Transitioning into the world of freelancing in instructional design and training isn’t just about honing your craft and networking—it also involves setting up your freelance business with a strong foundation. This means getting the logistical and financial aspects of your business in order.
This week let’s start with the more tactical things first, and next week, I will share the more holistic things. Here’s a look at five tactical steps every new freelancer should take to ensure they’re set up for success from a business perspective. (Disclaimer: I am not a lawyer or a CPA. For detailed questions, consult a lawyer and tax professional).
1. Set Up Your Business Entity
Choosing the Right Structure: One of the first decisions you’ll face is selecting the right business structure for your freelance operation. Options include sole proprietorship, limited liability company (LLC), and corporation. Each has its advantages and considerations, particularly regarding liability protection, taxation, and operational flexibility. For many freelancers, an LLC offers a balance of simplicity and protection.
Register Your Business: Once you’ve decided on a structure, you’ll need to register your business according to your local and state regulations. This may involve filing paperwork with your state’s Secretary of State office, paying a registration fee (usually $50-100), and possibly publishing a notice of your business’s formation.
2. Get a Tax ID
Employer Identification Number (EIN): Even if you’re a solo freelancer, obtaining an EIN from the IRS can be beneficial. It’s free and can be used instead of your social security number for tax and business purposes, providing an extra layer of personal identity protection.
Tax Administration: An EIN is also necessary if you plan to hire employees in the future. It’s used for setting up your business bank account and filing your tax returns. You can apply for an EIN online through the IRS website.
3. Set Up a Business Banking Account
Separating Finances: Opening a business banking account is crucial for keeping your personal and business finances separate. This separation simplifies accounting, tax preparation, and the tracking of business expenses. Trust me on this one. You will thank me when tax time comes around.
Choosing the Right Bank: Research to find a bank that offers services tailored to small businesses, such as low fees, online banking, and merchant services. You’ll typically need your EIN, business formation documents, and personal identification to open an account.
4. Getting a Business Credit Card
Building Credit: A business credit card can help you manage cash flow and build credit for your business, which can be beneficial for securing loans or credit lines in the future.
Tracking Expenses: Using a business credit card for all business-related purchases simplifies expense tracking and can help maximize tax deductions. Look for cards with rewards programs that benefit your business, like cash back on office supplies or travel rewards.
5. Filing a Beneficial Ownership Information Report (This is new in 2024).
Understanding the Requirement: As part of efforts to combat money laundering and financial fraud, some businesses are required to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN). This report identifies the real people who own or control your business.
Compliance: Check whether your business is subject to these reporting requirements and, if so, understand the information you’ll need to gather and the deadlines for submission. Compliance is essential for avoiding penalties and ensuring your business operates within legal guidelines.
By taking these tactical steps, you’re not just setting up a business—you’re building a platform for sustainable growth and success in the freelance instructional design and training field. Remember, the effort you put into establishing a solid business foundation will pay dividends in the professionalism you project, the clients you attract, and the peace of mind you achieve, allowing you to focus on what you do best: creating impactful learning experiences.