Getting your independent contractor business started

So you’re ready to take a detour from the traditional job route and venture out on your own? Good for you! As a gig worker, freelancer, or independent contractor, you’ll be able to set your own schedule, choose your preferred hours, pick the projects you want to take on, and get paid competitive market rates.

For many people starting an independent contractor business, there are growing pains as you navigate the transition from set hours and consistent work to essentially running your own business. You're not only providing work services, but also marketing yourself while handling admin duties and seeking to help ensure a steady level of business.

There are a number of considerations - from the type of business entity you plan to establish, to how you wish to pay taxes and even budget planning. Aside from the legal and financial aspects of independent contracting, there are daily habits you should also develop to be effective. 

Here are five tips to help you start your independent contractor business:

1. Determine your best business structure. 

Sure, you could just work directly with clients and get paid as a self-employed independent contractor with no particular business structure. There are certain advantages, however, to having a business name and entity, not to mention the psychological “lift” it may provide. Depending on the business structure you choose, you could also avoid being held personally liable if someone decided to sue you, for example. 

Taxes are also handled differently depending on the type of business structure, such as sole proprietorship, partnership, LLC or corporation. The Small Business Administration (SBA) explains the different business structures and the benefits of each. Also check to see if your type of business requires any licenses or permits.

2. Establish your business plan.

Does your business need a business plan? Yes! Every serious independent contractor should write up a basic business plan. Even if you don’t have all the answers or a long-term strategy just yet, going through the exercise of setting a plan can help you be more intentional about your business and may help you avoid unnecessary mistakes and expenditures.

Common business plan components include: 

  • An executive summary

  • Company description

  • Competitive analysis

  • Company structure and management

  • Marketing and sales strategies

The SBA offers templates and guidance on writing a business plan. Once you’ve drafted a business plan, run it by a friend or fellow entrepreneur to get feedback. There may be things you haven’t considered that someone else can see more clearly. 

As part of your business plan, you’ll also want to determine:

  • Your market value (if providing services) -

    Do some research in your industry to find out the hourly range people in your field are charging for independent contractor services. Choose a number or range that feels comfortable for you. Keep in mind, independent contractors often make “more” per hour than a salaried worker, but you’ll be paying your own taxes (and health insurance, if not otherwise covered by someone in your household) out of this income. While your hourly rate may seem high at first, the net amount will come down considerably after you’ve paid taxes.

  • How much work you’ll need to generate on a monthly basis -

    Based on your hourly rate, think about the average number of projects you’ll need to have or the average value of each project so you can pay yourself enough to live comfortably while still managing your bills and setting aside tax payments.

  • How you will sustain yourself during downtimes -

    It’s common for independent contractors to experience ebbs and flows with workload. That means you may have a really great month followed by a really slow month, often referred to as “feast or famine.” If you don’t have new prospects in the pipeline, you’ll go through noticeable dry spells with little revenue to support you. Therefore, it pays to have an eye on your finances now in order to maintain cash flow and manage expenses during those down times.

Also prepare yourself for negotiation. The better you are at recognizing your own worth in the marketplace, the more you’ll get paid. Think about your ideal rate and keep that in mind when new opportunities arise. Of course, some contract work is negotiated at a flat-rate so start practicing how you’ll formulate estimates for your work. 

3. Estimate high, low and in between.

While some contracts will be based purely on an hourly rate, there will be other times when you’re asked to provide a flat-rate estimate for a project. Many who are just starting out as independent contractors lose money this way because they fail to take into consideration all the steps and tasks involved in a project. 

Rarely is a project just performing a particular type of work, say consulting or writing or designing, for example. A project often includes miscellaneous tasks such as:

  • Research

  • Interviews

  • Emails, phone calls

  • Project management

  • Rounds of revision

Imagine if you only included the “main work” in the estimate! You’d be shorting yourself every time. 

4. Budget accordingly.

Building a client roster can be incredibly rewarding, but it can also take some time. A realistic expectation is six months to a year to really gain momentum and traction as a new independent contractor. 

Having a good handle on your budget and how much you need to earn can alleviate some of the initial stress of getting up and running. While you’re getting your business going, use your extra capacity to learn good accounting habits. Not only will it come in handy come tax time (which will be four times a year for you), but it will also help you keep track of how your business is growing and how much you can afford to pay yourself. It may also prevent financial mistakes that could cost you big down the road.

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5. Familiarize yourself with tax forms.

Whether you have accounting support or you’re doing all your bookkeeping and tax prep and filing on your own, it’s important to get familiar with independent contractor tax forms so you’re knowledgeable about business tax expectations. Be prepared to make estimated tax payments on a quarterly basis on the following schedule:

  • April 15

  • June 15

  • September 15

  • January 15

Also keep in mind that your tax filing deadlines will be different depending on whether you’re a sole proprietor or C corp owner, or you have a partnership or an S corporation. Refer to the IRS for information on filing and paying business taxes.

Do independent contractors need a business license?

The answer depends on the type of work you do, the state you live in, even the municipality where you live, and whether you live in a residential community governed by a homeowners association (HOA).

To find out whether your business requires a license, contact your local chamber of commerce. You may also feel more confident having a business attorney provide you with guidance on state and local requirements. Find your local Small Business Administration office which can also provide information on business licenses and how to apply.

Before applying for a business license, of course, you'll need to have established your business entity and have an employer identification number (EIN). It's wise to determine licensing needs (or not) before launching your business as there can be penalties for doing business without a license. The amount of penalties depends on the type of business you operate, the number of people you employ, the amount of revenue generated, your tax filing history, where you do business, and how long you've been operating without a license.

Growing your business

Once you've launched, it's time to build your client list. Leverage your network for referrals and create a business profile on LinkedIn to get the word out. Establish worker profiles on freelancer platforms like WorkMarket to highlight your skills and experience. On WorkMarket, you'll even be able to join public Labor Clouds based on your skill sets and certain requirements indicated by businesses looking for your talents. Being part of a Labor Cloud gives you greater exposure to prospective clients and greater potential for work opportunities.

Realize the full potential of independent contracting today. Join WorkMarket.