Welcome to week five of the series How to Quit Your Job and Become a Digital Nomad in 90 Days. This week we’re discussing how and why to establish your freelancing as a legitimate business. We’re also going to transition to shorter posts — so I can keep up and you can actually finish reading them! Enjoy.
The benefits of treating your freelancing as a business
I’m sure you’ve heard of the mysterious “business expense” before. This concept is often passed around with grandiose ideas of getting free travel, high-speed internet, cars, and other perks by writing them off as a “business expense”.
Wondering what a business expense is? According to Investopedia, a business expense is, “Any expenses incurred in the ordinary course of business. Business expenses are deductible and are always netted against business income.”
In short, while business expenses don’t mean free stuff, they are a way to avoid paying taxes on specific purchases. Just check with your lawyer or accountant before writing off your next vacation to Hawaii – as you can get in big trouble if you get too liberal with your tax write offs.
But business expenses aren’t the only reason it’s worth incorporating your business and treating it as a separate entity from yourself. The benefits include:
- Be taken more seriously by clients. When you have a real business incorporated as an LLC (the most convenient and affordable business model for freelancers) you show your clients that you’re in it for the long-haul. They’re no longer working with some random individual, you’re a corporation. This adds a level of credibility to your brand that otherwise wouldn’t be there.
- Tax season becomes substantially easier. Even if you don’t incorporate, set up separate bank accounts for your business. When it comes to tax time, having your finances separate will save you a lot of headache and reduce the likelihood of being audited.
- It becomes possible to add employees, partners, and investors. Although you may want to keep your business independent, if you decide to bring on other partners, this will be less confusing if you can run it all through a business entity rather than pay people individually.
- You keep your personal assets safe. What happens if something goes horribly wrong and you get sued? If you’re a sole proprietor, you could lose everything. Meanwhile, if you run your operations as a business, all you can lose is what’s directly available in your business (which usually isn’t much for freelancers).
- You can take advantage of business expenses. Although you can’t write off your summer backpacking trip through Europe, you can cover the cost of certain trips that are business-specific, along with continuing education, work-related travel, a home office, and other expenses. Check with the IRS to determine what you are legally able to deduct as a business expense.
Personally, I believe that all serious freelancers, consultants, entrepreneurs, or self-employed digital nomads should treat their work as a business. Not only does it help others take you more seriously, but it helps you take yourself more seriously as well.
How to establish your freelancing as a business
To turn your freelancing into a business doesn’t require a whole lot of effort – unless you want it to. I’ve divided the steps into “essential” and “recommended”. See if you can take care of one or two of these activities every day this week while continuing on with your client projects.
Remember, to succeed in this 90 day transition requires a commitment of 2 hour a day, 6 days a week.
Essential steps to establish your freelancing as a professional business
If you’re serious about being a self-employed digital nomad, then you need to treat your work as a business. To do this effectively, complete the following steps this week:
- Incorporate (probably as an LLC). There are many different business forms you can use, and I can’t specifically tell you what would be best for your business. However, what I did to incorporate my freelancing/consulting into a business is I to setup a Delaware LLC through IncFile.com initially (but am changing this to my new home state of Florida now). It cost me $139 to set up, and $300 a year to maintain. This was the most efficient and cost effective option in my opinion. Check with your local state first to determine the tax rates and fees to incorporate. For a freelance business the benefit of incorporating in Delaware isn’t always as strong as for other internet businesses.
- Create a business bank account. Keep your business and personal finances separate. To do this, make sure you have a separate bank account that all of your business expenses flow through. To set this up, start by speaking with your current bank – I’ve been very happy working with my bank, Wells Fargo (other than their international ATM fees – but that has nothing to do with the business side of things).
- Create a website for your brand. If you don’t already have a website, jump over to iPage and get one for $1.99/month – it’s worth it! Find a domain name that matches your brand name (or your own name if that’s the brand) and use WordPress to create a free and dynamic website in less than 20 minutes. A website makes it incredibly easy to share your portfolio, experience, and services to anyone in the world.
And that’s it! Do those three things and you have the essentials necessary to run your freelancing as a business. However, depending on your business, I recommend taking a few additional steps…
Recommended steps to establish your freelancing as a professional business
Once you’ve completed the above, either this week or in the future you’ll probably want to take the additional steps to further establish the legitimacy of your business, make day-to-day business operations easier, and land more clients.
- Ge a business credit card. Although this isn’t essential if you don’t have many expenses, it’s a great way to further keep track of your business costs and earn some points in the process. Your bank will probably offer you a business credit card, which is fine, or you can select a business credit card that offers additional rewards and sign up bonuses.
- Set up Separate Paypal and Payoneer Accounts for your business. If you ever use PayPal for personal purchases, then you should probably set up a separate account for your business. This will allow you to accept credit cards and easily transfer money when needed. Additionally, Payoneer is a fantastic tool for international money transfers – which works great if you have clients, freelancers, or partners in other parts of the world. Their rates are hard to beat and they currently offer a $25 sign up bonus.
- Create business cards. While most of your business will be done online, you may occasionally come across a potential client or partner in person. When this happens, it’s great to have business cards available. To do this you can hire someone on Fiverr to create a design for $5 and then purchased 1000 credit cards on Zazzle for $130 (or 100 for $25). You can also buy business card paper and print the cards yourself.
- Track your finances. While running all of your expenses and income through business accounts will make tracking finances much easier, it still doesn’t hurt to find another service to keep a more detailed record of what you’re spending and making using Freshbooks, Quickbooks, WaveApp, Excel, or some other platform. These services not only make tax time easier, but they can also ensure that you keep track of clients that still owe you money.
And that’s it! If you accomplish the seven steps above, you’ll be well on your way to having a “real” business – something that will make the digital nomad lifestyle much easier. And who knows, maybe you’ll actually get to write off a few trips as business expenses.
Next week in the series How to Quit Your Job and Become a Digital Nomad we’ll discuss tips around maximizing client satisfaction and getting referrals. Until then, if you commit 12 hours a week to building up your business, you shouldn’t have a problem becoming a digital nomad in 90 days. Good luck!