Going IT Alone: The Handbook for Freelance and Contract Software Developers

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By Leon Brown
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  1. Introducing Freelancing

About this book

No matter whether you are a student or an industry veteran, self employment adds a new dimension of opportunities to “learn and earn”, whether it be on a full-time or part-time basis. Develop the business acumen and understanding of the link between software patterns and business strategy that you need to become a successful and profitable independent software developer.

Discover how to apply your software development skills to entrepreneurship. Decide whether you just want to earn or aspire to build the next Facebook. Supported by real world case studies and input from industry experts, the book looks at the business topics you need to understand to become an independent software developer. From the initial steps of identifying how you can make a profit with your software development skills, through to making your first sale and managing your projects, you will learn how to manage each of the major steps involved in becoming a self employed software developer – whether you decide to go freelance, take up contracting or develop your own product.

Written specifically for software and web developers, the book identifies how business issues have a direct impact on code patterns used in software projects. Learn how to build your code to support your business model and with safety features to protect against potential threats that may emerge from the changing business environment.

Publication date:
December 2016
Publisher
Packt
Pages
376
ISBN
9781783001408

 

Chapter 1. Introducing Freelancing

Instead of jumping head first into starting your freelance activities, the first steps should be based around investigating whether freelancing is right for you. With there being many ways to engage freelancing activities to suit your ambitions and commitments, freelancing provides the flexibility to be a full time or part time supplementary occupation, both offering different levels of risk and opportunities regarding finances and your commitments to operating as a freelancer.

 

The freelance lifestyle


The life of the freelancer is often one that is misunderstood by those outside of the profession, the typical image of the freelancer being a guy/lady of leisure who chooses their own working hours, takes seven holidays per year, gets the opportunity to travel to luxury locations for work and gets paid lots of money.

Whereas this lifestyle can be the case for the lucky few, the reality is that the freelance lifestyle typically requires a higher level of commitment, discipline, and knowledge of business than the equivalent employed position. Most freelancers don't work 9 to 5, but more likely whenever to whenever, which usually means longer overall working hours. Holidays are usually restricted to fit with the work and cash flow situation, meaning that work will always dictate when it is best to take a holiday and not when a freelancer feels like it—and there is no holiday or sick pay either!

Not all is as tough as it may sound, especially if you enjoy your work and manage your finances well. Pay is typically significantly better than the equivalent employed position on a per hour worked basis, which can be good for your bank balance if you are able to secure the volume of work, whether it be from a longer term project or several smaller projects. A word of caution regarding evaluation of finances is that unlike being employed, the amount as a freelancer will vary each month depending on how much work you are able to secure—so make sure you have enough saved for months to cover where you have little or no work! This is especially the case when working on more demanding projects in which there will a time lapse between completion of the project and finding the next work source.

As a freelancer, expect to work in a wide range of places, from being invited to travel around the country or overseas, to more 'unique' places such as the company basement.

Providers of freelance projects will offer different levels of luxury to freelancers, the best often being the bigger well-known companies who have bigger budgets to spend—so if you're wanting to get involved with projects that take you to sunny places instead of the company basement, these are the companies that you want to freelance/contract with. The only issue is that these types of opportunities are much more difficult to win and you are likely to have to start at the bottom of the freelance work chain—building your portfolio and freelance experience with many smaller and usually less prestigious projects before you are even considered to be considered as a candidate by one of the bigger luxury organizations. In addition to your portfolio, you should consider looking at how you can build your network of contacts in the right places, allowing you to be recommended for the types of opportunities you desire, as they open.

 

Is freelancing for you?


It sounds like an easy question, but whether freelancing is the right option for you needs some careful consideration and answers to more detailed questions. Questions you should ask yourself are:

  • Can you afford to be a freelancer?

    • If you have children or relatives who rely on your earnings, will they suffer if you develop cash flow problems?

    • Does your current financial situation give you enough margin to cope with situations where payments are delayed?

    • You don't want to be in a situation where you lose your home because a few of your clients are late paying their invoices

    • Health is an important factor to consider:

    • Are you healthy enough to invest the required effort to succeed as a freelancer?

    • Can you afford health insurance if you are not living in a country with a socialized medical system?

  • Can you handle being a freelancer?

    • If you like/need a regular work pattern, then freelancing probably isn't for you. Many projects will require phases where you need to work late and work flow isn't always constant enough to ensure that you can always work set hours on the types of work you want to be doing and are getting paid for

    • Do you have a passion for the services you intend to provide? If you're in it just for the money, you would be better getting a regular job that pays a good salary. If you have skills that are in demand and difficult to find, there's no reason why you shouldn't be able to secure a job with a salary that is significantly higher than the average programmer's salary

    • If you can work well under pressure, then you will cope with many scenarios you will encounter as a freelance programmer

    • Can you handle working overtime when everyone else is out enjoying the sun? Working in that company basement at the weekend on a hot day can be extra fun!

