Updated on 04.05.16

Make Starting a Small Business/Freelancing a Success

Trent Hamm

An acquaintance from my previous career wrote to me recently asking about the steps I took when I made the switch to working at home:

It’s official: I’m ready to get out of here. I’m tired of working here and I have a lot of people lined up to hire me for home catering and cooking. I’m sure you did a bunch of planning before you made the leap. What exactly did you plan?

Freelancing.  Photo by wetwebwork.I know at least one other former coworker who is contemplating a similar move into a freelancing gig, though his plans are decidedly less clear at this point.

So what exactly did I do during that transition period? I started making a list of the things I did – then, soon, I realized that there were several things I wish I had done. Before I knew it, the email had ballooned into a guide that I thought might be useful to quite a few people.

Here are fifteen things I did (or wish I had done) during the months leading up to my transition to working for myself.

1. Learn to live on less.
One of the biggest challenges of freelancing/self-employment is the uneven pay. Gone are the steady paychecks of a typical job. Gone is the idea that you’ll make roughly the same amount next month as you will this month. During 2009, I have had months that earned only 25% as much as other months – and I anticipate a single month later in the year when several projects come to fruition in which I have by far the best month of the year.

If you allow your spending to match your income, you’re not going to be able to survive during the lean months. Instead, you need to adapt yourself to a consistent lower level of spending. Start looking now for fat to trim from your life. Every expenditure you have that’s not necessary for your basic living standards should come under very careful scrutiny.

Many people balk at this, but the truth is this: your first several months as an independent worker are going to be a real shock in a lot of ways. The last thing you need making this transition more difficult is a bunch of unnecessary expenditures. If things go well, you can always add some expenses back into your life – but you may find, surprisingly, that you’re quite happy without most of them.

2. Create a budget, both personal and business.
As I’ve written before, I’m not a believer in the “one-budget-fits-all” approach. Trying to make your budget or spending match an example provided by someone else is doomed for failure because that example doesn’t match your life.

I argue that the real value provided by a budget is that it reveals, loud and clear, how you actually spend your money and it can provide some clear pointers to where you need to make changes. Prepare a budget by just keeping careful track of what you spend for a month – make a giant list of every dime you spend, then organize all of that spending into categories that make sense to you. When you have that in place, look not only at the total amount you spend (you’re going to need an income level that on average exceeds that by at least a little), but also at the various categories – are there areas that you can cut?

A similar exercise for one’s business expenses is also useful, though it can be more difficult. Seek advice on the expenses that people typically have freelancing in your area of interest and use that for a basis.

3. Build up a big emergency fund.
If you’ve followed steps one and two and made serious cuts in your spending, you’ve now got a nice surplus of money coming in each month. Don’t be tempted to spend it. Instead, sock it all away into a savings account. In fact, do it automatically – instruct your bank to automatically transfer a healthy amount each week into a savings account on your behalf.

If you’ve done your budget, you have a good idea of what your monthly expenses actually are. I recommend having at least six months worth of living expenses in your emergency fund before making the leap. This will help you survive the lean months, particularly those early on in your freelancing experience.

4. Now make it bigger.
Quite often, people go light on the emergency fund before they make the leap. They have a bit of cash saved up, but they’ve convinced themselves that they’re ready – they have plenty of clients and opportunities lined up.

Don’t make that mistake.

The big problem is that freelancers and self-employed folks – especially early on – can have a tendency to count their chickens before they hatch. No deal, no matter how good it is, is a sure thing until contracts are signed and products are delivered. You might have ten potential clients that talk big about what they want to do, but when push comes to shove, all of them could vanish – and many of them will.

Be prepared for that. Don’t leave yourself in a desperate situation if a conversation doesn’t pan out. Cover your bases – and the best way to do that is with a healthy emergency fund. Build it now, build it later, keep it nice and fat.

5. Start reaching out to your audience and client base now.
There is no better time than right now to start digging for opportunities, even if your leap is far into the future. Get out there and start seeking out the people you want to know – and the people you want to sell to.

In a nutshell, this is market research – you need to find out if there are people that will buy what you do and figure out how to connect with them. Obviously, the internet and social media (like Twitter and Facebook) are good places to start, but they’re just a start. You should also go directly to where people who might be potential clients – or potential competition – congregate.

Start finding the people now. Join messageboards. Start Twittering. Start a blog. Pound the pavement in your local community. Dig through freelancing boards and other job boards. If you’re passionate about the field you’re leaping into – and you must be if you want freelancing to work – you have plenty already to talk about. Let the passion flow.

