Starting a Freelance Business – How to Take Care of Legal, Tax and Contractual Paperwork
If you are new to freelancing or thinking of becoming a freelancer, you’ll no doubt have lots of questions, especially about the legal and regulatory paperwork you need to obtain and manage throughout the business year.
Freelancing, particularly if you are unincorporated, is one of the least paperwork-intensive forms of business ownership. Nevertheless, you are still a business and you need to be sure you have the right licenses or permits, make estimated tax payments on time, report your earnings each year, and deal with client paperwork such as contracts, non-disclosure agreements, and more.
To help you stay on top of your obligations, here’s a breakdown of key legal and regulatory processes, plus important “business-ready” documentation you’ll need when dealing with new clients.
Legal and Regulatory “Must-Dos”
Here’s what you’ll need to do to ensure you set up and manage your freelance business legally:
1. Get the Right Licenses and Permits – All businesses need some form of license or permit to operate in their state, county or city. In all likelihood, your freelance business is operated out of your home. So you may need a Home Occupancy Permit and a General Business License. You can get both from your local government website. Or simply use SBA’s “Permit Me” online tool for information about the licenses or permits you may need. Be sure to obtain these before you start doing any business.
2. Register Your Business Name – If you want to name your business anything other than your given name, then you’ll need to register a “Doing Business As” name with your local government. This guide explains how. If you use your own name, skip this step.
3. Pay Estimated Taxes – This one often comes as a surprise to freelancers, who may be used to having their taxes withheld by an employer. As a freelancer, it’s your responsibility to pay Uncle Sam and your state revenue agency almost as soon as you earn income each quarter. If you expect to owe $1,000 or more when you file your annual return, then you must pay estimated taxes on income. For information on how to calculate and make your payments, read: How To Calculate and Make Estimated Tax Payments.
4. Complete a W-9 Form When You Get a New Client – When you ink an agreement or start work with a new client, it’s likely they will ask you to complete IRS Form W-9 (you may have to ask them for it). Filling out a W-9 is straightforward: provide your name and social security number, or “Doing Business As” name. The client holds this form and doesn’t send it to the IRS; it’s a formal certification by you that your tax ID (SSN) is correct. The form also asks if you are subject to backup withholding – most taxpayers are exempt.
5. Annual Tax Reporting: The 1099 Form – If you’ve earned more than $600 in a year from a client, they have to report these payments to the IRS through Form 1099-Misc. Your client will send you a copy by the end of January each year. Be sure it’s accurate – does the amount the client stated they paid you match your records? You don’t have to do anything with the form other than it in your records and use it as a reference when you report your annual income to the IRS. Think of it as the freelancer’s equivalent of the W-2 form.
I’ve deliberately excluded incorporation as a “must-do” legal and regulatory step for freelancers. Incorporation isn’t a legal must-do. While it has its benefits, it can also have cost disadvantages. To help you decide if incorporation is right for you take a look at: Should You Incorporate Your Freelance or Consulting Business? SBA’s Incorporating your Business guide is also a useful reference.
Essential “Business-Ready” Documentation for Freelancers
Here’s a list of some of the day-to-day documentation and paperwork that you will likely need or encounter as a freelancer:
1. Cost Estimate and Proposal Documents – Give your business a professional touch by creating your own branded template for project quotes and proposals. You can pay a graphic designer to create many of your basic business documents and graphics, or use freely available templates in software such as Microsoft Word and Google Docs. Sites such as FreelanceSwitch also offer free templates and resources.
2. Contract Documents and NDAs – Most clients will have their own contracts in place for independent contractors or freelancers. Be sure to read through the terms with a fine tooth comb. Don’t be afraid to question anything that doesn’t make sense or is irrelevant. The Non-Disclosure Agreement or NDA is usually included and is pretty standard. It requires you to agree to the client’s legal rights for protecting company knowledge or information you may have access to during the course of business, as well as intellectual rights relating to the work you produce.
If your client doesn’t present you with a contract, you may wish to protect your own interests by producing your own. This blog offers tips: Setting Up a Client Contract.
