Freelancing as Entrepreneurship and Consulting as Business Models

Elizabeth Mays

Freelancing as Entrepreneurship and Consulting as Business Models

Elizabeth Mays

“You’re gonna have to serve somebody.” —Bob Dylan

Introduction

You don’t have to create your own media outlet or technology company to be an entrepreneur in the journalism or communications space. You may want to sell your services on a contractual basis to companies who need them. Freelancing is one valid means of entrepreneurship that is ideal for those who don’t want the commitment and rigidity of a full-time job, but want to work in the industry on their own terms.

From the Field

My Freelancing Story

By Elizabeth Mays

When I graduated from grad school, I started my career as a freelance writer and editor, and for three years I did nothing else. My ability to sustain this line of business didn’t just happen. I had laid the groundwork before graduating. While I was in grad school, in my spare time between work, school and homework, I sent lots of queries out to magazines (it was the 1990s). Occasionally, an editor would respond: “We’re going to use your article, and we’re going to pay you this much.” I was studying to be an actor, and I had a professor who used to say “If you’re working, you’re good.” I was working, I thought, so I must be good at this writing and editing thing.

After graduation, I moved to New York. I was still straddling acting and publishing, until I was struck with a paralyzing health issue on the eve of an audition for “Rent.” I was temporarily debilitated. Then, just after I’d recovered, I got a phone call from a New York magazine publisher I had pitched a story to while I was in grad school. “We’re going to use your article, and we’ll pay you this much,” she said. “Oh, and can you do this other story for us too?” In that moment, I knew I was a writer, not an actor.

I eventually found some more writing and editing gigs, most of them much less glamorous (including a stint as a certified professional resume writer). Magazine work wasn’t all that glamorous either–the jobs I got offered were sometimes 1- to 2-day turnarounds with a dozen interviews to coordinate. But for three years, I did nothing but freelance to earn my income as a sole proprietor.

One of the many misconceptions I had about freelancing was the amount of control I would have have over my time. Yes, I got in my share of hikes in wine country. But ultimately, it was essential for me to be working on the client’s timeline, and the highest paid jobs went to the earliest bird on call, so I made sure to be the earliest bird on call.

Eventually I burnt out and I took my first “real job” in journalism, then another, moving up the ladder until I once again couldn’t stand working for someone else anymore. I quit my job days after the crash in the late 2000s to do my own thing. I had once done an eloquent eulogy for a family cat that died, so at the time, I thought I would sell pet eulogies. As you can guess, that didn’t pan out. However, that business turned into a successful business that I still own today. Before leaving my job, I had made my preparations and formed the business (an LLC this time) before jumping ship. I easily found my niche in two areas: editing (where there was less competition than in writing) and resume writing (a position that thrives when the economy crashes).

Freelancing was a flexible career as I went back to school and earned a second master’s degree, which added multimedia and digital media entrepreneurship to my skill set. I was offered a job before I graduated, and ended up in a stable education job for more than six years, during which I quickly realized that I wanted to work for myself again. Although I had a full-time job, I bootstrapped my business as a “side hustle,” working four freelance gigs on the side at any one time. I worked nights, weekends and holidays, squirreling away every dollar I could as a cushion to go back out on my own. Finally, one of those gigs turned into a part-time client, with the same client offering me a second gig at a second business. Together, it was enough to venture back on my own.

I’ve gone from sole proprietor to small business corporation, but I’m still a consultant. My next focus will be to figure out a “scalable entrepreneurship” piece of my business: that is, a product that does not rely on me performing a service, but that can be sold without my interference in the transaction. Think classes or books. The goal will be to provide a passive stream of revenue alongside all the consulting I do.

Rules of Freelancing

I’m often asked how to keep a constant stream of incoming projects as a freelancer. The secret is delivering value. Put yourself in your client’s shoes. What do they need from you? In my experience, these are some rules to live by, whatever your niche:

Deliver reliably (do what you say you will) on your commitments.
Be on time.
Be thorough, not sloppy.
Communicate.
Don’t be a pain in the butt to work with.
Anticipate your client’s needs.

Creating Value: What’s Your USP?

When I was a resume writer, I used to ask people, “What’s your magic power?” By this, I meant the thing they did differently and better than everybody else who performed essentially the same work function. For a business, the term for this is “unique selling proposition.”^[1] A USP explains how your product is different from and hopefully better than the competition’s. This is similar to a “unique value proposition,^[2] which focuses more on the benefits people receive from working with you. As a freelance consultant, you are your business, and you’ll need to figure out the USP or “magic power” that is your service offering. This can be a unique thing that you do, or the way that you do it. For instance, you might be a journalist with a certificate in programming; a broadcaster who knows how to do animated explainer videos; a communicator who specializes in conveying the messaging of clients in a certain industry; or a photographer who does two-hour turnarounds.

