Even if you call yourself a freelancer, you are operating a business. That means you’ll need to make some decisions about what type of entity you want to be and how you’ll be paying your taxes. A meeting with an accountant early on could help you get started on the right foot.
My copywriting business is set up as an LLC (limited liability corporation) taxed like an S-corp, per the recommendation of my accountant. This particular form of corporation helps limit my personal liability for business debts.
With an LLC, only the assets owned in the name of the LLC are subject to the claims of business creditors, including lawsuits against the business. I also receive some tax advantages with this type of organization.
But don’t assume that what I do is what you should do. Every person’s financial situation is different, and state laws and registration fees can differ as well.
An LLC is only one of several ways to organize a business. Other possibilities include sole proprietorship, general partnership, limited partnership and corporation. You’ll want to speak with an accountant to determine what designation is right for your business.
An accountant can also advise you regarding sales tax. It’s a bit of a gray area for copywriters and has to do with whether your state sees the copywriting you produce as a product or service. The former usually requires you to pay a sales tax while the latter does not. For what it’s worth, most copywriters I know don’t charge their clients sales tax.
Like any business, I track my costs and my revenue and hope that the latter is greater than the former. I pay quarterly taxes on my revenue in accordance with U.S. tax code.
I track all jobs in progress and billings on various spreadsheets. At any moment, I can get a snapshot of my workload, how my business is doing, who owes me money, what I will need to pay in taxes for the quarter, etc.
The systems I’ve set up help me to ensure nothing falls through the cracks and also provide me with the data to make good decisions for my business.
Scope creep – A client has you quote a job but midway the parameters start to change. You may have quoted writing two web pages and suddenly the client needs four. Before doing the additional work, explain to the client that it exceeds the work quoted and the additional cost will be X. Proceed?
Project cancellation – Sometimes you do all the work on a project and then the client decides not to use it for whatever reason. I’ve had this happen a number of times.
Once the client was selling a vitamin supplement and didn’t get the FDA approval it was counting on and therefore couldn’t bring his product to market.
Another time I wrote copy for a client that suddenly was going to be merging with another company, which would make everything I’d written obsolete. If the work is done, the client still owes you. If the work is partially done, the client owes you a partial fee.
Finally, one time I wrote copy for a woman who owned a fitness equipment company. I was waiting for her final approval when she suddenly become non-responsive.
After a few weeks I’d learned she’d had a stroke and her adult children were caring for her and the business best that they could. They were struggling and had no intention of proceeding with the project I’d done. I was fortunate to have received a deposit of 50%. The balance was a loss, which I didn’t pursue because of the sad circumstances.
Time management – Track your hours working on a project even if you’re not charging the client an hourly rate. Why? It helps you to gage how long a project takes so you can monitor your profitability.
You may be surprised at how many extra hours a job ends up taking. In that case, learn from your mistake and quote similar projects in the future at a higher price.
Track accounts receivable – Sorry to say that not every client pays just because you send an invoice. Often, you have to give the client a friendly reminder. This happens for a number of reasons.
Sometimes the client just doesn’t want to part with their money until they’re pressured. Other times, they’re experiencing a cash flow problem and therefore dragging out their payment. And sometimes a client makes an honest mistake.
Maybe you emailed your invoice, and they saw it when they were away from their desk. They then forgot about it; it’s that selective memory thing. So keep track of what monies you’re owed. That’s part of running a successful business.
Pay quarterly taxes – I mentioned this briefly before but it bears repeating. You’ll need to understand how and when you pay taxes if you’re self-employed.
The U.S. government is not going to wait for you to settle up at the end of the year. They’ll penalize you, and it won’t be cheap. Instead, you’ll need to pay quarterly taxes meant to cover Social Security, Medicare and your income tax.
When talking with a prospective client for your copywriting business, keep your eyes open for signs that the client may be problematic such as:
Very carefully. Because a freelancer’s business can easily fluctuate from feast to famine, I make sure to live beneath my means. I’ve always been a saver, planning for that rainy day. I avoid taking on monthly overhead and unnecessary debt. As a career-long entrepreneur, I am conservative in my spending habits.
It helps that I work out of my home (no office rent) and hire freelancers myself when I have more work than I can do, as opposed to hiring employees.
When times are good, I save, so that when times are bad, I don’t freak out and do something crazy – like get a 9-5 job with an employer.
My freedom is too important to me. I value it way more than driving an expensive car or owning fancy jewelry. I’m not into “stuff.” Keeping up with others in terms of material things is never my goal.
I make a good living, I enjoy my work. I have time to spend with my family. I love my life. There’s nothing wrong with being satisfied with what you have and being fiscally responsible.