  • Do you have good business acumen?

    • By being a freelancer, you are in effect being your own business, hence the need to make good business decisions, develop good strategies, and know how to keep your services profitable. If you fail at any of these, you will get into difficulty that will cause you problems on both a professional and personal basis

  • Do you see the bigger picture or just the next step?

    • Being able to see the bigger picture of all aspects of the projects you are involved with is an important part of being successful in a freelance career, especially when it comes to programming. This isn't restricted to your technical skills, but also for how everyone else fits within projects, and management of political issues

  • How well can you communicate?

    • Success of a project will always depend on good communication. You need to be able to extract the right information from clients to get the job done efficiently and profitably, as well to do the 'right' job. You will also need to be able to adjust your communication style for different types of clients—see Chapter 7, Managing Clients

  • Can you be assertive if required?

    • Although not always required, it's important to know when and how to be assertive when required. It's not always good to be assertive with clients, but sometimes this is a requirement in situations where clients are taking advantage or pushing you into a situation that is unacceptable

  • Are you confident?

    • If you don't show confidence in yourself, then potential clients won't have enough confidence to hire you—and those who do will quickly lose confidence or look to take advantage

    • Being able to accept rejection and persevere without being demoralized is an important quality—especially in the early days when you don't have a strong enough portfolio to stand out from the competition. An ability to accept rejection and embrace criticism will allow you to adapt and persevere until you get hired; this is ultimately a numbers game, where you increase your chances of being hired with each project/contract application—using your response to previous feedback to further increase your chances

 

Defining your motivations


Knowing your motivations for freelancing will help you to focus on achieving your ambitions. The following are some of the reasons that have motivated people to get into freelance software development:

Boosting employability

Keeping in mind that the purpose of freelancing doesn't have to be a permanent arrangement, freelancing to boost your employability can be a smart move in times where the jobs market has more applicants per job and fewer jobs available. Graduates often suffer the most from this dilemma, as the jobs they seek demand a level of experience that isn't gained from the lecture theatre, which puts them at a disadvantage when they are competing against people who already have several years of experience.

Freelancing to boost employability isn't primarily about getting the best payment rate, but about strategically building your employability portfolio, so make sure to keep focused on only seeking and accepting the type of work that adds value to this—anything that doesn't fit this motivation will only increase the amount of time it takes you to get to the level of employability that you require. Elements of your employability portfolio you should be aiming to improve through freelance activities should include:

A list of people who would be happy to provide you with a reference:

  • People who are willing to recommend you to people they know

  • Hands on experience of skills specified in the job adverts you plan to apply for

  • An understanding of how businesses work

  • Useful information to use at interviews that demonstrates both your technical and business process awareness

Not to be confused with volunteering or contributing to open source projects, freelancing to boost employability should be specific about where your involvement and responsibilities start and end. The following are some suggestions on what you should make clear to your freelance clients:

  • Payment: Never work for free, as this risks you being perceived as free labor which can generate the perception of your time not having value

  • Rate: The rate you charge for your time is a signal to clients how much you perceive yourself to be worth; setting a rate that is too low can lead to a perception that you don't value your skills to be at the same standard as people who charge a higher rate—or that what you are providing isn't worth paying a premium for. At the same time, smaller businesses are not able to afford the same types of rates that bigger businesses can afford, hence you should research the standard rate for the market segment you are targeting; standard contractor rates in northern England are in the region of £300 per day for mid-weight PHP contract roles in established higher turnover organizations, but you may struggle to get half of this rate for projects with small start-ups, simply because they don't have the cash

  • Time: Specify the duration of your availability in terms of days and working times, as well as the duration of your project involvement. This avoids you getting involved in situations where clients are expecting you to provide support far beyond completion of the project and interrupting your other freelance projects or the job you eventually win

  • People: Be specific about who you want to be dealing with on the project. For the purpose of boosting your employability, you want to be gaining credibility with people who are influential and are well connected, hence being in the position where they can recommend you and provide you with leads. Additionally, you want to ensure that there are specific procedures on how and who contacts you with details relating to what you are being asked to produce; the last thing you want is for people with no authority asking you to develop features that aren't authorized by key decision makers in the client's organization, which could then reflect badly on you and affect your chances of being recommended