6. Eliminate as many regular bills as you can.
Back on the money side of the coin, start whacking your regular bills, particularly any related to entertainment. Ditch Netflix – if you want to watch a movie, use Redbox or a similar service. Ditch your cable bill entirely – use a digital converter box and Hulu to get your television fix. Sell your car – if you can use public transportation or ride a bike to work, do you really need one?

For the ones you can’t eliminate, trim. Make your living quarters as energy efficient as you can, with programmable thermostats and the like. Cut your cellular plan – do you really need that much data, those minutes, or that many text messages? If you decided to keep cable or satellite, whack some premium channels you don’t watch.

The more monthly bills you can eliminate or reduce, the more room you have to breathe when you make the transition.

7. Write a business plan.
Don’t worry about being too formal when you do this. The purpose of a business plan is to make you think about all of the details of what you’re about to leap into. Have you really thought things through?

Areas to include: market analysis (is there actually a need or a market for what you’re doing), product or service development (what kind of service or product will you actually offer), marketing (how will you draw attention to what you’re doing), financial organization (the money), and risk factors (what problems might crop up and how you might handle them).

Spend some time on this. Include everything that comes to mind, and flesh out details on every point. Don’t sweat the formality – just focus on ideas. The more effort you put in here, the easier it will be to make this all work when things get rolling.

8. Now rewrite that business plan.
Quite often, most freelancers make only a minimal effort at a business plan, if they bother at all. Big mistake.

I suggest using a self-imposed deadline of sorts. Arrange to show your business plan to someone you trust on a certain date for their input. Putting that deadline in place will keep you focused on the project, as you’ll want to present something reasonable.

Then, when you deliver it, ask for feedback of all kinds – everything they can think of that might improve the plan. What you’re really asking for is advice on the work you intend to do. This is a double check to make sure you’ve thought everything through.

When you get the suggestions, use them to rewrite your plan. Then repeat, perhaps with another person who might read it and offer suggestions. A few such repetitions will go a long way towards creating a real plan that works – and making sure you’ve really thought this through.

A good business plan isn’t a boring thing to “waste” your time on. It’s a great way to make sure all of your bases are covered, and often the revision process is the most powerful part.

9. Find a mentor.
So who can you take that business plan to? A mentor, that’s who.

Seek out someone that knows what they’re talking about that isn’t a potential competitor of yours. Look for someone experienced at freelancing in a tangential field – not a direct competitor – and ask them for advice and help. Be specific in your questions and don’t take criticism personally – it’s offered with the goal of making you better, not cutting you down.

Recognize that the person is probably busy and contribute some value to the relationship yourself, by promoting their work or offering them something of value, too. For example, if you’re a nascent blogger and would like to attract a professional blogger as a mentor, spend some time simply promoting their best stuff. Write about it on your own blog and talk about their stuff on Twitter. Buy their book and write a review of it (if they have a book out there). Participate in their comments and in their other conversations online.

Actions like these are ways that you can make a mentoring relationship into a fair value exchange instead of just a “gimme gimme gimme” relationship.

I wrote a detailed guide on finding a mentor in the past that can be very useful reading.

10. Make it easy for people to see the good stuff you can do.
Create an online presence for yourself that makes it very easy for people to find your best work. Regardless of whether you’re doing online work or not, have a website with an easy-to-remember URL that contains links to examples of the best stuff you’ve created. Join social networking services (Facebook and LinkedIn) and make professional pages about yourself that clearly show off your best side.

If people hear about you, they’re going to Google you. You want to make it so that the first things they find are good, positive, impressive things – the types of things that will draw them in, not push them away. Never take the attitude that you can appear antisocial and that if they don’t like it, they can walk – that attitude will push many of your potential clients away because you’ll seem unreliable from the get-go. There is never a downside to appearing friendly and accessible.

11. Communicate, communicate, communicate.
The more you talk, the more likely people are to discover you. Share your thoughts and ideas and comments as much as you can, as widely as you can.

Start a blog. Join social media sites (Twitter and Facebook, for starters). But, most important, join in on conversations. Link to interesting people and ideas on your blog and offer your take. Follow interesting people on Twitter and respond to the things they say. Comment on interesting blogs (with a link back to your own of course) and make worthwhile comments.

Most important, stick generally in your area of expertise, but don’t be afraid to jump into topics that are at best tangentially related. The goal is to make people interested in what you’re doing, and the best way to do that is to always speak from your heart and from your mind. Be positive, put your voice out there, and good things will happen.

