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Business structure

How do you get started as a creative freelancer? In this article Dr Steven Sparling gives you 10 things to think about.
Kingston's clay workshop. The room has floor to ceiling windows. There are 2 work benches that have students work drying on them.
© Kingston University

Thinking about how your business is structured is a big topic.

There are quite a few areas where you need to do some consideration about structure and crucially you will likely need to do some of your own research around these areas. The reason is that each country has different laws and regulations surrounding much of what we are about to cover.

I am going to discuss how freelancing in the UK is structured within these areas, and give you prompts of what you need to research yourself, but you will need to educate yourself as to what the requirements are for the geographic area you live and work in.

Sources of information might include: your local library, local small business associations, professional associations in your country, the internet, government websites in your area, as well as perhaps consulting with a lawyer and/or an accountant.

Be patient. Work your way through the steps and you will build a solid foundation for your creative freelance business.

Richard Newton, in his excellent (and highly recommended) book: The Freelance Consultant: Your Comprehensive Guide to Starting an Independent Business suggests 10 key considerations when setting up as a freelance. Some of them are topics we will cover in later weeks of this course, but I will list them all now to signpost for you some of the considerations ahead.

  1. Company name, registration and legal structure
  2. Online presence
  3. Business bank account
  4. Start-up revenue
  5. Tax set-up
  6. System for tracking invoices, payments and expenses
  7. Insurance
  8. Physical work space
  9. Small business knowledge
  10. Tools specific to your work

I’ll address each one in order.

Let me preface this by saying that I am neither a lawyer nor an accountant. I can offer you information, but each of you must do your own research as to the best legal structures and legal requirements of setting themself up as a creative freelancer in the country you are based. You are responsible for ensuring you are practicing as a freelance within the law.

In the UK, and many other locations, as a creative freelancer you have two choices: you can work under your own name, like I did when I was a freelance actor and a freelance writer. In both cases I traded under my name, Steven Sparling. There are many compelling reasons why you might trade under your own name. Of course, the first stumbling point is if there is another creative freelancer with the same name as you working in your geographic area, but in an increasingly global business environment there might be concern if there is another individual with your name who has a large internet presence.

In that case, you might use a variant of your name – for example if your name was Joe Bloggs and there was already a well known creative freelancer by that name, you might use a variant like Joseph Bloggs or Joseph Adam Bloggs.

Alternatively, you will need to create a name for your business and trade under that name, perhaps Dash Graphics. Again, you want to check if anyone else is trading under that name, whether it is available for a website (for example as a .com), on social media and crucially if anyone else has trademarked that name. If you do find there is an existing Dash Graphics, you are better served coming up with a new name that no one else is using.

When you find a name that is available and that you want to use, whether your own name or a company name, you are advised to protect it so that others can’t use it. Register social media accounts with that name, ie @DashGraphics, secure the URL (usually .com is the most desirable, but there might be compelling reasons to consider a more regional URL such as .co.uk or something like .info), and you might want to consider trademarking the name. Trademarking is a process that is beyond the scope of this course, and you would need a trademark lawyer, so if you think this is something that would be of interest, I suggest you do further research. Many creative freelancers work without a Trademark, especially if trading under your own name.

You can search for existing trademarks in country specific intellectual property databases such as www.uspto.gov; www.ipo.gov.uk; and www.ipaustralia.gov.au. Many local libraries can also help you with searching out intellectual property information.

Once you choose a name you will trade under, many countries and geographic regions require you to register your ‘trading under’ name. This may change depending on the legal structure you choose to work under, so research legal structures in your country for freelance work and from there you will be able to figure out if you need to register a ‘trading as’ name.

In the UK, many freelancers work under the legal structure of sole trader. This means an individual, trading under their own name, and offering services that they charge for. This is the easiest structure and often is the starting point for most freelancers.

As you progress and earn more money, you can seek advice about other legal structures. The most common is the Limited Liability Company (Ltd) and the Limited Liability Partnership (LLP).

As a sole trader, you are financially responsible for any debt that is incurred in business – legally, you and the business are seen as the same entity, and you are legally responsible for any losses or debt incurred while you are working as a sole trader. This means if you encounter serious financial troubles, they will impact you personally. This is rare but is worth being aware of.

If you wish to trade as sole trader you simply register as self-employed with HMRC, the tax office, and you can start to trade as a self-employed freelancer. The appeal of this is the simplicity of getting started.

You must file an annual tax return where your self-employed income and expenses will be dealt with as your personal finances.

A Limited Liability Company is a separate business structure. The business is separate to you as an individual. You must register the company with Companies House and file annual accounts with Companies House, which are publicly accessible.

You will likely need a lawyer to set up the Limited Liability Company and an accountant to file annual accounts for you. So, there are costs associated with a Limited Liability Company; however, there can also be tax benefits as you can take out money from the company as dividends, which are taxed lower than income. But again, you will likely need some advice in making these decisions.

Generally, a Limited Liability Company is not needed until you start to earn more money through your freelance work. In the early years, when you are getting started, you may not earn enough to justify the additional costs and labour of this structure. And you can always become an LLC at a later time if it becomes desirable. A Limited Liability Partnership is the same as a Limited Liability Company except it is with a business partner or partners.