  • Tasks: Make it clear what you do and don't do. People often make assumptions about what your job role include, which can lead to clients becoming unhappy when they perceive that you have been lazy by missing out important parts of their requirement. An example of this is that a lot of people think that a web designer also does SEO (gaining high positions on Google), web development, database development, and everything else to do with websites—leading to situations where they complain that the website they have purchased isn't on page one of Google, where this wasn't part of their request. Regardless of who is right and wrong in this scenario, customer dissatisfaction will only result in you not being recommended and possibly causing negative word to spread about you, which goes against your motivation of boosting your employability. Avoid this by clearly stating what you do upfront, even if you believe that the client already knows—stating it to them, preferably also in writing for future reference, avoids any scope for confusion that is detrimental to your primary motivation

Learning new skills

Whether it's learning about organizing finances, negotiation, project management, or new software development skills, freelancing will open many opportunities for you to learn skills that you wouldn't learn in a regular job. In addition, freelancing often offers you the opportunities to learn the skills you want to learn, rather than the skills that your current employer wants you to.

Where learning is a significant motivation for freelancing, consider listing the types of skills and the reasons you wish you to learn and gain experience of them. This could be part of boosting employability, or to complement studies on a formal course, such as a degree. Whichever the reason for wanting to learned new skills, take some time to consider the order and timescales to invest in learning them so that the exercise of learning can be best applied to the purpose. For example, learning a set of skills in the wrong order for the purpose of improving results on a formal course would have little benefit if skills being learnt from freelancing were in the reverse order of the course, as early course subjects will be missed from freelance exercises and knowledge gained to be applied to later subjects in the course schedule could be forgotten.

Taking a break

The motivation to go freelance isn't always as serious as developing a career or a main source of income. Using freelancing to take a break from full time working provides a solution to the following concerns:

  • Employment gaps: When the time comes to go back to full time employment, having a gap of employment on your CV is something that can prevent you from being invited to interviews, as employers can see this as an indication of you needing to refresh your skills in order to become productive. Doing small amounts of freelance work during your break allows you to fill this employment gap with details of the type of projects you have been involved with, which may also benefit your employability due to increased exposure to complementary skills and knowledge gained

  • Network drain: The people you know are the most important asset you have—regardless of whether you are self-employed or employed, so it's important not to cut your connections and to be pro-active about making sure that people remember who you are and what you do. When it comes to getting back into full time employment, having people who can recommend you or who may be able to offer you a position can make the difference between having a significant advantage for getting your next role and simply not being invited to interviews. Additionally, working on freelance projects for an existing employer is a good way to keep options open to return to their employment after you've taken your break

  • Outdated skills: Areas of software development such as front end web development and games programming for consoles have a higher than usual demand for developers to be learning new techniques and to be aware of upcoming technologies. Taking a break of anything longer than a few months introduces the risk of making your skills outdated by the time you decide to return to employment, making it difficult for you to secure your next role. Freelancing during your career break ensures that you are at least aware of new developments and can gain exposure to them to keep your skill set relevant

Increasing financial security

Going into business of any type, whether it is freelance or otherwise, is always a risk that starts with financial insecurity. The financial security from freelancing occurs over time, as you become established with the right types of clients and income sources. The following are details of factors that can combine to make long term freelancing more financially secure—if you are successful and have the right business model:

  • Multiple income sources: Not being dependent on one employer means that if, for whatever reason, a client decides they no longer need your services, you still have the ability to generate income from other clients you deliver your services to. For this to work out, you need to make sure to have:

    • The right type of clients—focus on clients who have the type of turnover (money going into their business) to be able to invest worthwhile amounts into the services you provide; building a business around lots of clients who spend small amounts is both more time consuming and higher risk

    • Trust and reputation—people who spend large amounts are often motivated by buying into convenience in the sense of buying into someone they can trust to get the job done properly and not to cause unnecessary trouble

  • Asset ownership: Developing assets that you own provides you with a significant advantage if you develop something of commercial value, as this provides the option to generate passive income or to sell the asset for a significant amount that would more than justify the amount of time and resources you have invested into it's creation:

    • A major difference between the work you produce freelance and the work you produce under employment is ownership. Obviously, the work you create under an employer's working hours is classed as their property, but it may also be a surprise to find that an employer can own work produced by an employee outside of regular working hours if it is deemed to be within the scope of their employment—that is, if you are hired as a software developer, then software developed outside of their working hours can also be defined as within scope of their employment. This can lead to significant issues should you create something of significant commercial value in your own time while under the employment of someone else

    • Most freelance projects in which you are developing tailored code to the project will have a clause in the contract to state the work you are being paid for is owned by whoever is hiring you—this is fine and to be expected, but make sure that ownership is only limited to what they are paying you to write; that is, make sure that there is no scope for clients to claim ownership of code components written outside of their project, regardless of whether it is used in their project or not

