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Freelancer's Business Start-Up Kit


Editor's note: This article refers to several aspects of U.S. tax and business law. While the principles discussed below will apply to freelance science writers almost everywhere, we encourage readers from outside the United States to check their own tax and business codes for specific guidance. Likewise, this article is only a guide to help you get started. It is NOT a substitute for professional accounting or legal advice.

Going into business as a freelance writer means that you need to follow some simple rules to protect yourself as a freelancer, and become as much of a businessperson as a writer. Among many other things you need to market your services, collect on your invoices, keep your finances in order, and pay your bills just like any other business. Below are a few tips to get your business off to a good start.


First of all, you need to start thinking of yourself as an enterprise and of your writing as a business. One of the most important functions of any enterprise is generating business, and for most small businesses it means having one-on-one interactions with prospects. To put it bluntly, if you feel uncomfortable marketing your services this way among strangers, then you should consider some other way of making a living. Business will not come to you; you have to go out and make it rain.

The generic term for this kind of interaction is networking. There is nothing magical about networking; it requires that you get your name, face, and skills in front of potential clients. If, for example, you want to write technical documentation, you will want to get involved with groups or meetings of equipment manufacturers or software developers. Or if you plan to write promotional literature for drug companies, you should join with or go to meetings of pharmaceutical industry organizations. Marketing your skills with newspapers and magazines is more challenging, but if you have the opportunity to meet with editors (for example, at professional meetings), by all means take it. Don't even think of networking without business cards. You can get them at any local printer or stationary store.

You can augment your personal networking with a subscription to Linked-In, an online service that captures your personal contacts, and with the permission of your contacts also on Linked-In, lets you plug into their networks. And you should set up a Web site for your company, where you can refer prospective clients for more information. Web hosting services, for small sites, can run as low as a few dollars a month. Be wary of so-called free Web sites that require you to run ads on your Web pages. They detract from the image of professionalism that you are trying to build.

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Freelance writing contracts

Film mogul Samuel Goldwyn once said, "A verbal contract isn't worth the paper it is written on," and that describes exactly why writers and publishers should have a written agreement before any work is undertaken. The freelance writer's contract protects both the writer and the publisher. The contract should identify the parties, describe the relationship between the parties (i.e., the writer is hired only to perform a specific job), define the work to be undertaken, spell out compensation (including reimbursement for expenses), and give deadlines for delivery. Many contracts also include a cancellation clause, which is important to publishers in case events may delay or even overtake the work requested by the freelancer. Cancellation clauses may sometimes include a "kill fee", a nominal amount paid to the freelancer to compensate for time already invested in the job.

Freelance writing contracts will often spell out the rights to the content (or copyrights) accorded to the publisher and the writer. This is often a contentious and complex issue, particularly with so many more publishing outlets now available over the Web. The publisher may claim the rights to the content for a period of time preventing the writer from republishing the content elsewhere during that period. The contract may include requirements for the writer to keep all notes and recordings for a specified period of time, in case any questions arise about the source of the content.

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Getting paid

In a perfect world, freelance writers and other small businesses would get paid quickly for delivering their services. In the real world, small businesses often spend a good bit of time collecting on receivables, but there are steps you can take to at least clear away obstacles to a timely payment. When discussing work with a new client, ask for the procedures for submitting invoices. Make sure you get the details on where you should send the invoice, the normal turnaround time for payment, and if the company needs a W-9 form that verifies your tax ID number (for the U.S.).

The invoice is the key document requesting payment for services rendered, and it is the reference document that finance offices use to generate payments. The invoice should give:

  • The name of your company,

  • Mailing address,

  • Tax ID number (EIN or SSN),

  • Telephone number and e-mail address in case the client's finance office has questions

  • A specific reference authorizing the work, such as a contract or letter agreement

  • A description of the work -- If it is an article that appears in print, give the article title, publication name and issue, date of publication, and page number. If it is an online article, give its URL instead of page number.

  • If the contract calls for payment on acceptance, be sure to get acceptance of the manuscript in writing, and cite the acceptance document in the invoice.