12. Build connections with local small business/entrepreneurship groups.
Even if your work is outside of your local community (online work, for example, or freelancing work for remote enterprises), it’s worthwhile to engage with local small businesses and entrepreneurs – after all, that’s exactly what you are. Such groups are almost always sources of good ideas and leads for areas where you might improve, and they’re also places where you can float new ideas and gauge them. Even better, leadership in such groups provides countless ways to reach out and connect to others in countless ways – conferences, meetings, and so forth.

Get involved in peer groups, both in your own physical community and in your professional community – and don’t be afraid to dive right in and participate, even before you’ve made the leap. The number of valuable connections you’ll make there will pay off time and time again.

13. Have a place where you can focus on work – and only work.
Many freelancers start off working at the desk in the corner of the living room – the same one that houses lots of personal material as well. What often happens, though, is that the personal material begins to interfere with the professional work and the lines begin to blur. You find yourself working when you should be engaged in personal activity, and doing personal things when you need to be working.

Find a location somewhere that you can devote solely to your work – no personal stuff. Ideally, it’s a place that you can isolate yourself from the things around you. For example, I have a room in our home that serves as an office. When I need to work, I go in there and close the door and I’m in “work” mode. When I leave that room, I’m no longer in “work” mode (unless I’m headed out to do some research).

Without that barrier, it would be incredibly easy for me to constantly take my eye off the ball – and if I did that, I would constantly find myself falling behind on my work.

14. Build your current bridges as strong as you can – and don’t burn them when you leave.
Many people, as they begin to transition mentally into freelancing, let their current work relationships slide, deciding that they don’t matter. Actually, quite the opposite is true – they matter more now than they did before.

Here’s why. The strong connections you have in your previous line of work will continue to serve you well after your transition. The connections may provide you with new clients and interesting angles to pursue. Plus, if freelancing doesn’t work out, you often have a strong foot in the door for returning to a position in your previous career path.

On the other hand, if you let those relationships burn out, you miss out on these opportunities – and that big safety net.

Spend your final months tying up loose ends, but make sure that the relationships you’ve built don’t fray, either.

15. Practice, practice, practice.
This is perhaps the most useful lesson of all. If you want to be a real standout in your area of expertise, keep practicing at it. Study it. Try new things, and work to get better at the things you already do. In short, practice every single day.

If you’re a writer, write (and share them, via a blog). If you’re a graphic designer, make designs and share them (via Flickr or other avenues). If you’re a musician, practice daily and share demos with the world. Doing this not only makes you better, but it shows that you’re a hard worker and helps you get a better grasp on what people like and what they don’t like.

As time goes on, you’ll get better and better at what you do – and you’ll have a long track record that shows how diligent you are at your work.

A Final Tip: Dig Into Freelancing/Self-Employment Resources and Communities
Here are five websites I visit all the time for advice and thoughts on being self-employed and accepting freelance work.

FreelanceSwitch is my website of choice for thoughtful and insightful conversation on freelancing and self-employment issues. It’s a daily read for me.

Upwork.com is a clearinghouse of freelancing opportunities of all stripes. I like to keep an eye on freelancing opportunities in several areas.

Guru is a similar clearinghouse for freelancing opportunities.

Web Worker Daily
If you do computer-based freelancing, this site is a must-read. Again, I read this one almost daily.

Freelance Folder
Freelance Folder offers a ton of widely varied and interesting advice on freelancing topics.

Good luck!

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  1. Moneymonk says:

    I also think that freelancers must have a big emergency fund, because the income is inadequate, unless you have a spouse that works. Get to building!!!

  2. marta says:

    @Monkeymonk: Freelancing can pay pretty well, actually ( I am a freelancer and, no, I don’t have a spouse that works) … although I will agree 100% that a big, fat emergency fund is a good idea, either you are a freelancer or not. Job security can’t be taken for granted, period.

  3. Ryan says:

    I think your bullet #5 “Start reaching out to your audience and client base now,” is extremely important. I often here of friends jumping into a freelance situation without researching the concept first, which increases the risk and cost.

  4. CPS says:

    This is a great article Trent.
    There a trend I noticed between several of the points you’ve highlighted is that of communication.

    It always seems to come back to people. It’s great though. You start building a network, a mentor, etc. and you’re creating relationships, not just being another employee.

  5. Alot of my friends want to make the switch to freelancing. But they all have families to support so a big emergency fund is something they are all trying to build.

    What would you recommend in terms of health coverage? What should the steps be to seek out and research the best coverage possible before taking that plunge?

  6. T'Pol says:

    Excellent article! Thank you..

