Freelance work is a fantastic way to supplement your income – and over the course of the last decade, more and more UK professionals have started to ditch the typical nine-to-five job in order to start exploring the lucrative benefits that go hand-in-hand with freelancing.
According to the UK Government’s Office for National Statistics, just under two million workers are now operating as freelancers. Some industries are more reliant upon freelance workers than others, too. The Department of Digital, Culture, Media and Sport reckons some 43% of all work carried out in the media sector is done by freelancers.
But how do casual freelancers transform their hobbies or side projects into a full-time, sustainable business?
We’ve designed this guide to walk you through all the basics.5 things you need to form a limited company
How do I build up freelance work?
Before you hand in your notice at your day job, you’ve got to do a whole lot of planning – and that planning starts with an assessment of exactly what it is you’re trying to turn into a business.
So, what are you good at? What sort of professional skills do you have that other companies or individuals could benefit from, and what types of projects or work could you do for those businesses? What would they be willing to pay, and would it be enough to support you financially?
If you haven’t already established yourself as a freelancer, you need to come up with answers to all of these questions before jumping into the deep end. The best way to do that is to try and get your feet wet with some freelance work while you’re still employed.
By freelancing while still in full-time employment, you’ll be able to make a name for yourself and start building up cash reserves in order to bootstrap your business and place it in a good financial starting point. Most financial advisors recommend you save up between three and six months’ worth of income to cover living costs before quitting your day job – and so you’ll want to stockpile enough cash to cover your accommodation expenses, overheads like insurance and utilities, childcare and personal living expenses.
But let’s not get ahead of ourselves, here. If you haven’t already got enough clients or work to start building up a rainy-day fund for your new business, you’ll need to attract some customers.
Assuming you already know the type of niche you’ll be able to fill with your skills and the sort of freelance work you’re capable of achieving, the first thing you’ve got to do is write a business plan. Why?
First and foremost, writing a business plan will help you to stay organised. In a business plan, you must clearly state what it is your business is going to do, the services you’ll offer, and how those services will be delivered. You should also outline your price points, marketing tactics and conduct extensive market research in order to figure out what sort of competition you’ll be facing.
Later on in the lifecycle of your business, this business plan could help you to secure a bank loan or investor funding to secure financial backing and grow your enterprise. But while you’re still employed and are simply testing the waters, your business plan will serve as a manifesto. It will make you think long and hard about the sort of people you should target as clients and what you have to offer them.
So, once you’ve thought long and hard about your unique selling points (USPs) as a freelance worker, it’s time to approach potential clients and start building a customer base.
One of the easiest ways to get started freelancing is to spot gaps in the processes of former employers, businesses you know or individuals you’ve worked with in the past. Don’t be afraid to approach these companies with a phone call, and confidently explain what it is you think you could offer that business. If they’d like to hear more, they’ll generally ask what sort of rate you would charge, and the calibre of work and timescales they could expect in return.How can I generate passive income for my company?
That’s where your business plan will come in handy. You should have already thought about how you’re planning to charge clients – either hourly, by the word, at a flat rate or another method of your choosing.
After that, it falls on you to deliver what it is you’ve promised. You need to prove yourself by finishing your work on time and returning it to a standard that you’re proud of and that your client is happy with.
Having trouble approaching or finding first-time clients? Don’t panic. There are a wide range of online platforms that can help you attract customers. Sites like PeoplePerHour, Upwork and fiverr give you the opportunity to write a service pitch or create a product listing. Then, customers can sift through the platforms and approach you to take on their freelance tasks if they’re impressed by your pitch.
It’s worth pointing out these sites can be fantastic in order to help you build a first-time profile, but they generally operate on “freemium” models that will demand some sort of small percentage in return for generating you business. That’s why it’s often advisable to establish yourself on these types of websites before approaching regular customers and asking them to contract you externally to continue developing your working relationship.
Once you’ve starting impressing clients, encourage repeat business and start casually marketing your services online. It’s worth creating a website and building a social media profile for your business so that happy customers have somewhere to leave positive reviews and redirect friends and colleagues they’ve sent your way.
