The gig economy is thriving across the world, and many more people are expected to switch to working on a freelance consultancy basis in the years ahead.
One frequently-quoted prediction is one from PeoplePerHour that states that 50% of people will be self-employed by 2020. This is a rather bold statement, but another recent study by PwC showed that HR bosses expect at least one in five staff to be working on a freelance consultancy / contracting basis by the same year.
2020 is little more than a couple of years away at the time of writing. So, regardless of which study you give most credence to, it’s hard to dispute that this trend towards freelancing is well-established and set to boom.
The trend is also reflected in what I’m personally seeing “on the ground.” I’ve recently seen several people I know make the switch to self-employment. As someone who’s worked in this way since 2004, I’m delighted to see it – both because I know how rewarding it can be and (more selfishly) because it’s nice to have more people to share experiences with!
With this in mind, I felt inspired to write an article to give some advice to people who are switching to freelance consultancy from a traditional job. The advice here should be equally valid across a whole host of professions as the principles remain the same. So do read on – whether you’re a hairdresser, a web designer, a personal trainer, an IT expert – or literally anything else!
Before I begin, you may be wondering what makes me think I’m qualified to dish out this advice, so please allow me to justify myself: As well as being self-employed for well over a decade, doing IT consultancy, web design, freelance writing and various other things, all of these activities have kept me in constant contact with other individuals and small firms – often those starting out in freelance consultancy for the first time.
So, I’ve had the chance to make plenty of mistakes myself – and watch a few people make some of their own. I’ve even added a detailed confession of my personal failings at the end of the article! As such, my advice is well-intentioned and (hopefully) well informed. So let’s get started:
1. Don’t burn bridges
The point at which you decide to go it alone can feel like an opportune moment to tell everyone what you really think. However, it’s not really wise to begin your freelance consultancy career with a smug expression and a raised middle finger.
In fact, in an ideal scenario, your previous employer(s) will become valuable partners in your future endeavors. If you have valuable skills and a professional attitude, it’s quite possible that you’ll end up doing freelance work for companies where you’ve previously been an employee. This kind of thing happens all the time.
For this reason, it’s wise to give your notice and manage your transition away from “working for the man” in the most transparent and considerate way possible.
Ultimately, you want your relationship with your previous employer to end with leaving drinks, a warm handshake, and a promise to “keep in touch.”
Obviously, it doesn’t always pan out like this. Sometimes, through no fault of your own, the transition won’t be as friendly as you’d hope. But if you’re open and professional and do your best to avoid disputes, you’ll usually be rewarded with reciprocity – and this is hugely beneficial in the long run.
2. Be realistic about money when doing freelance consultancy
When you first switch to freelance consultancy, it can seem like you’re about to boost up your earnings to a whole new level. You compare your new day rate to the one you received as an employed person and feel like you’ll never have to patiently wait for payday again.
In the long term, your earning potential as a freelancer is probably far higher than it was in a payroll job, but there are some serious and inevitable shocks to come before you get there.
For starters, think about the following tasks:
- Arranging your insurances and renewing them annually
- Doing your books and annual accounts
- Organising your website
- Making your computer systems work
- Keeping your training up to date
- Running your social media accounts
- Issuing invoices and chasing them up when they’re not paid
- Writing quotes and proposals
- Complying with business legalities
- Answering the phone, replying to emails, fending off sales calls, attending meetings
YOU DON’T GET PAID FOR ANY OF THOSE THINGS ANYMORE! In fact, you’ll probably have to pay people to do some of them for you.
Then, add in the fact you no longer get paid holiday, sick pay and cushy days away from the office for “away days” and company events.
Next, consider the fact that you’ll now be covering your own social security, medical insurance, and potentially a whole bunch of other stuff your employer used to pay for.
Suddenly that impressive hourly / daily rate doesn’t look quite so awe-inspiring. As an example, in my early IT consultancy days, I used to do projects that, on the face of it, were going to make me a pleasing amount of money. However, after adding in the “pre sales” time, the travel time, the follow-up queries, the credit control – and so on and so on – I was heading to something more like UK minimum wage!