  7. Ken says:

    I just finished my business plan for my side-business.
    Here are some great resources (for the US, at least):

    1) SCORE (find a local branch below)advisers

    2) SBA small business planner

    3) SBDC (Small business development center) advisors
    unfortunately, I haven’t been able to find a centralized SBDC website, but if you Google SBDC advisor and your location, you should come up with some useful results

  8. Cyllya says:

    About #4, I think it’d be more accurate to say “No deal, no matter how good it is, is a sure thing until you have the payment in your bank account.” I hear all kinds of stories about clients that are troublesome about paying on time (or at all).

    I currently work for a small web development company, and we’ve actually had clients deliberately delay the project so that they could delay paying us!

  9. Joe L says:

    This has crossed my mind so many times. I will take major steps now. Thanks Trent!
    Taking a sip,
    Joe L.

  10. Tee at DFBC says:

    Sam (comment #4) hit the nail on the head for me. The expenses that are paid, or partially paid, by my current employer (health care, pension, 401k contributions, paid holidays, etc.) are what worry me most about breaking out on my own. I figured it up once – I would have to bring in almost triple my current salary per month in order to pay for those benefits on my own.That’s pretty scary. But as they say, you can’t win if you don’t gamble.

  11. Torrey says:

    In relation to number one, I would suggest if you are a two income household, to live on one income prior to taking that leap. A huge mistake we often make is think about all the great possibilites and not the negative potential outcomes.

    By trying this, you will be able to understand what you can and can not do when times aren’t so good in your freelance/self-employment plunge.

  12. Joseph says:

    As a freelance graphic artist, one of the problems is the saturation of freelancers out there looking for work. Before taking the leap to freelance, make sure you’re really good at what you do.

  13. Theresa says:

    I’ve been reading your blog for a while – I really like it when you do this kind of writing – drawing from your own experiences – helps to pr5ovide a framework for my own thinking around ideas that interest me

  14. Viviana says:

    Great post! I also find time management something to contend with when you are a freelance worker at home. I sometimes find I can spend more time than I should on Twitter and the like, so I have put a timer on my computer to stop me wasting too much time.

  15. Dave says:

    …get the $$$, get the clients, get the plan…all advice that was good 50 years ago for starting a business and still valid today despite all the technology changes.

  16. deRuiter says:

    Your friend who wants to quit his job to be a freelance caterer might consider starting that catering business part time to test the water. There’s no mention of a catering kitchen (a must for anyone catering for a living), people who would act as staff, doing food prep, serving, clean up, business plan, emergency fund, insurance. What if the business flops? In an economic downturn there’s less disposable income and more people who are slow to pay or do the job themselves to save money. A year of part time catering ought to help fatten your friend’s emergency fund and allow him / her to know if it’s possible to earn a living this way, or whether catering part time is a better plan.

  17. Clark says:

    In addition to an emergency fund, you need to maintain a retirement fund. There’s no guarantee that your business will take off – you need to make sure you’ll have a modicum of security in your old age no matter what happens.

    Paul Gyford wrote an excellent beginner’s guide to freelancing that I still go back to from time to time. It goes into great detail about the multiple hats you’ll be expected to wear as a self-employed person. I would recommend it to anybody who’s thinking about striking out of their own.


  18. I think living on less and creating a realistic budget are where people trip up the most.

  19. Having a good and realistic concept to start with is paramount. Many people jump into something that appeals to them, but not the marketplace, and they find this out after they have jumped in with both feet. That’s why a good business plan is essential.

    Also, starting your own enterprise in parallel with current work activities is also important. This allows you to test the waters safely, although it can be a bit demanding on your time. Once you’ve landed some work that is steady and encouraging, then you can leave the “mother ship” and get out on your own.

    The idea of a mentor is a good one. It’s also a good idea to serve as a manager of an enterprise first, then leave to manage your own enterprise that is similar or related. This makes you your own mentor and experience base. It also gives you a full appreciation for what it’s like to run the business.

    Last but not least, it helps tremendously if you’re a comfortable part of the marketplace you’re going to serve. That familiarity brings confidence and potential customers. It makes you a known and gives you a nice network to deal with.

    The bottom line is there is no such thing as “stacking the deck” too much in your favor, so do it and do it well. Your success depends on how well you plan and think things through.


  20. Lars Hoel says:

    Don’t forget taxes and FICA! As a self-employer, you have to pay the Social Security contribution your old boss used to. In effect, double FICA. You also must now file taxes quarterly … and be hit with interest and penalties if you procrastinate. One good rule of thumb: take one-third of every check you earn and earmark it for taxes and Social Security.

  21. Rebecca says:

    Wow. This hits home especially this morning as I start down the path to regain my real estate license. I’ve tried to be someone elses employee for two years and it just won’t work. Your article hit the nail on the head with just about everything. Get yourself a good accountant / tax preparer to save yourself money at the end of the year and to navigate around all the govt red tape come tax time. They’re worth their cost IMO. thank you for a terrific article!