Yes, definitely. You need to be comfortable living with uncertainty. Unlike working for an employer, there’s no guarantee you’ll get a paycheck at the end of the week.
If your sales efforts lag, so will your income. If your clients are late in paying their bills, you may have to do some juggling in order to pay your bills. You’ll likely have good months and bad months; get used to it.
There’s also no such thing as paid vacation days. If you’re not working, you’re probably not earning. One way to get around this is to find ways to set up some passive revenue streams, such as creating ebooks or courses you can sell or becoming an affiliate marketer to sell other people’s products to your customers.
You should know too, if you’re not saving for your retirement, you’d better plan on working until the day you die because there’s no 401K with employer match. Saving is all up to you. You’ve got to be smart about it and start early.
I do, and it costs me a fortune. The biggest downside to self-employment isn’t the uncertainty or having to fund my own retirement. I’m cool with all that. The real challenge is paying for health insurance. I see it as the biggest obstacle to becoming a full-time, freelance copywriter. And it’s actually a huge obstacle for other entrepreneurs as well.
Health insurance is ungodly expensive and the coverage isn’t good if you’re self-employed. As you leave your 20s behind, the monthly premium is likely to be on par with your monthly rent or home mortgage payment. And that’s if you’re healthy!
Also, if you have children, you need to make sure you have coverage for them. And even if you have coverage, you may still need to pay for all doctor visits and prescriptions until you meet your deductible, which can be in the neighborhood of $8,000 per year, per person in your family. Crazy, right?
The ideal situation if you are a freelancer is if your spouse is employed in a full-time position. Look into buying health insurance through his or her employer. The costs will be far less and the benefits far better.
Unfortunately, here in the U.S. the healthcare cards are unfairly stacked against the self-employed. Be sure to give this point careful consideration and do your research before you quit your job, especially if your health, or the health of someone in your immediate family, isn’t good.
I am constantly learning about new products, new industries, new marketing strategies, etc. I’m fascinated by all the different ways people and businesses make money.
I love working for myself. The few companies I worked for in the early days of my career were owned by truly awful people. I could tell you stories. I realize that not every employer is bad, and maybe a psychiatrist would say I have a problem with authority, but I much prefer self-employment.
As far as copywriting, I’m enamored with the idea of creating something from nothing. And, when done, that something I’ve created is now a useful, tangible object that will serve a purpose: to sell my client’s product.
The other aspect of being a freelance copywriter that appeals to me is the tremendous feeling of accomplishment when I successfully complete a writing project, especially if it was particularly challenging.
Writing is hard, even for experienced professionals. Someone much more clever than me once said, “I hate writing, but I love having written.” I thought that was right on point.
The financial aspects are my least favorite part of my business. It’s not that I don’t like money. Who doesn’t, right? It’s that even after so many years in business, I still feel apprehensive when quoting projects, as though I expect the client to ask me to justify my price. That sometimes leads me to undervalue my services.
My husband often reminds me, “You’re not asking someone for a favor. You’re running a business and providing a quality service so don’t feel apologetic when you quote and bill for your work.”
He’s right, too. If you sound hesitant when giving your prices, the client will sense your discomfort and be more likely to ask, “Can you do any better on price?” Much better to say, “My rate is x,” as though that’s the price that’s been set, and it’s non-negotiable.
I’m sure I’m not the only freelance copywriter who feels that way. Over the years, I’ve gotten much better about it, but there’s still room for improvement.
One of my goals was to land a large client with ongoing work. I wanted a bread-and- butter client that assured me the ability to pay my bills but allowed me to maintain my independence. For a long time I had many clients who were repeat customers, but none that had a sizable budget and monthly, or perhaps weekly, needs.
About four years ago, I did find that client. They send me steady work, and it’s varied, as they have lots of different products and departments. The projects are varied as well — web pages, case studies, brochures, sales sheets and email campaigns. I spend zero time doing any selling, which means I’m wholly focused on copywriting and able to maximize my revenue.
They take up anywhere from 10-30 hours per week and pay me well, although I’m not eligible for health insurance or any other benefits from them. And while I work with them frequently, I’m still independent. I set my own hours and schedule. I work out of my own office (in my home). All meetings are via Zoom or conference call.
As long as I get the job done they’re happy. And so am I. I fill in with other types of clients to have the variety that keeps me engaged and learning about other businesses.
Unfortunately, no matter how awesome you are as a copywriter, you’re bound to eventually run into some clients who don’t love your work. Learn how to deal with that situation in the next post in this series, Handling Rejection as a Copywriter.