Published on Thursday, 28 Nov, 2013
Year One – part one – Business Time
Back in March this year I attended the Responsive Day Out, a conference curated by Clearleft in Brighton. One of the themes throughout the day, and a message which was summed up by Jeremy Keith in the closing moments, was that we need to share more. Sharing shouldn’t just be about our successes and the things we do right, but we should also ensure that we share our difficulties too, so that others can learn from them.
This is a message that I wholeheartedly agree with. In general I’m a big fan of honesty; of saying what you mean, even if it’s difficult to say or difficult for people to hear. I’m also a fan of asking advice, and forcing yourself to analyse your own behaviour, and often the best way of doing that is opening up to others. I’ve found over the last year that there sometimes isn’t enough information about the less boasty aspect of freelance. We talk about our project wins and what we’ve put live, but not so much the every day, the frustrations, and the things we don’t understand.
With that in mind, I present to you, dear readers, an honest series of my thoughts on the last year of freelance:
Batman Freelance Year One.
What started out as a brain dump of thoughts written during morning train journeys as a means of keeping me entertained, rapidly grew into a bit of a monster. As such I’ve decided to split this into several monsters instead of one huge Gojira of a beast.
- Part one – The business side
- Part two – Work practices
- Part three – Support, travel
- Part four – Conferences and speaking, the usual personal annual summary
I’m the first to admit that I haven’t done things ‘properly’ this year. One of the things that I think puts a lot of people off going freelance is the fact that there are all of those scary decisions to make. There are tax returns to do, things to file and numbers to keep track of, and what if you mess it up? I actually ended up freelancing full time before I’d properly considered all of those and have made lots of mistakes. I still am to be honest.
I had initially started off with the intention of taking a month or so off, then freelancing for a month or so more until I got a “proper job”, so I could look without going behind my old employer’s back. Because of this I didn’t consider anything but temporary measures. It was an obvious choice to register as a sole trader rather than a limited company, I didn’t need to register for VAT because obviously I was never going to come anywhere close to the earning threshold for mandatory registration, and I’ll just put everything through my personal bank account for now. A year in, I’m in a different mindset regarding all of the above. In a rather strange series of events (a story for another day), I was offered a job very early on in my freelance dabbling. It was a great job, with a good salary and lots of positives, but there were things that they were honest with me about which I couldn’t agree to. It was at that point that I decided I wanted to do freelancing “properly” and stop looking for a full-time job. By that time, really, I had actually been freelancing for a while, so I just carried on with the business set up that I’d started with.
At the end of this year I’m going to be sitting down with a bottle of festive beverage and having a bit of an AGM with myself to decide what to do on the business front next year. I want to fix some of the things I’m not doing properly, and despite feeling that I’ve generally run things pretty well after not having a clue at all previously, there are certain areas that I want to do better.
Potentially forming a company rather than operating as a sole trader is something I’ve been advised by my accountants (yes, I did get one of those), mainly on the basis of finances, although the cynical side of me wonders whether that’s so that they can get to do more paperwork for me. I’d actually be really interested to hear the opinions of people who started off as sole traders and then decided to form a company, just as individuals. I know a lot of people have formed them as a result of it being a requirement for a particular contract, but I’m interested in whether people would generally advise it, and why. What happens if you do go back into employment? Do you wind it up or continue filing returns? Are the benefits in terms of tax/NI as worthwhile as my Essex geezer money men try to make out? How much extra work is it to keep records? As I’ll come on to in a future instalment of this huge post, having people to ask these kind of questions to, and to share your experiences, is extremely worthwhile. Feel free to chip in with your thoughts in the comments.
Tax and National Insurance
Less applicable for any overseas readers, but this has all been pretty straightforward for me. I pay my NI class 2 contributions by direct debit, and for everything else (tax, NI class 4 etc) I make sure I put money straight into a separate bank account to cover my tax return as soon as I get paid. My online accountancy software (see below) helps to calculate this, but as tax fluctuates depending on how much you claim back over the year in tax relief, I make sure that I only keep one eye on what it’s predicting so I don’t get tempted to pay less if the grand total has dropped. I have a mental idea of what I want/need to put away per amount I get coming in, and I stick to that regardless of how much might get knocked off the total bill. Anything left over is bonus, and I will put in my ISA eventually.
I have used my credit card a lot this year (train season tickets aren’t fun), and as boring as it sounds I make sure that this is paid off every month too. I’ve never been one to carry around any kind of debt, so this was always habit. I do need to switch credit card though, because I put the majority of my business transactions through it, and I’m currently getting absolutely no benefit in terms of any kind of reward scheme. Worth thinking about if you are likely to do the same.
So while we’re mentioning money… this is the thing we never talk about, isn’t it? Here’s my findings on that front. I’m not going to lie, since going freelance the money is a LOT better than what I was previously earning full time. To a point this is the nature of starting to do a lot more in London (and is countered by ridiculous travel costs), but it’s still very noticeable. If you’re considering freelancing just for the money, you will probably be happy.
