Becoming a freelancer can give you a lot of benefits – in fact, many successful business owners started out as freelancers. Still, when you first start out it can be challenging to know exactly all the costs you need to bear in mind. Whether you’re working from home or on a business premises, there are costs that freelancers in different industries need to take into consideration before even starting.
Your first step is to work out how much you want to earn per year and how many days you want to work, ensuring you take into account any downtime and overheads. This will then help to calculate your daily or hourly rate and means you can plan for holidays and be prepared for any bouts of sickness or reduced workload.
At times you may need to be flexible in terms of hours and rate, depending on your client, but you shouldn’t go lower than the rate you’ve calculated and you certainly don’t want to undervalue yourself. By establishing a customer’s budget first you can then plan your work around that, and decide if you’re the right freelancer for the job. It may be tempting to lower your rates to get work but be aware that you then may struggle to get the client to pay your full rate further down the line.
Common Costs to All Freelancers
Calculating your overheads means you need to consider the rent for a desk or office, the cost of commuting to a client’s site, any IT equipment or specialist software, internet connection, stationery and important things such as personal and business insurance and accounting fees.
Sole Trader or Limited Company
Although it might be tempting to work as a sole trader, it may be more beneficial for you to set up your own limited company. Whilst registering a company name is fairly low cost, once you have a limited company there are tax implications and filing requirements. Although this may frighten you as you’re just starting out, by appointing a specialist accountant from the start, they will be there to support you from the get-go and alleviate any of that initial fear.
You may also find that companies and recruitment agencies won’t work with you if you are a sole trader as the tax liability can be passed onto them and they may be unwilling to take that risk.
Accounting and Bookkeeping Costs
An added benefit of choosing a contractor accountant is that often you will pay a fixed monthly fee for all the accounting requirements over a 12 month period rather than ad hoc over the year, which is common with a local accountant and could come at a time when you have no money coming in.
Whichever you decide, sole trader or limited company, you will need to keep up on the administration side; raising invoices, managing expenses and collecting payments. FreeAgent is online accounting software that was specifically developed for contractors and freelancers and their accountants and makes this administration simple and stress free.
Be sure to check with your accountant if there is any software, such as FreeAgent, that you can both access at no extra cost to you.
Personal and Business Insurance
If you’re going to freelance, it is imperative you and your work are insured. Insurance varies depending on what exactly you do and the level of cover you need, but you should certainly get a quote for professional indemnity, public liability and also employer’s liability. This will often be combined in one policy with an annual cost. To give you an example of what you may be expected to pay, a marketing consultant would pay around £500 for an insurance policy that included £2m professional indemnity, £5m public liability and £10m employer’s liability.
If you’ve chosen to work with an accountant, it is worth asking them if they can recommend any insurers. Specialist contractor accountants may also offer a discounted insurance package when you sign up or even include it within the monthly accounting fee.
Although as a freelancer there probably isn’t a lot of money spare to put towards marketing, there are things you can do at low cost. As a freelancer, you would certainly benefit from registering a domain name and having your own website to showcase your work and make it easy for potential clients to contact you.
The rise of social media and blogging also gives you the opportunity to show your expertise at no cost. In the early days, you may also benefit from going along to some networking events, of which there are plenty across the UK and often you can attend your first one free.
Whether it is your first client or hundredth client, remember to ask for testimonials as these are great to feature on a website and across social media whilst also giving any potential clients confidence in your ability.
We hope this blog has touched upon some of the overheads you need to consider when starting out as a freelancer or contractor. At ICS Accounting, we’ve been working with contractors and freelancers since 2002 and included within our low monthly fee is;
- All your company accounting requirements
- Insurance for you and your business
- Access to FreeAgent
It may feel like you’re going it alone but surround yourself with the right support from the start and you’ll flourish as a freelancer.