  • Passive income: This type of income occurs where you invest little or no time for it to be generated, and is often as a result of the creation of an asset you have created. An example of passive income is royalties from phone apps; once you have developed the right app for which there is a demand and which supports a revenue-generating business model, the app will generate regular income once it is marketed correctly to persuade people to buy/use the app. Jake Birket is an example of a programmer who set up as indie developer Grey Alien Games (http://www.greyaliengames.com/) and makes a passive income by developing games that he sells through his website and online gaming portals such as Valve's Steam. Once Jake has created his games, he is not limited to how much money he can make, providing that his marketing is able to reach the types of people who want to play his games—and most importantly, pay for them

  • Knowledge: Knowing your financial situation is an issue relevant to everyone, regardless of whether they are employed or self-employed. The advantage of self-employment in this respect is that you have full access to your financials in order to know what you can pay yourself, and of any potential financial issues that could occur. Although being in employment offers you legal protection through employment rights that are not automatically given to self-employed people, circumstances can occur in which an employer who otherwise seemed to be in good financial health goes bankrupt, leaving their employees without pay and looking for new work—something you should be protected against to a degree as a freelancer by being aware of your own finances and not being solely dependent on one source of income, like regular employees usually are

While not being initially the most secure option, with jobs no longer being for life and not necessarily offering you a share of the success your work generates for them, freelancing poses some advantages not offered by employed work—and a greater degree of security if you succeed in becoming fully established; although it should be noted that depending on freelancing as a career isn't for the faint hearted.

Generating a side income

Using freelancing as an activity to earn some money as an activity outside of full time work commitments is a good way to raise money to make purchases such as holidays and hobby interests, or even as a way to increase your savings. Without the pressure of making sure that enough money is being earned from work activities to pay the bills, freelancing to generate a side income allows you to take a much more relaxed approach to how you work and therefore provides more flexibility on which work you accept.

In addition to producing code for other people/businesses, there is the option of creating your own product. This angle has more risk due to not having any guaranteed payment and relying on having the right product features to convince people to make the purchase, but as a side income, this method doesn't risk financial problems and can earn a significant amount if it pays off.

Case study: New Star Soccer

New Star Soccer, created by Simon Read is an example of an independently developed app that achieved commercial success and even beat FIFA 13 and other high profile sports games to win a BAFTA award. The financial success of the mobile game for Android and iOS (iPad and iPhone) peaked at sales generating £7,000 in just one day, and regularly earning £1,000 per day after its release—you do the math to identify how much the game earned.

Not all was plain sailing with the game's development, which had been through several versions until it achieved major success with the breakthrough mobile version. The first version of New Star Soccer was created as a side project to Simon's day job working in IT support and earned him a few hundred pounds per month in sales, which is great to have as a supplementary income to a regular salary and emphasizes the flexibility offered by starting your self-employment on a part-time basis.

Within three years of developing the game as a side project, New Star Soccer 3 was able to generate an average income between £2,000 and £3,000 per month. The sales statistics at this point were enough to convince Simon that taking redundancy from his full time job to concentrate on his game project full time was now viable financially, and resulted in him making his side business full-time. With the project now being Simon's sole income for him and his wife, working on the project was now more serious and not just a hobby that happened to make some income—with the need to make sure that income continued to come in so that bills could be paid and food was on the table, Simon had to work 12 hour days at the expense of a social life. Despite the minor sacrifices for making the project a full-time business, Simon enjoyed a successful first year with continued sales of his game and his wife helping with the admin side.

Although the project had been successful, problems started to hit after Simon was given a £17,000 tax bill for the sales generated by New Star Soccer 3, as well as poor sales of versions 4 and 5 of New Star Soccer and an unsuccessful experiment to launch several separate games outside of the football theme; namely New Star Grand Prix and New Star Tennis. Simon's saving grace was the inclusion of his game Super Laser Race in a game bundle distributed by Valve's Steam game portal; this alone generated £14,000 in just one week and allowed Simon to pay off his debts.

Serious success in Simon's game business didn't return until the release of the mobile version of his New Star Soccer series, which has regularly generated income of £1,000 per day and as much as £7,000.