People will potentially try to haggle with your day rate, which I’m still not sure how I feel about. Agencies obviously want to maximise their profits, but they don’t typically compromise on their rates and I don’t feel that it’s very fair to ask. I’m very straightforward when it comes to day rate, and don’t like playing games. I try wherever possible to keep a flat rate across the board, as I don’t really like certain people being on different levels because of different caveats – it makes it much more difficult to reconcile it back again for repeat engagements. That said, if you’re going to compromise, make sure that you balance it out – you can use it as a platform to negotiate certain other terms, if you wish.
As I mentioned, I started off the year deliberately not working for a while, so I had a bit of a deficit that I needed to balance out for the year as a whole. I’m quite proud that I never went into the red during that time, but it still wasn’t easy having to carefully consider every transaction. I didn’t buy anything for myself for a long time, and my major expenses were train tickets for attending meetings with potential employers.
By the time I started picking up work, I was getting little bits coming in here and there. This is where I switched from a manual, spreadsheet-based system to a proper online accountancy system. Like many others, I use Freeagent (Shameless referral code plug – if you sign up and use this we both get money off – 430e7k4d / http://fre.ag/430e7k4d) and it has been a life saver. I was pretty adamant that I could do it on my own, but guys, don’t be stubborn like me. Your pretty InDesign-ed invoices can transferred into pretty CSS-ed invoices, and you’ll have someone helping you keep track of your expenses, the tax you owe, and more. As I mentioned, I did engage an accountant, but that’s more for general backup and advice than day to day running, personally.
Contracts, invoicing and payment terms
When you do get some work, don’t just assume the money issues are all sorted. There was a point this year where I had to pay up front for my train season ticket, and was then on 30 day payment terms, where my invoice then didn’t get paid. I have a mortgage, and my sensible accounting brain did not enjoy the not knowing when money would turn up. At lot has been said about chasing payments, but just because you’re working for a reputable company who has cash, doesn’t mean that their payment processes work well. The times that I have been paid by my invoice due date this year is minimal, and as such I’m now working to much lower days for payment terms – my current contract’s invoices are in fact due on receipt.
The importance of good contracts, and of negotiating things like payment terms is huge. It will depend on who you’re working for with how much is negotiable, as a big corporation likely won’t change their terms for you (battling a particular global company about 90 day terms when I was at my last job sticks out!). In contrast, many others will be happy to be be more flexible. I put my contract on GitHub as a gist, and like many others’ it’s a fork of Andy Clarke’s Contract Killer.
Key things that you may want to think about in your contract outside of the obvious responsibilities and payment are areas like:
- Whether you can publicise your work together
- What happens if they don’t pay on time
- Whether you’re able to get out of the contract (or what happens if they cut it short), or if it isn’t what you were promised
- Where you’re expected to work, and whether you’ll be expected to travel
- What the deal is with time off – can you request any or are you working solidly?
- Processes for claiming expenses
- Whether you’re responsible for keeping the output of your contract for a certain amount of time.
In terms of things like deposits, if I am contracted on a consultancy basis, or as on-going overflow resource, then I don’t typically charge a deposit. If I’m contracted to certain deliverables by a certain date, or if time is critical (maybe I’m filling a gap with very particular dates), then I will. This will likely depend on the type of work you’re doing and how your schedule pans out.
How I’ve got work
Finding new work will be different for everyone, but personally a lot of things have come about through existing contacts, or pure chance. I have done the majority of work through people I’d already met, whether that was old colleagues, contacts through family and friends, or people who I met who had seen me speak. My favourite story however is my current contract, which ultimately came about because I responded to a message on Last.fm where my now co-worker was pimping his band, and had seen that we had very similar music tastes. Later in the year he was looking for extra resource, remembered that he’d seen my website, and got back in touch.
I haven’t had much luck this year with speculative emails, but one contract did come about by shamelessly emailing someone who I’d interviewed with quite a few years ago but decided not to pursue. I just let them know what I was doing now, and that eventually led to 5 months worth of work. If there are companies you want to work with, or people you think you might be able to help, tell them. Make sure that you write a personal email, and one that clearly explains why you’re getting in touch – you don’t want to come across as a blanket spammer. The worst that will happen is that they don’t reply, or say that you aren’t what they’re looking for, but at least you have tried. I thought that this part of the job would be a lot harder than it is, but actually, I’ve had some really good conversations with people (and been invited to events and been introduced to others) even if I wasn’t right for the particular places I’d spoken to.
To be continued…
That covers the majority of the day to day business runnings, but as I mentioned above I’d love to hear how others do things, or to get advice on particular areas like forming a company. Please feel free to get in touch if you have any wisdom.
Up next is work practices – what have I actually been getting up to every day, apart from filing paperwork and entering values into accountancy systems? What have I learnt? Tune in next week! (ish…)