3. Statement of Work – Even if you have a client contract in place, many clients will also ask for individual statements of work (SOW) for each project. It’s a good idea to volunteer one even if they don’t ask for it. A SOW is a project-specific agreement outlining the mutually agreed scope of work and the timeframe for its completion. It sets expectations, deliverables, and the price. It may also include information on resources needed for the project, including roles and responsibilities on both sides. The secret to a good SOW is to avoid being vague – if it’s too broad and non-specific, you may end up with a dispute. Once the SOW is agreed and signed, you are ready to begin the project.
Got questions? Post them in the SBA Community Discussion Boards.
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How a Business Email Address Can Hurt or Help Your Financing Efforts
We can all agree that email is another tool used for exchanging information. But when it comes to business, it plays a much greater role then many people seem to realize.
Unfortunately, one of the most common mistakes business owners make is obtaining a business email account from one of the many free email services available on the Internet. While a free email services does serve a purpose, it can give a bad impression to a potential customer or even hurt your chances for obtaining credit because some creditors require a dedicated business email account.
You can help your business by obtaining a business email account that clearly shows that your company has a personalized domain name. The email address you set up should have @yourbusinessname.com. Not only does this look professional, but it also shows that you are a “real” company with a dedicated communications system.
The first thing you will need to do is register a domain name for your business with an approved domain registrar.
Once you visit the site, you will need to conduct a domain search to see if a .COM for your company name is available. I strongly suggest that you obtain a .COM because it adds another layer of credibility and professionalism to your business as opposed to a .Biz or .Net name.
If your company name is not available as a .COM, then consider searching for a .COM with the extension of your structure title as well. For example, ABC Company.com may not be available, but try ABC CompanyLLC.com as an alternative.
Be prepared to supply the following information when setting up your business email account:
- Name, company name, address and phone number
- Administrative contact information
- Technical contact information
- Domain Name System (DNS) server details
The DNS server is usually provided by the web hosting company that you use to host your website. If you don’t have a website, you can have your domain name parked on your registrar’s servers until you set one up. This can be done afterwards and you can always contact their tech support for additional help.
Once you register a domain name, you will be able to set up a business email account associated with your new domain name. When you select an email address, keep it simple because you will be supplying this information on all your company documents, applications, registrations and so on.
If you decide to establish multiple email addresses like email@example.com, firstname.lastname@example.org and email@example.com, make sure you use only one of these email addresses on all things related to the business credit building process.
It’s essential that you understand how lenders and credit providers assess the creditworthiness of a business. Even though it may seem like a minor detail, having a dedicated business email account does play a role in the decision making process. Small details like this that get overlooked can cause problems for you later on.
About the author
Marco Carbajo is CEO of the Business Credit Insiders Circle (http://www.businesscreditblogger.com), a step-by-step business credit building system providing credit recovery, lines of credit, business credit cards, trade credit, and funding sources.
About the Author:
Operation Boots to Business Introduces Returning Veterans to Entrepreneurship
Our mission in the Office of Veterans Business Development is to support the men and women who have returned home from active duty and are interested in starting or purchasing their own business.
Veterans already over-index in entrepreneurship. Nine percent of all U.S. firms are owned by veterans. More than 2.4 million veteran-owned businesses employ more than 5.75 million individuals. So we know that providing greater access and opportunity to these veteran-owned small businesses will strengthen the American economy and help create jobs.
We already have numerous programs at SBA specifically designed to support our veterans. For veterans who are establishing or expanding their small business we have a range of financing opportunities including microloans and Patriot Express Loans. There are Veteran Business Outreach Centers to train and counsel veterans, and this year we created the Mentor-Protégé Program for Service-Disabled Veteran Owned Small Businesses to help veterans learn how to do business with the federal government.
But, as a veteran myself, I am confident that there is more we can be doing to support our returning service men and women. That’s why we have created Operation Boots to Business: From Service to Startup, to teach service members the nuts and bolts of how to start and grow a business.
Veterans are natural entrepreneurs, already possessing the experience and leadership skills to start businesses and create jobs. Boots to Business will leverage SBA’s existing collaboration with Syracuse University’s Institute for Veterans and Military Families (IVMF) to provide training materials specifically geared toward transitioning service members to become entrepreneurs.