In turn, your freelance work should start generating a reasonable amount of income in order to supplement your nine-to-five salary – thus enabling you to build up a business savings to bootstrap your new company. And after you’re confident that you have an adequate rainy-day fund and a sustainable client list to keep you going, you might be ready to quit your day job and start freelancing full time.
Should you incorporate your business as a company?
Going it alone and becoming self-employed is incredibly exciting and liberating – but it can also be a little daunting. Starting a new business can often leave you feeling financially exposed and at risk, particularly if you’re investing personal funds in your new business idea. To help relieve some of that worry, a lot of freelancers choose to form a limited company.
So, what exactly is company formation?
Company formation is the process of registering your freelance business as a limited company through Companies House. Companies House is the UK Government’s official registrar of companies, and it is the only organisation in the UK that is allowed to officially incorporate your company.
It’s worth pointing out that you are not legally obligated to form a company. Instead, you can operate as a sole trader. As a sole trader, you’ll be able to trade as a business owner – and in the eyes of the law, you and your business are essentially one in the same. That synergy can make life simple if you’re running a very small micro-business.
But because a sole trader has no legal separation between them and their business, those individuals can face personal financial ruin if their business runs into trouble.
Meanwhile, if you choose to incorporate a limited company, you can turn your business into its own legal entity. That means your liability for that company will be limited only to the value of the shares you have in your company, and all of your personal money will be protected. This protection is what’s known as “limited liability”, and it should give you peace-of-mind in knowing that you won’t go flat broke just because your business doesn’t pan out.What is the Entrepreneurs’ Relief scheme, and is my business eligible?
So, are you keen on registering your new freelance business as a limited company? The process is fast and simple. All you need to form a company is a:
- Company name
- Registered office address in England and Wales, Scotland or Northern Ireland
- Company director
- Shareholder or guarantor
- Memorandum and articles of association
- Share capital of at least one issued share
- Standard Industrial Classification SIC (code)
If some of these requirements are new to you, don’t panic. The company formation process is very straight-forward, and the Quality Company Formations blog offers step-by-step guidance on each aspect of company formation.
Once you’re ready, we offer a range of company formation packages that are built around your needs as a freelancer – and our simple and intuitive platform enables you to complete the registration process in just a few minutes.
Next, our company formation experts check over your application and send it off to Companies House. Your application will normally be approved in three-to-six working hours, and then we’ll send you your new company documents, VAT invoice and Webfiling Authentication Code. HMRC will automatically be informed that your company has been formed, and will send you your Unique Tax Reference number within 2-3 weeks of your company’s incorporation.
Top tips for your freelance business
Once you’ve written your business plan, built up a client base and formed your company, your freelance business is well and truly on the road to success. But there can often be a real learning curve when running your own business. To help you clear the early hurdles you’ll no doubt run into, here are a few top tips to help get your freelance business off the ground:
Set realistic goals: In all the excitement of quitting your day job in order to be your own boss, it can be easy to lose sight of what it is you’re hoping to achieve by going it alone. That’s why it’s critical you set realistic business goals that are measurable and achievable. These goals should be spelled out in your business plan and timestamped so that you’re able to chart your business growth and reassess elements of your business that may not be performing well.
The customer is always right: Once you’ve established yourself as a business owner, you become responsible for your own success. And because your business will be somewhat fragile in its infancy, you will need to bend over backwards in order to wow your customers. That means you need to deliver everything you promise to deliver, and you need to offer great customer service. If a client returns to you unhappy, you should do your best to make it right. Offer to make amends, give it another go or do whatever you’ve got to do in order to earn a gleaming review.
Don’t forget about taxes: As a self-employed business owner, you’re responsible for paying your own taxes. Company directors must file Self Assessment tax returns on an annual basis, and will be expected to pay tax contributions based upon their income. You’re also in charge of staying on top of your limited company’s tax obligations.
The bottom line
At the end of the day, there’s no reason you cannot succeed as a freelancer. But before you decide to go it alone, you need to get your feet wet, build up a list of clients, a portfolio and develop a business plan. From there, it’s worth thinking about the benefits of limited company formation – as well as all of the new responsibilities you’ll inherit by starting your own business.