Several lessons can be learned from the case study of New Star Soccer:

  • Starting a project part-time allows for experimentation to identify where niche demand exists for software products at minimum financial risk to yourself

  • Income generation from developing software products requires time to grow, so don't quit too early

  • Software projects become a lot more serious when you make them into a full time job, so be prepared to commit serious time, potentially at the expense of a social life in the early days

  • Software products need time to mature inline with what users are willing to pay for, hence the first release is unlikely to be the one that everyone wants. Make sure to adapt your software product in response to real user feedback—not just on your own belief

  • Making the wrong software product is costly, if not financially disastrous. Make sure to perform market research to identify what there is a demand for before you even start the design process, never mind writing the code

  • Successful sales will never be constant, so make sure you keep savings to accommodate dips in sales and unsuccessful product launches

  • Tax is one of the only things in life that can be guaranteed, so make sure you set aside money you make from your software product sales to cover tax bills at the end of the year

  • Selling software in volume is the key to making significant income. Make sure to have your software available on portals and software stores that your target customers will be looking on to make purchases

Freedom

Freedom comes in many forms, and with being self-employed as a freelancer, the ability to choose the types of projects you work on that fit the lifestyle you want can be one of them. The following are some of the factors that dictate the level of freedom you have on projects:

  • Working times: Projects that don't require you to work on-site often allow you to choose your own working times, which can be useful for managing your work around life commitments such as family. Flexible working times are also important for being able to manage multiple projects, making sure that you aren't dependent on only one source of income

  • Projects: With the flexibility to pick and choose who you work for and what on, you have control over what work you get involved with. If a project or client sounds like too much trouble, you have the ability to turn down the work in order to look for something that's likely to be less hassle. Additionally, there are also your own projects that you may want to develop for sale, which an employer may not be want you to create under their employment; using freelancing to support this project, you can take full control over what you develop

  • Implementation: Depending on the type of projects you are involved with, there is often a level of freedom for you to decide how to implement what you are being hired to create. This could be in terms of the programming languages you use, frameworks or programming patterns. For your own projects, you also have the freedom of deciding which features are to be developed as part of the product

Note

With such levels of freedom, it's easy to become undisciplined to a point that affects your work performance. Where you have freedom to choose when you start work, it's important to make sure that the work gets done, so if you start work late, you must have the discipline to make up the time and even work extra hours where required. Where you have freedom on how to implement a project, you also need to be disciplined to make sure that the code you develop is maintainable and is a good setup for the client—not necessarily what best suits you.

Alternative to unemployment

Facing unemployment is a prospect that most people would want to avoid. For those who are already unemployed and are struggling to get back into work for whatever reason, freelance software development has several benefits:

  • Finances: It's not difficult to secure an amount of work paying more than what the state may pay to support unemployment. With software development being a specialist skill that's in demand, securing a rate for your work that's at least double minimum wage isn't difficult—even if you have much to learn about software development. At the time of writing, typical UK freelance programmer rates start at roughly £15 per hour and rise up to £40 per hour for more experienced and established software developers

  • Employability: As mentioned already, freelancing may not be the permanent goal, but it adds value to your work history and CV by providing you with hands on experience that you can both write and talk about, allowing you to appear more convincing to potential employers

  • Reputation: Making contacts through your freelance activities is a useful asset to securing future work, whether it be employed or on a freelance basis. If you are good at what you do and are able to impress people with what you create, people will naturally recommend you to people, which opens opportunities for more paid work

Fun

All reasons given until this point has focused on the serious aspects relating to career and financial issues, but don't forget that work should be enjoyable. Work that pays a lot is desirable, but no work is worth being involved with if it has a detrimental effect on your life, health, and/or family.

Programming isn't the type of work people can stick with if it's not something that interests them enough to keep motivated when needing to solve tough problems, never mind tough clients. Make sure to choose freelance working for the right reasons—that is the types of projects and clients that don't turn out to be a nightmare and of which you would be proud to have as part of your portfolio.

  • Motivation: Enjoying the work you do is a way to improve the quality of service you deliver to your clients, which therefore increases opportunities for recommendations that lead to more freelance and employment opportunities

  • Engagement: Taking an interest in the work you do will allow you to identify how the software you create can be further improved beyond the initial specification. For client based projects, this can be used as an advantage to sell additional features of interest upon completion of the initial project. If you are developing your own software product, your engagement with the project can be used to identify additional features that may help to increase sales or open new opportunities to evolve your business model

 

Don't quit the day job


As tempting as it may be, it wouldn't be wise to quit your day job to go freelance full time until you have both tested the market and built relationships with a network of good quality clients and suppliers. Even if you land a project that will set you up financially for a few months, there is no security to ensure that there will be enough work to keep you going after the project ends, or even that the project will not run into some type of complication that will jeopardize what and when you are paid.