  22. Melody says:

    Cyllya – Yes, yes yes! I’ve had that happen several times. And honestly, even if you do get payment and it clears you bank, it could be yanked-out a week to several weeks later if it does not clear the customer’s account after two attempts! So having a cushion can be essential.

    Yes,Lars, good call! Even if you don’t have employees, if you have yourself setup as anything other than a sole proprietor you might find you need to pay yourself a ‘check’. Even if you are a sole proprietor, save for the taxes you need to pay on your income. If you don’t do well, maybe it won’t matter the first year-or-so, but saving that money somewhere (putting it into a deferred account before Dec. 31st, for example) will increase your savings and create a valuable habit.

    Take it from me – we’ve made every single mistake imaginable with our business! It’s work, it’s hard but if you persevere, it can be very rewarding!

  23. Harry says:

    Thanks, these are very good points.

    One thing I might add is to get yourself more goal oriented. Without goals to focus your energy, you will easily get lost in myriad things to do everyday.

    You may also want to try a web-based goal tracker, http://www.goalsontrack.com

  24. Mike says:

    Hi Trent, good article! The more I work for other people, the more I want to work for myself. I was laid off in January, lost my house, and all my savings are gone. And with my house went the shop that I could’ve worked out of.
    I’ve been at a new job for almost two months, and I like it, but I still want to work for myself. I bought a trailer because that was all I could afford, so no more shop, and all my tools (woodworking/carpentry) are in storage. I’m a manufacturing engineer and would like to start my own shop, but that will take a huge amount of start-up money, and just as much to keep going until things take off. Any advice or ideas?

  25. Prashanth says:

    Excellent post! And a whole lot of good comments too! I would totally second deRuiter’s comment about having your pal try out what he loves doing on a part-time basis to build up that buffer you have so frequently mentioned in your post.

    I have been thinking a lot about starting a photography business myself, however, the thought of generating income from a hobby is a little scary in itself. I don’t want to defeat the purpose of my hobby, which is to enjoy it. So my thoughts right now hinge on what you have exactly outlined in this post, i.e. to keep my day job while exploring the possibility of generating some income which might actually pay for the gear I buy.

    Thanks for another excellent article Trent! And thank you for those commenting on these articles. I am really learning a lot just by reading these thoughtful and wonderful comments.

  26. tammy says:

    I didn’t start my business with a financial net and wish I would have.
    I’ve also found staying small and nimble (I’m a solo PR gal) allows me to take advantage of trends and opportunities at the drop of a hat. I highly recommend learning to live on less if you’re in business for yourself. Frugality is the way I manage to stay afloat in good times and bad!

  27. Bill says:

    Great writeup. There’s a lot in your post that I’m sure most start-up entrepreneurs don’t think of.

  28. Tommy Kirt says:

    As a small business owner myself, I can thoroughly recommend the importance of creating a functional bank balance large enough to carry us through the quieter months. In fact, it should be the first priority of every new business.

    Only ever pay yourself a minimal wage when starting, and let the bank balance accrue to create working capital which is sufficient to maintain your optimum wage throughout the quieter times.

  29. April says:

    I just started blogging about starting my own consulting business and a friend sent this post to me – SO HELPFUL! I’m linking to it in my blog today!

  30. Solid advice!

    Many people should start building their businesses while still working for the man . . .

    Learn to crawl, walk, and run . . . then make the leap.

  31. I really don’t agree on the “sell your car” advice. As a freelancer, I’ve got meetings, you have to go work here and there, you probably need a car even more than before.

    Plus, don’t forget you can deduct your car as professional charges. At least this is the case in many countries. Maybe, on the contrary, it’s time to get a new shiny reliable one.

  32. I don’t agree with requirement of having a huge nest egg before starting a consulting business. A large emergency fund is great, but saving for it typically takes a long time, sometimes months or years.

    Instead, I think a better way is to start your consulting business on the side. That way, you can start small and build it up to a full-time job. As you do that, you’re making sure that there’s enough demand in your niche, and that your hourly rate and monthly revenue are enough to pay all your bills if and when you switch to full-time consulting.

    I talk more about the side-hustle approach to starting a consulting business on my blog (http://www.StartMyConsultingBusiness.com).

    In addition, I think that most consulting businesses don’t need a detailed business plan. Something short is typically sufficient, so long as you’ve identified your niche, how you’ll get clients, etc. Spending too much time on a business plan is time that you could better spend on actually starting your business and getting clients.

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