There are plenty of online resources that will help you calculate what you really need as an hourly wage to replace your previous salary, so I won’t try to help you do that here. I’d just suggest keeping strongly in mind that however impressive a rate looks on the surface, it’s rarely so great once you’ve worked it all out in detail…
3. Keep expenses low – but only on the right things
In the early days of starting a freelance consultancy business, you don’t want to be blowing money on unnecessary expenses. However, it’s sometimes a false economy to skimp on certain things.
Here are some examples; Some are open to debate, but they are all examples based on real-life situations I’ve witnessed or been involved in:
IT MAKES SENSE TO SAVE MONEY ON:
- Computer software you would like but don’t really need.
- Stationery / branded vanity products.
- Office space (often completely unnecessary for a freelancer).
- Unnecessary travel.
- Web design (a basic web presence should no longer cost much money).
- Starbucks runs, take away food and unnecessary “entertainment.”
- Buying in any services where you could realistically complete the tasks in your spare time. (See next section!)
IT MAKES NO SENSE TO TRY TO SAVE MONEY ON:
- Your key computer equipment, which will often mean your main laptop. I wrote about this here back in 2015, and my opinion hasn’t changed. A computer that holds you up for 10 seconds every few minutes will wind you up, and lose you hours of productivity every single week. Skip the take-out coffee instead!
- Any professional equipment you need to do your job – whether that means scissors and hair dryers, cameras and lenses, or anything else. If you’re going into business professionally, then you need to do things properly.
- Buying in services when you’ll waste too much of your time trying to do the things yourself. (See next section!)
4. Think carefully about buying in services
If you’re paying attention, you’ll have noticed the commonality between the last things on each of the above lists, with regard to buying in services for your business.
It’s very tempting in the early stages to try to do everything yourself, and obviously the more you do, the less you spend. However, this is a really fine balance, and one I still sometimes get wrong to this day.
Here’s an example: If I have a routine task to do, for example reaching out to multiple blogs in the hope of writing guest posts, I might decide to do it myself. BUT, I’m then spending my time doing it – time I can’t be “out there” earning money myself.
If I could pay a Virtual Assistant to do that task for, say, $10 per hour, and free myself up to earn $100 per hour, it’s self-evidently daft for me to do it myself. But that doesn’t stop me making the mistake time and time again because I think I’m saving $10 per hour rather than costing myself $90!
Similarly, if you need a website built and you have no experience of doing it, it is probably best to pay someone to do it, thus freeing up the days it would take you to stumble through the process. Those days are likely best spent on “real work” or marketing.
Obviously, this is a delicate balance every time. There may not be money kicking around for buying in services, especially in the early days. But once there is, it’s well worth thinking very carefully about what your time is being spent on. This is how people build businesses rather than jobs.
5. Reduce your personal expenses
The very first post I wrote on this site was about how saving money can be better than earning it.
I wrote it just after I quit a well-paid consultancy contract, at a time when I anticipated some lean months ahead – but it’s always possible to apply the principles.
When you have a traditional job with a guaranteed monthly wage, budgeting is child’s play. When everything is variable – which it always will be if you’re doing freelance consultancy – it’s far more complicated and stressful.
WIth that in mind, one of the best things you can do in the early days is to “cut your cloth” so that you don’t need as much money each month. Things like cancelling cable TV packages, switching to 0% credit card deals and negotiating household utility costs can all serve to reduce that “must have” figure each month, which really takes the pressure off. Once you’re sure your income is more stable, you can always start to “push the boat out” a little more.
So, that concludes my advice for people switching to freelancing for the first time. By means of reinforcing my expertise here, I’m going to confess I’ve got ALL of these things wrong in the past:
-I’ve burned bridges because I’ve been so glad to finally escape a hateful job.
-I’ve mistakenly assumed I was well-off because my hourly rate sounded impressive.
-I’ve tried to skimp on essential equipment and made my own life difficult.
-I’ve outsourced work I should have done myself (and vice versa).
-I’ve carried on spending based on previous income rather than reality.
I can’t be any more honest than that. In fact, I’ve made all the mistakes so you don’t have to! You can thank me later 🙂
- Some specific advice on IT for freelancers.
- More advice for first-time freelancers.
- An article to help you decide if freelance work is for you.