Being successful in a company employing you as a programmer and being successful as a freelance programmer are two different things that you will quickly learn as you work on freelance projects. If your background is working in agencies who provide services to their own clients, you will already be aware of how there is a need to strategically develop your code to manage on-going change requests, which is something that may be alien to you if you have only worked in organizations who are highly organized and/or have little changing requirements relating to the code you have developed for them. Using your time to experiment with freelancing will allow you to gain an insight to the situations you will encounter on freelance projects and so allow you to learn to strategically design your code for better flexibility that can handle changing specifications—especially for projects where the budget is fixed and the client has unrealistic delivery time expectations.

Instead of seeing your freelance career as an alternative to your day job, start it as an experimental hobby that complements your financial income. The hobby itself should contain both the business and technical skill elements that you want to eventually turn into a full time career. This method allows you to experiment in a way that jumping into freelancing head first wouldn't allow you to - by allowing you the flexibility to make mistakes and build your business model around your experiences. If you are good with both the business and technical aspects of what you wish to turn into a freelance career, you will be able to identify, develop, and refine aspects of your service to appeal to segments of the market that fit the types of ambitions for the projects you wish to work on. It's through this experimentation that you can closely integrate your marketing activities to build a brand and reputation that will enable you to build a stream of work from recommendations resulting from your experimentation—something that you would otherwise not have been in a position to do by jumping head first into full time freelancing.

 

Legal entities


There are several legal entities that you can choose to run your business under, each having their own advantages and disadvantages. The following are brief descriptions of what they are and who they may be more suitable to.

Sole trader

The most simple of legal business entities, being a sole trader means less paperwork and less hassle, with the advantage of providing you with more time to invest in the work that makes you money. As a sole trader, your only responsibilities regarding tax are to register with HMRC within three months of starting to trade and to complete a tax return each year.

As a sole trader, you pay your tax at the end of each year, unlike working as an employee where you pay tax each time you receive payment from your employer. There is also some leverage given by the tax man, as you are given from 6th April to 31st January to make your payment. This is beneficial for those who plan in advance, but can cause a bit of a problem for those who leave everything to the last minute, if there is a cash flow problem.

Partnership

Partnerships are a great way to combine the skills and assets of multiple people from different backgrounds to enable higher chances of success for a business. An example of this would be someone who has a good background in marketing and business management working with someone who has good technical expertise—allowing them to create a superior product that has the backing of a well-executed marketing strategy and business structure, of which the business wouldn't have succeeded without the contribution of both parties. Good examples of partnership successes have included Steve Jobs (the business brains) and Steve Wozniak (the technical brains) who founded Apple, while Sergey Brin and Larry Page co-founded Google.

Although there are many advantages to setting up a business through a partnership, there are also several major disadvantages:

  • Success requires both parties to contribute their share to the partnership. Many partnerships fail because one or more parties take advantage of the other(s) by not investing the effort that is expected of them

  • Opportunities can be missed when a decision or authorization is required by a partner who isn't available or contactable—unlike a sole trader, who makes decisions and reacts straight away

  • Disagreements and disputes between business partners can be damaging to the business and in the worst case scenarios can lead to their destruction

To avoid such problems, planning and precautions should be put into place that protect the interests of all involved:

  • Creation of a formal contract between all partners that details all terms of the partnership, including percentage of ownership, delegation of responsibilities and the procedure for termination of the partnership

  • Monitoring of the partnership activities to ensure that all members are fulfilling their obligations

  • A set procedure for decision making that identifies who has authority to make decisions for different types of situations and ensuring that all parties are contactable as much as realistically possible

Limited company

Unlike setting up as a sole trader or partnership, trading as a limited company requires much more effort to set up and trade—as all accounts need to be recorded in a specific format and submitted to Companies House for their approval. In short, setting up as a limited company results in much more paperwork which results in more distractions from your core business activities and higher admin/accountancy fees.

There are, however, several advantages to setting up limited company:

  • The business becomes a separate entity from yourself, meaning that any debts are owned by the business. Should the business run into financial difficulties, any debts are separate to yourself—meaning that you wont be forced to sell assets like your house to settle the business debts. Keep in mind that company directors can still be held responsible for company debts should they be proven to have allowed the company to continue trading while insolvent, or for any personal guarantees given

  • There are certain tax advantages to benefit from being a registered company once your profits reach a certain level. Your accountant will be able to advise you on this

 

Home or away?


When setting up as a freelancer, one of the first decisions you will make will be on where you deliver your services. Sometimes the nature of your work will dictate this automatically—as an example, if you will be relying mainly on agency placements, then you will be working at the office of the agency's client. Other than these few exceptions, you will need to decide whether it is best to work from home or a dedicated place of work.

