How to Start a Freelance Business in 6 Steps
Starting a freelance business is an increasingly attractive career choice. In 2022, it’s estimated that 60 million people freelance in the US alone.
It’s no surprise that more and more people want to start a freelance business. But what’s not always clear is how to get started. What are the first steps in setting up your business? Do you need an LLC? And how much does this all cost?
To make sure you get all of your questions answered, let’s go over the steps to follow and walk through a breakdown of the costs involved.
How to Start a Freelance Business in 6 Steps
You’ve been considering freelancing for a while now, but you’re not sure exactly where to start. We’ve all been there. That’s why we’re outlining the steps to follow to set your business up for success.
1. Define your goals
There’s a reason you decided to start freelancing. Maybe you’re ready to leave your 9-5 and see freelancing as the next step. Or maybe you’re not freelancing by choice, but rather as a result of a layoff or something else out of your control. Whatever your reason is to start a freelance business, it helps to keep your “why” in mind as you start to build out the rest of your plan.
Define the goals you have for your freelance business. Do you want to aim to make at least $5,000 per month? Land a certain number of clients per quarter? Work part-time hours? Whatever your goals are, write them down and build your initial plan around them so you can use them as a guide for everything else you do.
You’ll likely refine your goals even more as you get started, but it helps to have a few in mind that you can use to measure success at the beginning of your freelance journey.
2. Explore a niche
It’s common to have a freelance niche. Having a niche means specializing in one service or industry rather than being a generalist, which means offering a broad range of services or working with a variety of clients.
If you have a specific skill set or interest, then you might already know what you want to focus on. But if you’re not sure what you want your niche to be yet, don’t sweat it — it takes time to find your freelance niche.
As you get started with your freelance business, you can explore different industries, services, or even platforms that you want to focus on to figure out what you prefer. Even if you decide to hone in on a niche — let’s say copywriting for B2B SaaS clients — don’t feel like it’s set in stone. The beauty of freelancing is that this is your business and you make all the calls. You can settle on a niche or explore a completely different one at any point.
3. Set your pricing
Figuring out what to charge is one of the most challenging parts of freelancing. It can be helpful to use your last full-time salary as a baseline for what you want to earn as a freelancer. But once you factor in all of the additional costs of running a freelance business (which we’ll dive into below), you may realize that you need to charge even more than you initially thought to meet that salary goal. Like we said: freelance pricing is tricky.
To get a better idea of what to charge for your services, it’s helpful to see how other freelancers price their work. You can get insights into freelance pricing with Wethos’ scope of work templates. Each of the templates includes pricing recommendations that have been crowdsourced from over 50,000 other freelancers, so you can see exactly what other freelancers are charging for similar services.
Like your niche, your pricing is also something that will change over time so don’t feel like your rate is set in stone. With each new project, you can (and should!) adjust your pricing as you see fit.
4. Form a business entity
Creating a business entity is not *entirely* necessary for independents, but it’s highly recommended.
A business entity is put in place to protect your freelance business both legally and financially, so it’s important to research which option is right for you before you choose.
A single-member LLC is a common option for freelancers; sole proprietorship is also a popular set-up. You could also consider an S-Corp. Consult with a professional if you need help deciding which is best for your business, and check your state’s requirements to estimate the exact cost to form whichever business entity you choose.
5. Open a business bank account
One of the first things you need to do when starting your freelance business is open a business bank account. Having a separate account for your work-related income is essential for managing and tracking all of your financials as a solo freelancer.
A dedicated work account should be used to keep tabs on all of the money coming in and going out of your business. Having all of this information in one place — and separate from your personal accounts — can help you better manage what you’re earning and spending, save money for taxes, and even get paid faster.
6. Create branding
There are several benefits of having branding for your freelance business. Not only does branding help make your business more professional and credible, but it can help you stand out among a sea of other freelancers vying for your client’s attention.
After setting up the essentials, one of the first things you need to do next when starting your freelance business is to create a logo. You can design it yourself if you’re experienced with graphic design, or connect with another freelancer to design one for you.
How Much Does it Cost to Start a Freelance Business?
Here are a few areas to consider when thinking about the costs that go into starting your freelance business:
Set-up costs
Operating costs
Marketing costs
Money management costs
Let’s go over each in more detail so you know what to expect and plan for.
Set-Up Costs
Business bank account
The costs of opening a business bank account vary. Some banks require a minimum opening balance ranging anywhere from $50 to $2,000, while others charge a monthly fee. All of this can be daunting for a freelancer who’s just getting their business off the ground.
The best option when starting your freelance business? Opt for a free business bank account. This eliminates the need to have a ton of money saved up beforehand and reduces any unnecessary fees so you can simply get started.
Operating Costs
Tools
Set aside a budget for any tools or subscriptions you use to do your job. The costs of these tools vary wildly and are dependent on what your service is. For example, if you’re a designer you’ll need to pay for Adobe; if you’re an SEO strategist, you’ll likely need to use Ahrefs or a similar tool.
Other tools you may need include tools for accounting, time tracking, client communication, and invoicing, all of which may come with a monthly cost.
However, many business tools offer free versions which is a great way to reduce costs when you’re getting started.
Office set up
If you’re working remotely, you’ll need a workspace or a home office. Consider the costs of purchasing a desk, office chair, desktop computer or laptop, and any other accessories that can help you do your job.
Or you could opt for a co-working space which typically charges a monthly fee to use.
Pro tip: Keep costs low by taking note of these WFH tax deductions.
Marketing Costs
Website
When you’re getting your freelance business started, you’ll need a website to show off your work and services. If you don’t already have one, you’ll need to buy the domain which can cost anywhere from $2 to $20 per year, according to GoDaddy.
You may also need to hire someone to design it or purchase a website template if you want something beyond a simple portfolio website.
Social media
The good news? Promoting yourself and your business online is free. The not-so-great news is that social media is increasingly becoming a pay-to-play space, so you may need to set aside money to run paid ads every now and then as an extra boost for your business.
Email platform
If you plan to send out email newsletters to a list of subscribers, you’ll need an email platform. Many are free up to a certain number of subscribers, so this may not be a cost to factor into your marketing budget until later down the road.
Money Management Costs
Taxes
Every freelancer must pay quarterly estimated taxes. While this isn’t a cost you necessarily need to have *before* launching your freelance business, it’s important to keep taxes in mind as you plan your budget and projected monthly income. You’ll need to set aside money each month to go toward your estimated taxes each quarter.
Paying for services
As mentioned earlier, there may be some elements of your business that you need to hire other people for, including a website designer, an accountant, or even a virtual assistant, to name a few.
If you can be scrappy, keep costs low by handling these business tasks on your own as you’re getting started. But if you’d rather outsource these types of things, research pricing before starting your business and prepare to set aside money accordingly.
Paying collaborators
As a freelancer, there’s a good chance that you’ll be the sole person handling all of the work that comes your way. But as you grow, there’s also a chance that you may want to subcontract some of that work or team up with fellow independents for bigger projects. Keep this in mind as an added cost of doing business as you grow.
These are just a handful of the costs to consider when starting your freelance business. The costs you need to get started vary depending on what your service is, but this list should hopefully give you an idea of how much you should save up or budget for before you take the leap.
If you add up all of the costs that go into starting a freelance business, it’s relatively inexpensive compared to other business ventures. And, best of all, you can get your business set up today — no wait time or additional hoops to jump through.
Starting a freelance business can be both exciting and nerve-wracking. But the way you build your business is entirely up to you — all you have to do is get started and you’ll be on your way to being a confident freelance business owner in no time.