Last week I published a list of critical decisions to make when commencing as an independent consultant or freelancer – see here if you missed it. This is a big topic, so here is part two.
As mentioned in the previous post, starting out as a freelancer involves a mix of both boring and important things to consider, as well as the fun and cool aspects which led you to this way of working in the first place - this post covers both.
So let’s jump right into part two.
Do I need an accountant or can I manage accounting and tax myself?
My opinion is that almost all independent consultants will require an accountant to some degree, with the question being how much they do for you versus how much you do yourself.
When starting out, many freelancers will be seeking to keep their business expenses to a minimum and carefully managing their cash flow. Engaging an accountant up front to help you get started will require an investment of cash at a time when you may be a little tight for cash or cautious about spending money on your business.
But also, not utilising the services and advice of an accountant could be very costly in the long run. If you make mistakes in your business accounting (e.g. paying incorrect taxation amounts to the Australian Taxation Office) or miss out on advice which would maximise the profitability and growth of your business, then "saving" money by not paying for professional advice is just a false economy.
At a minimum, it makes sense to have an accountant manage your overall tax affairs and seek their advice on the best way to establish your consulting business and check in with them on any critical accounting decisions along the way, and of course, have them complete your tax returns.
What about day-to-day bookkeeping for managing recording of expenses and revenue, invoicing etc? There are three main options:
1. Have someone do it for you - working on the basis that by paying to have this done you have more time to spend focusing on your business and earning revenue.
2. Do it yourself, using spreadsheets and manually generating invoices - many freelancers who I know do it this way and feel that it meets their needs just fine.
3. DIY using an accounting software package – by entering your accounting data in accurately and in a timely manner you benefit from then clicking a button to automatically generate invoices, Business Activity Statement (BAS) information and other financial reports such as a Profit and Loss Statement.
With cloud-based accounting packages you can also provide your accountant with access to your accounts so that they can keep an eye on your business, have all the information they need to do your tax returns, but not incurring the cost of having them do routine bookkeeping for you. Doing it yourself can also help ensure that you have a very good understanding of the financials of your own business.
For what it’s worth, I use Xero accounting software and found it easy to pick up and use once I got myself orientated, and I find it a real time saver come BAS and tax time (this isn’t a promoted plug or recommendation for them or anyone else, I'm just sharing my experiences).
Do you need a website?
Are you kidding? It's 2014, of course you need a website!
When consulting in fields such as HR and Organisational Development it is fairly rare that a complete stranger will discover you through a website, make contact and engage your services (although I’m sure it happens occasionally).
However, when doing business, especially with newer contacts or when bidding for work in a competitive process, people will generally search out your website to find out more about you, your business, what you do and to generally get an impression of your professionalism.
Unless you are already a website design whiz you will probably need to engage a professional to do this work – as you want it to showcase how awesome you and your business are to current and prospective clients.
You will need to personally invest considerable time in creating the content for your website – the benefit of this being that it really forces you to articulate what your business is and does and what you offer clients (which will probably evolve over time, so don't get too caught up in having every aspect of the business nailed up front).
You should also have a longer-term vision for your website so that what you build now will allow for improvements, additions and new functionality in the future (e.g. perhaps in the future you want to build in the ability to sell your own ebooks, training programs etc. directly from your website). If you’re an HR/OD freelancer you will probably want blog functionality as part of your website, as a means of building your brand and engaging with people in your industry.
You will need to find, secure and maintain a domain name for your business’ website and have your business name, website and email address all in alignment (‘firstname.lastname@example.org’ looks a little amateurish and temporary). IP Australia provides some useful information about domain names.
Having said all that, I do however know several very successful independent consultants who don’t have a website but who have a very strong client base built off their personal brand and reputation.
Do you need branding for your business?
So you’re going to develop a proposal and send it to a prospective client – what are you going to create it in? You’re going to develop a training program – what will the workbooks and slide deck etc look like? And apart from dazzling content how are you going to make your website distinctive, attractive and professional-looking? A plain Word doc or generic PowerPoint deck is not going to cut it in the competitive consulting world.
When freelancing or an independent consultant, part of your value proposition may be that you can provide the same or better levels of service than larger traditional consulting companies but more cost effectively for the client due to having fewer overheads and costs to build in to your consulting rates. However, if your business infrastructure looks unprofessional clients may consciously or otherwise steer clear of partnering with you for fear of your services being cheap and nasty.
You should consider a company logo and templates for proposals, reports, PowerPoint presentations etc., including a use of consistent colours and fonts. There’s an array of branding and design providers to suit a big range of budgets. I worked with these guys in Melbourne and couldn’t be happier with how basic branding has helped my business get established.
What type and level of insurances to hold?
When working as a freelancer or independent consultant in the realm of HR, gaining adequate and appropriate insurances is a must.
Firstly, you need to protect your business and yourself from the financial risks of being sued in the course of providing your business services - enough said. But secondly, most organisations won’t engage a consultant or freelancer if they can’t provide proof of having satisfactory insurance cover.
The main insurances you will hear freelancers talk about are Professional Indemnity and Public Liability insurance. The big question is always how much cover do I need? Well that depends on a range of factors so best to talk to insurance professionals about that and then shop around for the best deal, as quotes can vary substantially from company to company.
There are also other general business insurances that you may wish to consider, but these are the critical ones to get you started.
Well that rounds out part two of the list. In these first two blog posts we have covered many of the nuts and bolts aspects of becoming a freelancer.
I thought it would very quick, simple and cheap to start a freelancing business, but once I moved into it I found there is much more to it than just switching on your laptop, changing your LinkedIn status and being up and running.
But what I have also found is that these business aspects of being an independent consultant are fun, a great source of personal learning, and also help build your own business acumen so that you can provide more value for your clients.
In a future post I will move onto the more 'consulting' components of establishing a freelancing business – business development, consulting fees, consulting skills, managing your time and professional development (thanks Con @LearnKotch and Helen @ActivateLearn) for your suggestions).
I would love to hear other people’s suggestions about getting established as a freelancer too so please keep them coming.