The home office

Working from home certainly provides a range of advantages in convenience for the self-disciplined, but can also prove to be a detriment to productivity for those who are easily distracted by temptations.

Advantages

There are certainly some useful financial and lifestyle advantages in choosing to work from home:

  • No travel—saves time and expenses:

    • Without travel, you can start work earlier or catch up on more sleep should you wish. No travel also means that you eliminate wasted time associated with heavy traffic and cancelled trains, as well as saving your personal expenses of getting to work. This is also handy when you end up working late, meaning that you can avoid the additional hassle of traveling home

  • Save on rent:

    • By working from home, you avoid spending on additional rent, which is something that comes in handy when money is tight—especially when you are first starting out as a freelancer

  • Tax savings:

    • If you are working from home, you can claim a proportion of your costs on expenses such as home insurance, heating, lighting, water rates, council tax and general maintenance as a business expense so that the amount of tax you pay is lower

  • Work in your pajamas:

    • If you're feeling lazy or feel more comfortable working in your pajamas, then this is certainly a benefit to have

Disadvantages

Although there are a number of desirable advantages, working from home also has a few disadvantages that will affect your productivity and strategic capabilities:

  • Many interruptions:

    • Whether it's family, neighbors, pets, or friends, disruptions can ruin your productivity—especially when you are 'in the zone' when working on more intensive work requirements. It's said that such disruptions can take you up to 25 minutes to regain your mode of thought and productivity

  • No physical location barrier to separate work and personal life:

    • For people who like routine, what is considered to be home will become blurred as work. This is especially a disadvantage when under pressure at work with 'home' distractions making it harder to get into work mode, while also the opposite being true when trying to switch off from thinking of work during out of hours time

  • No collaboration environment:

    • If you are working with other professionals on a regular basis, the home isn't usually a great place to foster collaboration activities

    • Lack of contact with other people can contribute to negative psychological effects, resulting in decreased morale and productivity

  • Likelihood of having to give clients your home address:

    • On the whole, this shouldn't be a problem—and being an 'ethical' freelancer means that client's shouldn't have to be hunting you down. However, there are some clients who are unrealistic on their working relationships with you—sometimes going as far as to pressure you into working unrealistic hours by suggesting that they come and work with you on a Saturday morning or during the night. It's in these situations where having a real working address can avoid certain situations—what would you do if you client turned up at your house at 10am on a Saturday morning to insist that you work on their last minute requirements?

  • Temptation to not work and do something social instead—like watch TV

    • At least in a separate working environment you can ensure that there are no distractions like your TV and gaming console. At home, you have access to all of your entertainment—will this pose a risk of being a distraction from doing real work perhaps?

The real office

For many people, it's certainly useful to have a separate workplace than home, but what expense does having a dedicated office for your work have?

Advantages

The main advantages of having a real office for your business activities revolve around improving your productivity. As a freelancer, the faster you turn out your work, the more you can earn in the time you have available for work.

  • Work-hour structure can help you keep focused—that is, traveling to work like a regular job:

    • Working away from home avoids the possibility for you to get too comfortable working at home and to ensure that you have the same routines as you would have with a regular job where you travel to work for set times. This is good for people who are less disciplined in their time management, as having a regular work structure helps to ensure that work actually gets done rather than having work productivity suffer from home distractions and putting work off until later

  • More likely to be viewed by clients as a professional:

    • Although in reality an office is no reflection of your technical competency, in most cases having an office to invite clients to meet you will provide them with more confidence that you are a real business that they can depend upon. This is especially true for small and startup businesses who have no technical knowledge in the areas that they are hiring you to help them with

  • Separate your home from your work more easily:

    • Some people will find that living both a work and social life in the same environment difficult to live with—that is, where does work start and end? A real office gives a psychological boundary to ensure your work and social lives don't merge into one. In this case, the saying never mix business with pleasure has never been so true!

  • More convenient if you are hiring people to work with you or if you are working in a partnership:

    • For most, it will feel less comfortable to have employees and business partners working from their home. With an office, you can have others working in a real work environment to ensure that there are no home distractions and have a common workplace that fosters creativity and collaboration

Disadvantages

Having a dedicated office for your work will certainly push up your expenses and rule out some of the savings you could make by working from home. If you are the type of person who is disciplined enough not to get sidetracked by home distractions or simply don't have a big budget to begin with, using an office may be something would want to consider at a later date—if at all.

  • Rent can be expensive

    • Certainly, during the early days of setting up as self-employed, every penny counts. Whatever you spend on office rent is money that you can't spend on other aspects of your business that will lead to success and your ability to make a profit. Can you afford to rent an office?

