The Seven Deadly Sins of Freelancing Part 3 - Failure To Plan Your Business
So, we’ve made it past the sins of underestimating the freelance job and overestimating our own abilities. What’s next? What other critical mistakes can keep you from being successful in your freelancing career?
Well, the next sin is a sin of omission. See, not all sins are active; sometimes, you can be humming right along at your freelance business, thinking things are going swell. Suddenly, you find yourself trapped in a corner with very few options, all because you forgot to do something.
You forgot to plan ahead.
Deadly Freelancing Sin #3: Failure to plan your business
I know how it is. It’s all too easy to get caught up running your business. You’re writing or designing, you’re getting clients, you’re doing the things you need to do to succeed. Unfortunately, you don’t have the big picture in mind. You don’t know where your business is going.
Why is this a problem? Well, there are several reasons that failure to plan can cost you your business:
Taxes
It sounds simple, doesn’t it? Sometime in April, you sit down and figure out how much you made last year. That’s how you used to do it, when you worked for someone else. Except, you sit down on April 14th (or the day before your tax day, whenever that is) and you discover something: you don’t have a simple situation. You don’t have a paycheck stub to pull the information from. How much did you make last year? All you’ve got is a ledger and a pile of receipts.
Add to that the fact that, at least in the United States, you’re required to pay estimated taxes on your income on a quarterly basis. If you don’t and you’re caught, there are plenty of hefty fines. Nothing will kill a budding business like huge IRS fines. If you plan thing out, though, you can make those quarterly payments and be just fine on April 15th.
Liability
The bigger your business gets, the more likely that you’re going to be a target. One colleague of mine recently found himself in this situation: someone was threatening to sue his client, claiming that the work he’d written was plagiarized.
Fortunately, that situation worked itself out, but chances are that you’re not prepared to fight a court battle for your business. Part of planning your business means thinking about things like liability insurance (and health insurance, for that matter) in case the worst happens.
Missed Opportunities
If you haven’t built a solid business plan, you’re going to be hard pressed to take advantage of certain opportunities. For example, there might be a huge contract you’re able to bid on, one that’s going to have you subcontracting work left and right. If you don’t have contractors lined up ahead of time, you may not be able to complete the work on time.
Along these same lines, it’s pretty easy to commit to clients when you don’t have the big picture in mind. The problem comes when you wind up overpromising, not because you didn’t figure out how much time the gigs would take, but because you overlapped them.
Unexpected Fortune
Sometimes, disasters just happen. Illness, injury, a death in the family, any number of fateful events can greatly impact your business. But the last thing you want in life is to have to work on Christmas, or when you’re ill, or when you should be spending time with your kids. A well-planned freelancing business is ready for just about anything that hits it.
Now, it isn’t easy planning for unexpected events. Few freelancers can set aside six months of expenses, at least when they’re first starting out. However, if you can get to that point – where you’ve got several months of a cushion – you should be able to handle things. A well-planned freelance business also has a team of folks waiting in the wings to help you pick up the slack.
So, what are the key components of planning your freelance business? Well, there are plenty of other folks writing about that topic, and space is short. In essence, though, a well-planned freelance business:
- Sets long-term (3-5 year) measurable goals.
- Sets mid-range (yearly) and short-term (quarterly) goals, as well.
- Evaluates and revises goals regularly.
- Plans for things like insurance, liability and taxes.
- Has a disaster-recovery plan that identifies important resources for when the unexpected happens.
Like most things in the freelance life, these tasks aren’t especially profound. The difficulty isn’t in knowing what to do, it’s in doing it.
What about you? If you’re a freelancer, how do you plan your business? Are there things you know now that you wish you’d have planned for when you first started out?
Bob Younce
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About the author: Bob Younce is a full-time Internet writer and writing mentor living in Linwood, Michigan. He is dedicated to helping Internet writers to achieve their dreams. Visit Bob at The Writing Journey or follow him on Twitter.
The Seven Deadly Sins of Freelancing - 7-part Series:
10 Rockin' Comments
July 10th, 2008 at 6:48 am
Thank you for posting this as I am technically a beginner to writing for pay. I have been taking out an estimated amount of my earnings for taxes, so that when it is time for me to do taxes i will have the funds to pay for my taxes. If I have any extra amount available it will go into my savings plan.
I look forward to reading the remainder of this special series and continuing in learning more as i go through the process of seeing what my talents and abilities are as a writer.
July 10th, 2008 at 6:49 am
Great points Bob, really helpful. I think there’s a few things I need to get sorted before its too late :) I never realised just how important planning was until I become a freelancer, but it’s something you realise the importance of quite quick.
July 10th, 2008 at 9:38 am
Taxes, yes. I have to pull 10k out of my butt by September when I was only expecting to pay 5k. Oh joy for anticipated tax payments, thank you CANADA! (please detect sarcasm).
Liability. Been there, done that. I was right, he was wrong, but it didn’t matter. It LOOKED wrong, and that’s all it takes. Be ready to not be indignant, remain calm and provide diplomatic backup.
Unexpected fortune. Ohmigod. Where should I start? I planned to be famous. I didn’t really PLAN for dealing with fame.
Unexpected misfortune. I’m lucky here. I have Harry for backup and he has me. But had we been solo entrepreneurs, we would’ve been screwed. Be prepared, because it WILL happen to you.
Missed opportunities. Wait - hold on. Are you serious?! I MISSED one? No no no no… can’t be… ;)
July 10th, 2008 at 11:16 am
Good points all. I know the overcommitting part all too well :-)
July 10th, 2008 at 11:30 am
I didn’t know in the USA you had to do taxed quarterly, where did you hear that from? I thought, business and people, were required to do it once a year on tax day, not 4 times a year.
July 10th, 2008 at 11:39 am
@ Nicole - you’re welcome. I’m glad you’re enjoying the series.
@ Liam. The good news is that it is possible to regain lost ground, as long as you get to it!
@ James - Excellent perspective, as always. And I’m sure you’ve missed an opportunity somewhere. Not sure where, though :)
@ Dave - That’s why we need 30 hour days, no?
@ Alex check out the IRS web site or talk to any accountant familiar with small business. You have to send in income tax estimates quarterly.
July 10th, 2008 at 1:38 pm
Alex - we don’t pay taxes 4x a year…but if you aren’t taking out payments for the IRS on a regular basis (like you would if you received a normal W2 form), then you have to pay the government estimated payments based on what you THINK you’re going to make. you pay them 4x a year and then hopefully that keeps you from owing a huge amount come tax day. give them too much and you get a refund. dont give them enough, and well, you can guess what happens.
July 10th, 2008 at 1:40 pm
Oh hi BOB FROM MICHIGAN! What’s going on Bob from Michigan? It’s Allena from Michigan here.
I do not know HOW I maanged to miss the first part of this series. I am very very guilty of sin #1.Great series, I shall not miss any more of it.
PS- Are these sins still “deadly” if I’m atheist? Just wondering.
July 10th, 2008 at 9:39 pm
This is a great series of articles.
Gonna print these out, staple them and put them in my filing cabinet, just in case you decide to take down this dynamite!
July 10th, 2008 at 10:23 pm
Excellent article as usual Bob! However one tiny thing I found out for myself last year. On the taxes, if you make below a few hundred per year, you can claim it at the end of the year and pay your taxes once. It only works for part timers, If you even think you will make more, make the estimated tax payments! Lots less headaches!
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