Are you leaving the office grind to pursue freelancing? Consider these things before you jump in head first.
The gig economy is all the rage these days, but it isn’t just merely good for picking up a freelance project here and there. It’s also a great way for hardworking, talented women to establish themselves as experts in their chosen fields and earn bigger commissions on their own terms.
Besides, with no set hours, no boss and no dress code, it sounds like a dream. But before you quit your job, know that there are some financial pitfalls that could trip you up before you get started. Here are three money steps to take before you embark on a free-wheeling freelance career or side hustle.
Work out your equipment costs
The truism “you gotta spend some to get some” applies here. Simply put, be aware that providing professional freelance services means you have to invest in proper equipment and software. After all, your work needs to be up to standard before your clients can be expected to pay.
Obviously, some trades require higher equipment costs — photography, graphic design and even baking can exact quite a heavy investment, even if you opt to use only beginner tools, or go for second-hand items.
If you can’t afford to outright buy the equipment you need, consider renting them from your more established counterparts. Another option would be to take out a personal loan to buy the tools you need. Pro tip: Should the cost of rental be comparable or higher to the monthly instalments on a personal loan, then taking a loan to buy your equipment might make more financial sense.
Start to budget for delayed payments
One of the worst things of being your own boss is delayed payments. Larger corporations may operate on longer payment cycles – some even up to 60 days after receiving your invoice – and smaller set-ups may face cashflow issues can can’t pay on time.
Needless to say, you should always have proper documentation covering your freelancer assignment, so that if push comes to shove, you have some legal standing. However, you should also be prepared for the remote possibility that a client or two stiffs you on payment.
Therefore, always budget your finances with the expectation that your payment will be delayed. Don’t rush out and buy that high-end handbag you’ve been eyeing the moment you send off your $15,000 invoice. Wait till the check actually clears before you even go anywhere near a luxury brand’s store.
(Also read: 4 Easy Budgeting Tricks to Help You Save More Money)
Add markup for non-competes
A non-compete clause stops you from doing similar work for a competing company operating in the same category as your client does. Depending on the phase of your career, agreeing to a term like this could harm you more than help you. Without a non-compete, you’re free to work with anyone, thereby maximising your income potential.
If you need to sign on such an exclusivity clause, however, ensure that you add a mark-up fee (of 30 to 50 per cent) to compensate for opportunity costs, and where relevant, insert an expiration date or exit clause to protect yourself.
Price your services right
When you are starting out, it is tempting to want to charge a lower fee to get business rolling in fast – but be careful not to sell yourself short. Do your math and decide how much each hour of your time is worth professionally and ask for a fair fee for your services. If you are in the business of selling products, you need to charge enough to cover the cost of materials and production – and your time for crafting, responding to emails, clearing administrative work, fulfilling orders and any other steps involved.