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4. Business Plan
You're also going to want to put together a business plan. It is in your best interest to research writing a good business plan, as it is vital to your success as a freelancer. There is certain information that is going to be contained in your business plan. What products or services is your business going to sell or provide? Who is your target demographic, and why are they going to spend their money with you? What methods will you use to reach your potential clients/customers? Also where will you get the capital to pay for startup, and operating costs? You may think that this is a unnecessary step in opening a business, but please don't mislead yourself. One third of new businesses never leave negative equity status. Of the two thirds that do make it, only half of them last more than 2 years. A well throughout business plan may be the difference between which percentage you will fall in.
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3. Business Savings
In addition to the Business checking account that you already set up, a savings account will also be a good tool. This will allow you to put a portion of your revenue into the savings to cover taxes and other responsibilities. One common mistake that freelancers make, is to assume that all of the incoming revenue is theirs, and don't realize that they are responsible for paying their own taxes. Generally speaking you can expect to pay 15%-25% of your income for taxes. Any additional money that you deposit into this account will allow you to build a surplus for the company, allowing you to be less likely to rely on credit. The advantage of paying cash is that you will not have to pay any interest, or remember to make any additional payments.
2. Business Checking Account
Okay in part two, we will utilize the Fictitious Business Name from part one. You are going to want to take your copy of the Business Name paper work to your bank. At the bank you will be setting up a Business Checking account, or a DBA. This will do a few things for you, which will assist you in everyday functions. The first, it will allow you to cash the checks that clients write to you. You are more than welcome to attempt to do this without a business account, however, that I am aware of there are no financial institutions that will cash the checks otherwise.
Next, this will allow you to separate your business money from your personal, which will be a huge help in the future. It differentiates what money is allocated where. It gives you the ability to pay for all of your business needs out of a dedicated account (office supplies, hosting, business cards, etc.). This is also going to help you when it is time to file your taxes, which can be simplified by accurate record keeping. It is a little easier to know what is a business expense when the account that you are using is for that reason only.
It is also a good idea to take your pay out of this account and transfer it to your personal account. This helps to minimize the confusion, and assist in tracking expenses. Majority of financial institutions will allow you to transfer funds between your business and personal accounts online or at the ATM machine. Additionally, any money that you take out of your personal account for deposit into the business account will need to be tracked. This is called a capital investment, and is tax deductible (personal taxes), it also accounts for the money that your business receives.
1. Fictitious Business Name
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