  • Additional costs such as business rates and insurance not covered by your home insurance:

    • At least when working from home, some of your home insurance and council tax that you would otherwise be paying can be recovered

  • Can get lonely if it's just you in the office, but not the case if you work with other people

  • Requirement to invest in furniture:

    • Having an office is all very nice, but it will only be of any value when it is properly furnished. In addition to the other associated costs such as business rates, insurance, and rent, you will also have to invest in office furniture, meaning more money that is taken away from aspects like marketing that are critical to your success

Renting desk space

For those who find it difficult to be productive from home and can't afford or want to spend on the extra expenses of renting an office, there's the option of renting some desk space from an established company or a business incubator unit. This option provides a happy medium where you get all of the advantages of having an office to work from, but at a fraction of the rental cost. You also benefit from not having to directly pay many of the expenses associated with setting up your own office such as furniture, heating, lighting, and business rates, because these will be covered by the desk rent.

Co-working spaces

A new type of desk renting is referred to as co-working, where freelancers and small business owners are able to purchase desks to work from on a day to day basis. This is a step down from renting desk space, which is a more permanent arrangement and has cost saving advantages if you only need to use the desk for a couple of days per week. There are also some events arranged as co-working days where different freelancers attend to work—although these often tend to be about an opportunity to network with other freelancers and less about doing work, so don't expect to be highly productive if you attend these events.

Cafes

A popular option for many freelancers in all fields, especially freelance writers, is to work from a cafe. This has become a lot more popular since the emergence of mobile computing and with most cafes now offering free wifi Internet access. The combination of these factors means that many freelancers only need to have a laptop to access everything they need to work from an environment that separates them from the distractions of home—or even the office!

Cafes provide an ideal place to get work done, with their environments not being too noisy and the ability to access refreshments when wanted. Their open space also provide good locations to hold meetings, whether this be with clients or people your collaborate with.

Without being tied to working from a single location, you have the advantage of being able to choose different cafes to work from—whether this be through choice or convenience. Although you will be paying for your refreshments, it is likely that any costs will be lower per month than any of the other options while still providing most of the advantages.

 

Summary


There is no individual way to run your self-employment business. Some people may start freelancing as a part-time project that grows to a full-time occupation, some may keep their activities as a part-time activity motivated by the lack of dependency to generate a full salary, whilst other people may jump head first into launching their venture as a full-time operation. The only factors to say which method is right are the business environment and your personal circumstances. It is also these circumstances that influence how you run your business activities that are likely to define what you consider as success—a student making £1,000 per month would be considered highly successful in most cases, whereas the same sales statistics were considered disastrous when this was achieved in the release of Simon Read's New Star Soccer 4.

Almost as important as how you decide to run your business, and most likely to be highly influential in this, is the legal formation you use. The most simple structure being a sole trader, which has significant advantages in reduced admin requirements, but also leaves you personally exposed guaranteeing all debts incurred by your business activities when things don't go to plan. Partnerships provide advantages for shared responsibility and potential access to a wider range of skills that can significantly increase the success of the business, but just one bad partner can introduce problems and expenses that undermine the contributions of everyone else. Limited companies provide an amount of legal protection and the ability to raise money by selling parts of the business to investors, but also come with much more red tape requirements.

There is no need to hire expensive office space when you are able to work from home, especially when you are starting up when any money you have will be better spent on marketing and other activities used to make and complete sales delivery. For those who find it difficult to work from home due to distractions, desk space or co-working offices are an option to have a formal place of work without the full costs of a dedicated office.

About the Author

  • Leon Brown

    Leon Brown is a software developer and trainer from Liverpool in England. His mantra is that he practices what he preaches and preaches what he practices. With over 20 years of experience in software development, Leon has developed software for legacy and modern platforms ranging from the Amstrad CPC, ZX Spectrum, and Amiga through to the Web and smartphones.

    Leon has a diverse range of commercial experience, including the delivery of Internet systems and training for household names, including UNICEF, the NHS, SAGE, and The University of Manchester to projects for small businesses, start-ups, and charities. His experience of working with such a diverse range of organizations has allowed him to understand how to approach the different types of situations affecting software development projects. His projects ranged from the creation of websites and apps to CRM and the use of AI for reporting and decision-making.

    Leon regularly writes for web industry magazine Web Designer from Imagine Publishing, in which he has written feature articles and tutorials covering web development. His most notable articles for the magazine provided detailed insight into securing websites against common methods of hacking, such as session hijacking and SQL injection. These articles gained highly positive feedback from the magazine's readers in the following issues.

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Latest Reviews

(3 reviews total)
This book is very interesting
Good book with good knowledge.
Excellent book not only for freelancer but for small company too

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