Why does anyone buy an iPhone over an Android? A certain brand of cereal or cleaning product over another? Because different brands vary in perceived strengths and weaknesses in the marketplace. You as a professional should have a brand too (and know what it is). To figure this out, do the following exercise.

Exercise:

Mentally line yourself up alongside your professional colleagues like products on a shelf. Now, why would an employer reach out and choose you instead of them? Why would you choose you? Think about other individuals you know who do what you do professionally, or peers who are graduating from the same classes you took and are entering the same industry. Ask yourself: What do you do differently? Is there a facet of your approach or demeanor, or a specialized skill set you have that makes you more effective? Your USP or “magic power” can be a hard skill, a soft skill or a combination of skills.^[3]

How Freelancing Is Different

When you’re a freelancer, you’re almost always a consultant–a solopreneur or personal service corporation who takes on gig projects as they come to you. Example: You are a photographer who gets calls from the newspaper whenever a story comes up in your area and they need photos fast.

This doesn’t mean you will be a sole proprietorship. You can still set yourself up as a corporation if you want to put another layer of distance between yourself and your business entity. As a company, it can still be just you performing services. In theory, this makes it less likely, albeit not impossible, for someone to sue you for personal assets if they perceive your company has wronged them. Business insurance is another worthwhile step. This is especially relevant if you do something risky. No matter how careful you are, a career in content comes with the potential for someone to accuse you of libel, privacy invasion, copyright violation, errors and omissions, or other hazards. Depending on your personal income situation (as well as whatever is decided in potential legislation on tax reform) being a business could have tax advantages, or if you have the wrong type of business, it could leave you paying higher taxes and/or double-taxed. A CPA and fiduciary are best to guide you through the ramifications and provide advice for your personal situation.

Consulting is the act of performing a service in your expertise in exchange for payment. While you may have expenses, you are generally being paid for your time and services.

This is different from a business in which you manufacture something and sell it to people. But even if you’re mainly a consultant, you can still scale your business by adding ongoing streams of revenue that supplement your work for clients. Scalable entrepreneurship means you are creating something once and passively selling it numerous times, with no interference in the transaction. Example: You create a book once and place it into Amazon for sale. Royalties come in and begin to add up. Or, you create a software as a service. The system autobills people for a monthly subscription to use it.

Even a technology startup might still provide consulting services to other companies until it finds firmer footing and has regular SaaS (software-as-a-service) revenue coming in.

Setting Up Your Business

Regulations vary from state to state, but generally, you will need to fill out some paperwork before you conduct business. This paperwork will vary regionally (check with your local chapter of SCORE or the commerce authority for specific requirements in your state). Here are just a few of the items you may need to file:

A trade name or name you are “doing business as”
Articles of incorporation
State sales tax license
City sales tax license(s)
Other tax licenses
Federal EIN application (to get a federal employer identification number)
Employer unemployment identification number
Business bank account
New hire paperwork (sometimes even if you’re hiring yourself)
You may need to publish documents like your articles of incorporation in a local newspaper.
Professional licenses (for some occupations)
Proof of insurance (sometimes required to get certain contracts)
Your state or municipality may have additional requirements

Here is one example of what’s necessary to start a business in the state of Arizona.^[4][/footnote] There are likely similar resources available from the Commerce Authority, Corporation Commission, or similar governing body for your state.

A sole proprietorship is the simplest business structure, and in some states you don’t even have to do any paperwork to become a de facto self-employed sole proprietorship. (Again check your local regulations.)

If you are not a sole proprietorship, you will need to decide on a structure for your business (S corp, LLC, C corp, etc.–see Chapter 6). There are many options to choose from and each has its own headaches and dramatically different ramifications as to the percentage of your revenue that will go to taxes and the legal distance between you and your business. There are tradeoffs on all these counts. I strongly recommend consulting an accountant or lawyer to help with your business formation. (Quality business setup services can run as little as $400-$700.)

If you are not a sole proprietorship, you will need to get an EIN from the federal government. This is an employer identification number that is used for things like corporate tax reporting, payroll and unemployment taxes, and more. You may also need this to set up a business bank account. Having it helps to separate your personal expenses from your business expenses too. Depending on your structure, you may also need to file articles of incorporation, and apply for state and local sales tax licenses in the regions where you do business. Local regulations may require you to have a professional license depending on the nature of your services. And you may need various types of insurance.

Once you’re set up, you’ll need to track your revenue and expenses and report and remit federal corporate taxes, federal personal taxes, state corporate taxes, state personal taxes, state and municipal sales taxes, federal and state payroll taxes for any employees you may have, and federal and state unemployment taxes. Plus, you’ll pay into social security (the taxes the employer usually pays) on the income you receive.