SBA currently offers three programs through its partnership with Syracuse University. The Entrepreneurship Boot Camp for Veterans with Disabilities delivers entrepreneurship training through a one-year “boot camp” for service-disabled veterans of the wars in Iraq and Afghanistan who want to start or grow small businesses. Operation Endure & Grow expands on the SBA and Syracuse University ”boot camp” and provides high quality training, networking and mentoring to support Reservists and U.S. Military family members. And Women Veterans Igniting the Spirit of Entrepreneurship delivers high quality training, networking and mentoring to women veterans.
Boots to Business will take these programs one step further, by providing exposure to entrepreneurship training to all 250,000 service members who transition from active duty to civilian life each year.
If you are a transitioning Marine interested in registering for the program, visit the Boots to Business registration page.
The pilot program is currently being launched with the Marine Corps at four locations-- Quantico, VA; Cherry Point, NC; Camp Pendleton, CA; and Twenty-Nine Palms, CA. The initiative will include three phases of instruction: a short introductory video on entrepreneurship; an in-person classroom training on entrepreneurship; and an in-depth, online, 8-week entrepreneurship course that leads to the creation of a business plan.
Through this initiative, we will work with our entire team of resource partners to deliver an effective introduction to entrepreneurship to returning service men and women so they can learn about the opportunities and realities of owning a small business. I’m excited about this opportunity to help our veterans start businesses, create jobs and ultimately help lead the American economy to a stronger recovery.
M. Rhett Jeppson
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Can You Become A Part-Time Franchisee?
Is it possible to find a legitimate franchise opportunity that only requires a few hours a week to run? And, if you do find a part-time franchise, can you make enough money for it to be worth your up-front investment, and of course, your time? Let’s find out.
First off, it’s important for you to be able to distinguish a true franchise-type of business, from a non-franchise business.
In most cases, franchise ownership offers:
· A proven business system that’s easy to replicate
· A formal training program
· Proprietary software and technology
· Marketing and advertising tools and systems
· A support team
· Formal and lengthy contracts
· Protected territories
Business Opportunities, or Biz Opps, as they’re sometimes called, aren’t very structured when compared to a franchise business. You won’t usually find territory restrictions with a business opportunity, and there are no royalties.*
In addition, the total investment amount is usually less than a franchise business.
While there may be training, and even some marketing tools, the support structure isn’t as tight as it is with a franchise business system.
(It's not because purveyors of Business opportunities are mean-spirited people that they don't supply a tight support structure. It has to do with the business model; in a Business Opportunity, the investment amount is collected up-front. There’s no royalty-stream coming in that could support a lot of well…support, in this type of business set-up.)
There’s another type of non-franchise business that’s worth mentioning here; Network Marketing businesses. Also known as MLM’s (Multi-Level Marketing) these businesses are almost always marketed as “Part-Time Opportunities.”
There isn’t enough space here for me to go over all the pros and cons of a Network Marketing business. Suffice to say, there’s a plethora of information available, including an article I found over at FTC.Gov that defines Network Marketing businesses in easy to understand terms.
Part-Time Franchise Opportunities
While the thought of owning a franchise that doesn’t require a full-time commitment may be appealing to you, the reality is that there are very few franchise concepts around that fall into that category. Most franchises are designed to be owner-operated, with the owner on the premises.
But, if you do have your heart set on investing in a franchise that can allow you the flexibility to not be there all the time, know this; you’ll probably need deep pockets. That’s because most of the franchises that tout things like “flexibility” in their marketing methods are multi-unit ownership opportunities.
In addition to the promise of flexibility that several franchisors offer their franchisees, there’s another option offered in the franchise marketplace that may also have a nice ring to it for you. Ready?
How would you like to keep the job you have while you start a franchise business?
Right off the bat, it’s very appealing, cash-flow wise. That’s because if you can keep your day job while launching a new franchise business,* you’ll have cash coming in-via your paycheck, and that can really give you some breathing room.
To summarize, if you have a pretty sizeable net worth, want a lot of flexibility, and like the idea of maybe being able to keep your current job while your new business launches, there are opportunities available in the franchise marketplace.
*Non US-Government links