You're sick of your job. You've been downsized. You need greater flexibility to care for your family. Or perhaps you just want to be your own boss. If yours is a "portable" profession such as writing, accounting, project management or consulting, freelancing may be the answer for you.
But starting a successful freelance career is harder than it looks. Here's what you need to do to get things off to a good start:
Put away some money
Having savings always gives you options. Remember that you won't have that consistent, biweekly paycheque any longer, so the bigger your financial cushion, the better. You'll also need money for the business itself, says Lee Helkie, a financial planner with Helkie Financial and Insurance Services Inc.
"Your business can fail if you starve it of the food that it needs to keep running," she notes. "You also need to set income targets, be realistic and plan for the unexpected."
If you're still with an employer, Helkie suggests you deposit money for the business into a high-interest savings account or tax-free savings account (TFSA) for at least six months. While you can draw on your registered retirement savings plan (RRSP) while you're finding your feet as a freelancer, she feels that for tax reasons it should usually be a last resort. Finally, don't forget to secure a line of credit while you're still an employee, since qualifying for loans at financial institutions is harder when you're newly self-employed with limited income history from your new business.
Do your homework
Helkie has found many people want to turn a hobby or passion into a revenue-generating machine. "But doing the thing they love and making it a profitable business are two different things," she says.
You'll need to study your market, figure out your competitors, your strengths, weakness and opportunities. Do you understand the mechanics of running a business? How much experience do you have in your field? Have you written a business plan? Helkie finds those who are unsuccessful fall into two categories: those who don't have enough experience in their chosen fields, and those who have never run or do not understand how to run a business.
You'll also need to learn about how taxes differ for the self-employed, especially GST/HST, says Bernie Keim, a CGA and owner of London, Ont.-based Q2 Consulting Group Inc. Once you earn over $30,000 within one quarter, or exceed that amount over the course of four consecutive quarters, you'll need to register for GST/HST or face penalties.
Line up your benefits
Most employees rely on group disability and/or critical illness coverage offered through their employer. When they strike out on their own, those benefits could end, if they don't arrange to continue them as individuals.
You'll still need critical illness insurance and disability insurance to protect yourself and your family from financial hardship should you fall ill or become disabled, says Helkie, so it's wise to apply for personal coverage when you're still an employee, rather than waiting until you're self-employed, especially since you may have to prove the viability of your business and show at least three to five years of consistent revenue to obtain disability insurance.
This is also the time to apply for personal health and dental benefits, if you don't have a spouse with group benefits through his or her employer.
Setting up a sole proprietorship is easier than starting an incorporated business, notes Keim. You may need to register your proprietorship with the Canada Revenue Agency and with your province of residence for around $100. There's no cost to simply operating your business under your name.
Incorporating, which typically costs $1,000 or more, sets your business up as a separate entity that is taxed as such. Incorporating also means filing a separate tax return and, generally, dealing with more complex accounting. "See how it goes for the first six months or so as a sole proprietor," Keim says. "If it doesn't work out, it didn't cost you a lot of money to set things up."
Organize your papers
Save all your receipts that are related to earning business income. Don't just throw them into a shoebox, though, says Keim. Record and categorize them in a way that makes things manageable for you and your accountant come tax time. "It has to be in a way that the Canada Revenue Agency can see how you arrived at your expenses," he says.
Freelancing isn't right for everyone. But if there's a market for your skills and experience, and you're prepared to do the necessary groundwork, it could be your ticket to a rewarding career.