If you don’t have time for all this, or the confidence you can manage it accurately, it’s wise to enlist an accountant. If you do something wrong as a business owner, you can’t blow it off like a missed college assignment. Freelancing brings with it a big level of responsibility, and there can be serious consequences if you’re not responsible. The good news is, for all this extra hassle and taxation, when you’re your own boss, you are paying for some of the company overhead that is “the cost of doing business.” Often, you can deduct legitimate business expenses and reduce the profit that you will pay taxes on. (Again, consult a CPA.)

Exercise

Research what’s involved to legally set up a small business in your state. Produce a to-do list of the required tasks that must be done, in the order they must be completed.

Pricing, Charging and Billing for Your Time

You might think that when you work for yourself, there are no limits to the income you can make. That’s not exactly true. If you’re the only person at your business, the hours you have available to work are finite. To get your maximum salary, multiply the number of hours you could feasibly work by how much you feasibly bill for those hours.

Do the math and you’ll see you can’t take on large projects that aren’t worth your time. Also keep in mind that every freelance project has an administrative overhead that you may or may not be able to bill the client for. So you have to charge enough to make each hour worth your time.

When you’re making those calculations, don’t forget that the government could take at least 30% of your profits in taxes (the exact percent depends on your business structure as well as your other personal income–again, consult an accountant). So you may need to set your hourly rate higher than you would at a regular employer.

Here’s how to calculate your hourly rate. If in the real world your time would be worth $15/hour, add an extra percentage of that based on the extra taxes you pay for being a self-employed business owner. Then, divide your monthly health insurance costs (which you’ll have to pay yourself since you don’t have an employer) by the number of hours you work each month to find each hour’s portion of health insurance. Then do the same with any other overhead costs you have. Tack all those on to get your hourly rate.

Here is a great infographic ^[5] that portrays how to calculate your freelance rate. Or, use this calculator ^[6] to figure out your cost of doing business.

Speaking of billing, don’t forget to do it. When I was an in-house magazine and website editor, I often found that I would have to remind freelancers to bill me. They were so busy doing their job as writers that they either forgot to bill me or couldn’t find time. Or, they really dreaded billing because it dragged on their creative energies. This can be a recipe for disaster. You never know when the contact you work for within a company might move on, making it more effort for you to remind other people at the company of what you’re owed. Don’t forget to bill in a timely way!

Exercise

Figure out your freelance hourly rate, using the methods and calculators above.
Design an invoice for your mock company.

Contracts for Freelancing

One good way to make sure you get paid for your work, and to clarify expectations and minimize the potential for misunderstanding on either side, is to have a contract. They’re a helpful reference point to protect you if something goes sideways–at least you have documentation of what both parties agreed to. If you ask for a contract and a company doesn’t want to give you one, they’re probably shady. Save your talent for another gig.

A good freelance contract will protect both you and the client. But it will probably be biased to whoever creates it. That’s why even though the person commissioning your work will send you a contract in this business, it can be helpful to have your own to offer as an alternative. It’s worth it to have a lawyer draft a template you can use repeatedly.

While I’m not a lawyer, I can tell you from experience handling freelance agreements as an editor (and having had my own drafted by a lawyer) that the following points (in addition to others) should generally be among those addressed in your freelance content contract:

