You may be new to the freelance world and are excited to get your feet wet. One question you may have is whether to get a business license. Getting the paperwork right as a freelancer can save you many headaches down the line. Depending on your field, your licenses and business entity will need to be fully defined for you to succeed.
Let’s dive deeper into why a business license aids in your business. There are also steps to take to ensure the process goes well.
1. Set Up Your Business Entity First
For most freelancers, a business entity designation as a sole proprietorship is the most straightforward step. There are factors to keep in mind, however. Your status as a sole entity means you are on the hook for all business debts.
You may not have to worry about accruing debt if you’re a freelance writer. And, if you go ahead and purchase products to support your writing, you can expense them.
If you’re a freelance masseuse, you’re on the hook for the costs of supplies. For example, you must pay for tables, linens, and other supplies.
You may be a freelancer specializing in graphic design. Then, you must have a high-end computer setup with products such as the latest Photoshop program. Being a graphic designer and hiring other contractors to assist you may require a business license.
It could be your business will grow larger. Setting up a larger business entity makes more sense if that is a long-term goal.
2. Note Your Licensing Requirements
For those who freelance in the medical field, your business license is just as necessary as your medical licensure. Getting the appropriate training or taking additional testing at the right time is vital. If you don’t, your licensure may lapse. This lapse could impact your professional insurance. If this should happen, it can create severe problems for your business license.
It’s also critical you treat your business like a separate entity. You need a different bank account to pay bills and collect fees. Also, set up an independent EIN to pay taxes. And, if necessary, hire help or regular employees. Scheduled training to protect your licensure is simply another part of your business. Keep track of what needs to occur to keep things current outside your working hours.
Even if you’re a driver for Lyft or Uber, you must keep your driver’s license current. Ensuring your insurance is accurate is critical to protecting yourself financially. Stay on top of these requirements. Remembering specific deadlines will reduce headaches in the future.
3. How it Works With a Partnership
If you are a solo freelancer, it may seem strange to consider setting up a partnership. However, you may be a freelance mechanic working on classic cars. As a mechanic, you may develop a strong professional relationship with a skilled painter or upholsterer.
It’s an exciting prospect to work with others in your field. If you bundle your skills, your freelancing income may go up. Customers who love the old classics will find the appeal in getting their engine fixed, their upholstery repaired, and their car’s exterior painted all at once.
How do you know it’s time to form a partnership? You may continue to send more business to your upholsterer and painter. They send their customers to you and vice versa. If it continues this way, discuss creating a partnership between the three of you. If you partner with other freelancers, you’ll form a partnership that benefits all parties.
As a side note, should you find a better upholsterer or painter in the future, you’ll need a new partnership.
Unfortunately, such relationships cannot run long on goodwill. It’s wise to put some type of documentation in place. This ensures everyone gets a fair share. It also ensures they stay protected should the quality of work of another partner drastically change. A partnership on paper is essential. It helps everyone maintain a quality standard that you’ll be happy with.
4. Protect Your Reputation
Protecting your reputation is vital in the freelance world. To continue to get business, showing your business has the appropriate licenses and protection is essential.
For example, you may love to cook and become a freelance caterer or home chef. Then, your business documentation must include safety training. Your business license must be updated just as if you worked in healthcare.
You may find yourself inspected by licensing professionals. If that should happen, review your paperwork to double-check everything. Everything should be current by the time the inspection occurs.
Conclusion
Freelancing offers many options. If you have a full-time gig, freelancing can be a great way to bring in extra cash. If you want to retire partially, it’s the perfect transition from full-time work to full-time play. Take the time to set up your freelancing gig with the proper business license. Doing so will allow you to grow your business without doing more paperwork.
