very, very expensive. This is something you really need to think about before you get started. Can you afford it? If you have a spouse who’s covered by employer-sponsored insurance, can you get on her or his policy?

If you’re leaving a job, Cobra might be the way to go initially. Another option is to look for a group rate through a freelancer’s union or trade/professional group you could join. Unfortunately, a lot of freelancers go without insurance, though that is dangerous and not preferable.

Q: What kind of capital do you need to strike out on your own?

A: Having an ample capital cushion is essential for surviving the lean-cash-flow months of a startup company, so start saving now. Calculate your expenses out to six months and save at least that much. It might take 30, 60 or 90 days just to start collecting on your invoices.

You always want to have some emergency money, as well. Unanticipated things happen in business and life all the time. An old Yiddish proverb says, Man plans; God laughs. Having a cash reserve is very important for any freelancer.

Q: How do freelancers save for retirement?

A: There are lots of options, including IRAs and Roth IRAs, which freelancers can use as tax-advantaged retirement funds. Initially, try to set aside $5,000 a year in your retirement account. As your income increases, try to make it 5 to 10 percent of your salary, which is similar to what you’d put in a 401(k) if you were still an employee.

As your business grows, talk to a financial advisor about how much you should be setting aside and what you should do with it.