Scope of Work: What the work or project is that you’re agreeing to, with enough specifics of the expectations to refer to later if there is a dispute. This is often referred to as the “scope of work.” It can be helpful if a project runs longer than expected due to client delays, or if the client chooses to grow the project and wants you to do more than originally agreed to. Or if the client sells their company and the new owner suddenly expects you to do something more or different for the same price.
Compensation: How much you’ll be paid for the work, when, and how, and whether or not revisions or modifications they ask for are included in the fee, or additional. (Tip: You want them to be additional.) You might also include a clause re. terms for late payment–perhaps you charge interest or a late fee.
Independent Contractor Status: The fact you are an independent contractor, not an employee, that you will pay taxes directly to the government on the income received, and that you have control over the when, where, and how of your work. (This is the employer’s way of stating they don’t owe you benefits, they won’t lend you office space or equipment, they won’t withhold taxes, and they don’t have to pay employer taxes or insurance like unemployment or worker’s compensation on you.) On your end, it gives you lifestyle control (in return for losing all these benefits and paying your own taxes–at a notably higher percentage on self-employment income).
Rights: A contract will generally specify what rights you’re selling–if you sell all rights, that means you can’t re-release the content you produce somewhere else, whether that’s for your own website or for someone else who’ll pay you to republish it. And the publisher gets to keep reusing the content in ways that may gain them further revenue. So if you sign away all rights, make sure the fee is worth it. At minimum, you may want an exception that lets you put the work in your own online portfolio. Often you will be selling First North American Serial Rights, which give the publisher the right to be first in publishing your work in North America. Then the copyright reverts back to you.
No Infringement: In the contract, you’ll probably have to warrant that you’re creating original content that doesn’t infringe on anyone else’s rights (copyright, etc.). You may also have to certify that you’ve ensured the information is accurate. Sometimes there will be a clause that says the company will not pay your legal fees if something you send them gets them sued. Sometimes there will be a clause that says you’re not responsible. At minimum, it is good to have a clause that indemnifies you if the company edits something in a way that causes legal difficulty for them or you (an inexperienced editor changes something in a way that makes it defamatory, for example or adds a photo they took from the Internet without having the rights). Note that you can be held legally responsible for work you do as a freelancer. You should be extra careful to be accurate and abide by media law and ethics. And you may want to consider errors and omissions insurance depending on the nature of the content you produce.
Confidentiality: You may have to agree to a confidentiality clause.
Non-Compete: Some contracts will have a “non-compete” clause. I tell my students it’s almost never worth it to sign one of these as a freelancer, unless it’s at a major media brand. As an example, at a magazine I once worked at, most of the writers signed a clause that if they quit or were fired, they would never work at another lifestyle magazine in that metro. That meant if they left the company, they either had to find another profession, or move out of the state to find work. Don’t put yourself in this position.
Non-payment: What happens if they don’t pay you, or don’t pay you in a timely way? It’s good to have a clause that reverts any rights to you if this happens so that you can try to sell the work to someone else.

Again, not a lawyer. But as a business owner, these are the bare-minimum things I expect to see in content-related freelance contracts.

Marketing Yourself as Freelancer

We’ll talk more about marketing in a future Chapter, so we won’t go too in-depth here. But there are several things you will definitely need in your marketing arsenal as a freelancer:

Website (You can build something cheap and easy on WordPress.com, or use a platform like Wix, Squarespace, or Weebly.)
Opt-in (It’s critical that people be able to give you their email when they land on your website, so that you can identify and communicate with the people–aka leads–who are potentially interested in your services.)
Email marketing (You’ll need a tool like MailChimp or similar to send emails to your audience.)
Professional social media presence (People need to be able to research, find and connect with you — the professional you — on Twitter, LinkedIn, Facebook, and other networks.)
Content marketing (Content could be anything from blog posts to emails to a podcast to YouTube videos or more as long as it’s engaging, relevant, and effective at reaching and engaging your target audience.)
Networking (If you get into freelancing because you don’t like to interface with people, well, you may still have to do some of that in order to find clients.) Local industry groups are a low-pressure way to tap into a network if you’re not naturally social.

Ways to Fail at Freelancing

Freelancing isn’t right for everyone, and there are plenty of ways to fail at it:

As a freelancer your income threshold is capped at the number of hours you work times the amount you charge for them. So if you overcommit your hours and fail to deliver, or if you charge too little per hour and fail to bring in the necessary income, that can put you out of business.
Taking on a bad contract that traps you in a situation that isn’t a great deal for you (for instance, a non-compete or an exclusive contract) can be detrimental. Be careful about what you sign.
Freelancing is the delicate balance of finding work and doing the work. If you spend too much time cultivating potential clients, you won’t have time to do the work you have. Likewise if you spend too much time working alone, you won’t have time or energy to add to your client roster.
Every client you take on has an administrative cost. So shoot for steady clients rather than one-time gigs.
You’ll have periods of feast and famine as a consultant and you must be like the fabled ant, not the grasshopper ^[7] if you want to win the long game. Keep your monthly bills (business and personal) as low as possible and resist the urge to live large.

Weathering the Lifestyle

You might think that freelancing will give you freedom. And it does, to a certain extent. But even though you’re not necessarily out of work if your client fires you, it can be scarier in that you probably won’t have the protections of unemployment insurance or a pool of vacation days to cash out for a few months off. If you’re sick and can’t work, you don’t earn income. When you lose a client, you’ll have to find a new one to replace them. And that process may or may not be instantaneous. When you’re a freelancer, it’s critical to have a financial cushion, which will help you weather the periods of feast or famine in freelance work.

The secret to longevity? Stay in it. I once had an acting professor who had had a more successful career than most. One of my friends asked him what the secret was to making it as an actor. His answer? Just stay in it long enough. You can’t compete if you don’t play. If you want to be a freelancer, stay in it. Your clients will come and go. That’s okay. Keep looking for work, doing good work and billing for that work, and you’ll be fine.

Exercise

Pretend for a moment that you have no choice but to work for yourself. What would you sell as your product and service? (Tip: Think about this in the context of where you perceive a need, problem, or opportunity in the marketplace and where that opportunity aligns with your unique talents and passions.)