Warning: this lesson may bore you.
Today’s topic is not the most exciting in the world, but we can’t ignore it! Let’s talk about three big-picture items to think about when starting your business. Specifically:
- Business entity types
Before we move on…Let it be known that I am not here to provide legal, taxation, or insurance advice (blah, blah, blah). Also, what I’m discussing in today’s lesson applies specifically to businesses in the United States.
Take what I have to say in this email as food for thought. Then, make sure you talk to an appropriate expert.
Business Entities 🏛️
First things first: You need to decide what sort of business structure you want. In a nutshell, your business structure determines how the government views your business.
Most freelancers begin as sole proprietors. It’s an inexpensive way to start, especially when you’re trying to land your first few clients or when freelancing is really just a side-gig to help pay for your next vacation. If you’ve already accepted money for work as a freelancer, guess what? You’re already a sole proprietor. 😃
Being a sole proprietor is great because it makes filing taxes easier. Everything you earn as a freelancer falls on your personal tax return. However, this simplicity also comes with increased risk. You have personal liability (read: your personal funds and assets) if a client
decides to sue your business for some crazy reason.
If you plan on going full-time as a freelancer, you’ll want to consider the possibility of becoming a single-member LLC or a Corporation (C Corp or S Corp). These structures protect your personal assets. Generally speaking, LLCs are easier to set up while Corporations require a lot more “officialdom.”
At the end of this email, I link to a business structure “wizard” you can use to get an idea of which option is best for you.
Contracts come in many shapes and sizes, but they don’t have to be super-lengthy and full of legalese. At its core, a contract is just an agreement that puts two promises in writing:
- The promise of service from you to your client 👉
- The promise of payment from your client to you 👈
I could go on, but you’ll get the most value if I shut up and point you to the true masters.
Queue up my interview with experts Karim Marucchi (CEO, Crowd Favorite) and Rian Kinney (Lawyer, The Kinney Firm) to learn about writing great contracts and making it crystal clear about what’s included and what isn’t.
The final thing I’d like to talk about when setting up your business is insurance. If you have a freelance project go to hell in a handbasket, insurance can save your bacon.
Here’s the big secret with insurance: Nobody needs insurance until they do, but then it’s too late. If you don’t have insurance, you risk waking up one day wishing that you did.
There are lots of available flavors when it comes to business insurance – I’d recommend starting with whoever provides your home or renters insurance to ask about their business insurance options. It doesn’t mean you have to buy all your insurance from the same company, it’s just an easy place to start your information gathering.
The Small Business Administration website can also help you pick the type of business insurance you need.
There you have it. Three big-picture things that you need to think about when you’re setting up your business.
Your homework for this lesson (if you choose to accept it!):
- Business Entity – Go through the Business Structure Wizard
- Contracts – Listen to my interview w/ Karim Marucchi and Rian Kinney
- Insurance – How to pick the type of business insurance you need
Next time, we’ll be delving into how to price your services. 💰💰