From freelancer to one-person business: when is it time to make the leap?
11% of working adults in the U.S work primarily as independent contractors. 50% of U.S. jobs are compatible with remote work and 80% of the workforce says they’d like to work remotely. By 2021 the number of U.S. freelancers will double to 9.2 million. Find these stats surprising? The trend toward independent work is growing and executives in every business are looking to hire experienced contractors or freelancers.
So the gig economy has it good for freelancers and independent contractors, so much so that many of you might be thinking of making the jump, becoming a one-person business.
With the added advantage of co-working spaces, contracting other freelancers yourself or collaborating with entrepreneurs, there’s really nothing stopping you from leaping into business ownership.
Why the need to become a business?
If you are already working as a freelancer, you’ve gone through one transition. So, you know that they are rewarding, but at the same time, complicated and sometimes even a bit messy. Why would anyone want to go through another transition just when everything was starting to set into place?
Because entrepreneurship has its perks and can be rewarding both financially and on an emotional level. Transitioning from an hourly paid work to a project-based model is common in the gig economy. The goal of any business is to grow, become stronger, earn more money and that means being open to the possibility of transitioning to a new business model, a new pricing model, different merges and so on.
On a considerably smaller lever, going from freelancing to a one-person business is the same thing. You are changing your mindset and the manner in which you perceive your work and represent it to others as well. Freelancing is about the now. You have to complete a task and you need to do it now. Entrepreneurship is about the future. You have to think about creating, building, strategizing.
How to make the change (successfully)?
In theory, as a one-person business you will still have to handle aspects like marketing or client acquisition on your own. This doesn’t change.
What changes from now on is your own perspective upon work and the legal formalities. You are no longer a freelancer that offers a specific service in exchange for an hourly rate. You are a one-person business that can provide customers with the fulfillment of projects, which can be customized to fit the client’s preferences. The payment channels often change as well, the invoicing types, the way you process earnings and spending, revenue and expenses, etc. In the beginning, it is more about the financial aspect than anything else, so make sure you have the right tools to help you or the access to the right advice.
The first step should be determining the type of business to file for. Consider factors such as tax issues, liability issues, set-up and management costs, future business goals, the possibility of accepting external funding and so on. Will it be LLC, Corporation or sole proprietor? Then, focus on organizational aspects such as having a business office address, a business license (if required), a separate business bank account and an accounting system.
Just because you’re no longer a freelancer, but an entrepreneur, it does not mean that the hustle is over. When you transition from freelance work to one-person business, aspects such as reviews, ratings, customer feedback or acquisition increase in importance. The success of your business depends on how your work is evaluated by clients. You can still use different freelancing website to search for jobs, but in time, you will break free from them and channel your efforts of finding customers towards different sources, most of which rely heavily on word of mouth, referrals or testimonials.
It’s also a good checkpoint to consider when to make the move and possibly wait until you have enough clients and revenue to actually justify licensing for a business. Draw up all the costs you see your business incurring, choose a healthy profit margin and see if your current earnings would cover that.
You’ll need to draw up proposals, contracts and send invoices for all your projects and clients. This is part of the hustle as well, as you’ll always need to stay ahead of the trends, especially in terms of proposals, market price points and contract flexibility.
In the end, is it all worth it?
Some changes are hard and this is certainly a hard question to answer. Freelancing was definitely the right choice for you at one point. Transition to a one-person business can also be the right choice if you choose the right moment and the right process. Being an entrepreneur might very well be the necessary framework to work and grow professionally. Just like freelancing used to be.