According to the Small Business Administration (SBA) statistics, 3 out of 10 new businesses will fail in their first 2 years and almost half will fail at the end of 5 years. While these statistics aren’t as alarming as the much-touted 95% of businesses failing in the first year, they should still alert anyone starting his/her own business that this venture is not without its pitfalls. This includes freelance business.
Maybe you are thinking about quitting your job and going full steam ahead with your freelance business. Or maybe you already have. Besides having the right outlook for your future (this ain’t no paid – or even unpaid- vacation), you should also take the following steps to ensure that your new business doesn’t fail:
1. Create a freelance business plan.
As you’ve probably already heard, those who fail to plan, plan to fail. Take some time to draw up a plan for your business and where you’d like to see it go a year, 5 years and 10 years from now. If you hire employees, how will they be compensated? If you purchase a brick-and-mortar store, how many years of profit will you require to pay it off? How much is your inventory costing you? And on the flip side, how much is your freelance venture costing you in terms of lost wages and benefits- wages and benefits that you would’ve earned at your old employer? By considering all these factors, you will be better prepared to make business decisions about hiring, cost control, purchasing and eventual expansion.
2. Track your monthly earnings and expenditures.
Even if all you’re doing is sitting at home and typing away at your computer (such as yours truly), it is important that you at least track your monthly income and spending. However, if you are running a brick-and-mortar business which you lease and for which you’ve even hired people, it is absolutely critical that you know where every penny is coming from and going. Yes, you’ll be using mostly red ink (or type) when you create your income reports during the first few years. But it is important that you see a trend upwards and towards profitability. If you don’t see that trend, you need to reassess the future of your freelance business.
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3. Don’t keep up with the Trumps.
Your colleague may have started the same type of freelance business as you and immediately leased some office space in town to attract clients. She may have even hired several assistants. Meanwhile, you’re still stuck at home, making your own coffee and cleaning the “executive” bathroom while on break. Sure, you could shell out some bucks to look like the new big shot in town but, at the end of the day, will you take home more money? By keeping your pride in check, your freelance business instantly becomes more profitable and thus more likely to survive.
4. Known when to take the next big step.
It’s one thing to lay low and not show off while you build your freelance business from scratch. However, some business owners take frugality to the extreme and don’t expand their operations even when such a move would increase profitability and/or lessen workload. If you’re so busy that you’re turning away clients, it may be time to hire someone else to help. Likewise, if your company inventory or other equipment is crowding you out of your own home, it may be time to lease an office. Taking the next step in your freelance business can be gut-wrenching too, such as when you decide to let go of clients who are too much trouble in order to reach out to those who pay more money or cost less in terms of time. Businesses can either take off or stagnate depending on how adept their owners are at seeing the big picture and acting accordingly.
5. CYA (cover your Ass)
Newbie business owners often try to cut corners with regards to insurance, taxes, etc. However, should the unforeseen occur (e.g., job injury, audit), these business owners could end up being sued or even jailed. When it comes to obeying the law and protecting your business (and yourself) from legal repercussions, don’t skimp. Create and sign contracts with your clients- in fact, the Freelancers Union offers a contract creator on its website. Obtain home-based business insurance to cover damage to business equipment. The SBA lists several business insurance policies that you should consider as your business expands.
What is the most unexpected cause of freelance business failure?
Believe it or not, many freelance businesses fail not because of a lack of funds or bad location but because of something completely unforeseen: success. For example, you finally land your dream client- and then not know what hourly/project rate to charge him/her. Or you are finally able to hire employees- and then realize that you know nothing about being a supervisor.
Freelance businesses that expand too fast because of initial success are the most prone to growing pains and eventual failure. However, you can reduce your risk of failure by realizing where your expertise lies- and also where it doesn’t. Don’t be afraid to say “I don’t know” and seek help or training. The SBA and other organizations offer business mentorship programs to business owners and entrepreneurs. Also, consider joining your local chamber of commerce; membership fees are usually fairly low and chamber members can be of great help to you and your growing business.