Keep business finances separate

Even if you write freelance articles only on occasion, you need to keep clear and unambiguous records of income and expenses of your business, keeping business functions separate from personal or family activities. This will make it easier to tell how your business is doing financially, and to prepare your annual income tax returns.

First, you should establish a separate business enterprise for your freelance writing. A sole proprietorship is the most common type of business established by freelancers, at least in the beginning. As a sole-proprietor company, you can get an employer identification number or EIN from the Internal Revenue Service (for the U.S). The EIN is a tax identification number and it works with tax records much like your personal Social Security Number (SSN).

One thing to bear in mind, however, is that a sole proprietorship has no legal standing separate from the individual. As a result, if your business gets into a dispute for any reason, your personal assets can be targeted in the settlement. The solution is to form a corporation. Another reason you might want to consider a corporation, or even partnership, is if you decide to expand or diversify your business -- to employ other freelancers for example -- sole proprietorships may find it difficult to attract financing.

Another way to keep business separate from family finances is open a separate bank account for your company. Most business bank accounts have either lower interest rates or are non-interest bearing, and banks will often charge higher fees for services -- like electronic bill paying -- that are provided free in their consumer accounts. As your business begins to accumulate cash, you should open an interest-bearing account like a money market account or a short-term certificate of deposit in which to deposit idle funds.

If you can qualify for another credit card, get one specifically for business purchases, which makes it easier to pay for business expenses out of your business bank account. Otherwise, you will spend a lot of your valuable time parsing your monthly credit-card bills, separating out business from personal expenses, which complicates your bookkeeping task (see below).

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Keeping it all in order

Establishing an organized records system -- a place for everything and everything in its place -- will pay off many times over as your business grows. The information you will handle will fall within three broad (business) categories: marketing, product, and finance. Make sure you keep records in electronic and hard copy, and back up your files frequently, keeping backup disks in a secure offsite location, such as a safe-deposit box. Computer crashes are the most likely disasters for a freelancer, but you should do not exclude the possibility of theft and fire.

Your marketing folder will include potential-client contact lists, leads on new clients, appointments, and notes for follow-up. As you develop your marketing contacts, keep all materials on each current or prospective client in a separate folder.

Your product files will contain all things related to the written materials you develop for clients. Here is where you keep story ideas and notes, contact information for potential or past interview subjects, and contracts with publishers. You should also keep interview tapes, telephone logs, and handwritten notes related to stories or products (e.g., technical documentation). Once a story or product idea begins to take shape, pull together all of the materials for that project into one folder. Even if the publication contract (see above) does not require you maintain your notes and records related to a story for a given period of time, it is still good practice and could save an enormous amount of time and trouble should a legal issue arise.

Bookkeeping: necessary and not really evil Finally, financial records should include your company's balance sheets and income statements, bank records, tax records, and invoices (payable and receivable). Writers prefer writing words and paragraphs to keeping financial records, but your financial records will tell a better story about your enterprise than your best prose ever will. The keys to bookkeeping are to record transactions as soon as possible after they occur and have documentation to back up all records. Try setting aside a period of time each week for doing your finances: banking, bill-paying, and record keeping.

Fortunately, inexpensive financial management software is available to take a lot of the drudgery out of the task. These software packages let you build a chart of accounts, record entries in a general ledger, and generate basic financial statements. Some nice-to-have features in many packages are the ability to export data to tax-preparation software, associate income with invoices, and make cash-flow projections. For part-time businesses, leading home financial packages (e.g. Intuit Quicken, Microsoft Money) have high-end versions that offer accounting support for home-based enterprises. Full-time businesses, and those that plan to grow or diversify, should use full-featured accounting software for small business.

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With all of these business considerations, keep in mind that there are non-financial rewards to freelance writing that few other enterprises can offer -- for example, having total strangers ask you to autograph their copies of a book you authored. It doesn't get much sweeter than that.

Alan Kotok is Next Wave's managing editor and a freelance writer for 15 years


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