2. Online Presence

It might be possible to create a local business through word-of-mouth, personal relationships, flyers in your neighbourhood, etc. This might work if you are serving a very small geographic neighbourhood and you are well-connected. In this case, maybe you don’t need an online presence.

For everyone else, an online presence is probably going to be a requirement. That probably means as a minimum a simple web site (which might be just one page or multiple pages) and likely some presence on relevant social media sites and possibly job sites depending on the creative freelance work you intend to do.

You may also need a dedicated phone line for your business. You probably want to have a business email address.

You may have some ‘off-line’ tools as well such as a business card, a flyer, or a hard-copy portfolio.

All of these are tools that you will use to market your freelance business. They are also opportunities to consider how you will start building your brand.

3. Business Bank Account

It is critical that you keep your business finances separate from your personal finances. As a minimum, every creative freelancer should open a separate dedicated account for their freelance work.

When you bill your clients for your work, what comes back is not all income for you as a freelancer. You will have business expenses and overhead that have to be paid from that business income before you can take any personal income from it. Therefore, for financial clarity you want to have a separate account where money coming in from clients goes and where business related expenses are paid from. Having a monthly statement for this account will be really helpful when it comes to tracking your income and your expenses.

You probably want to have a cheque book (if you still use cheques) or at least a debit and/or credit card attached to this account that you will use only for business purchases. Again, this helps you with your bookkeeping to keep your business purchases separate from your personal purchases.

Some banks will charge you a small fee for having a business account. Do not be tempted to skip this to save money, this is an example of a false economy. You will spend more time unpicking your business finances from your personal finances than you will on having a business account. For peace of mind and clarity of finances get a business account and use it for all business-related transactions.

4. Start-up Revenue

If you are just starting out as a creative freelancer, you ideally will have some savings or access to some money that can help you with some of the costs of starting a business and give you money to live on while you get your business started. Even if you get clients right away, you may not receive payment for your work right away – some companies don’t pay invoices for 90 days, which means you need to have some money you can live off while you wait for your first invoices to be paid.

While I heartily recommend you start your business as lean as possible, ie without spending a lot of money to start, there will very likely be some expenses you need to incur – perhaps for design software you need to do your work, or for a laptop powerful enough to run the design software. Again, try to delay these purchases if you can with an aim to ‘bootstrap’ your business.

Bootstrapping refers to using the money earned in the business to reinvest back into the business for growth, thus the image of pulling yourself up by your bootstraps, as opposed to some form of outside funding (loans or investors) financing the business. It generally is a slower form of growth but means that you own 100% of your company rather than having a lot of debt or someone else owning a slice of your company. For most freelancers, rapid growth and market domination are not the goals, and therefore slow and steady growth and reinvestment, through bootstrapping, is a desirable way to grow your business.

Even with bootstrapping, you will still likely need some money saved, or access to some credit, in the first few months while you get your business going and land your first clients.

5. Tax Set-up

You must educate yourself as to the tax requirements of self-employed or freelance workers in your country.

Remember if you charge your client £1,000 for design work, that doesn’t mean you as the creative freelancer get to keep all of that £1,000. You will still have to pay tax on that money like employees have to pay tax on their salaries. You must educate yourself how taxes work for self-employed freelancers in your country. Again, your local library or a professional association in your country can be a good place to start. Or talk to an accountant.

In the UK, if your business revenue goes over £85,000 per year, you must register for VAT (value added tax) and charge VAT (currently 20%) on all of your invoices. However, you don’t get to keep that VAT, you must then turn around and make regular submissions to the government of this VAT. This requires excellent record keeping and attention to detail.

When your business grows to this level of revenue, you might be very well served to get a bookkeeper and/or an accountant to help you. However, in the early days of your freelance creative business you are likely not going to meet that threshold, so you don’t have to worry about this.

Conversely, if you are not registered for VAT, it is illegal to charge VAT to your clients.

Again, every country may have different taxes and rules regarding the collection of taxes, so you must educate yourself and set up a system to keep track of this.

6. System for tracking invoices, payments and expenses

As a creative freelancer, you are a small business.

As such, you need to set up a system to track your income and expenses and any taxes you must collect.

When starting out, you can probably do this with a spreadsheet. Add a new line for every job including details of who the client is, the dates you worked, what the services were you provided, how much you invoiced for, any tax that was collected.

Later on, you may want to use a software package to do this for you, for example Quickbooks is very popular and widely used. Alternatively, it may be practical and cost-effective to hire a bookkeeper on a casual basis for a few hours a month to do all of the record keeping for you.

Whether you do it yourself, or get someone to do it for you, you want to stay on top of these records.

7. Insurance

As a creative freelancer you probably don’t need professional indemnity insurance, which is what business consultants and financial advisors need should a client sue them based on the advice they receive. However, you may need to have public liability insurance, for example if you are teaching workshops in public spaces, or having clients attend your office or home. This would protect you if someone tripped and fell and injured themselves, for example, while in your home for a music lesson. Many professional associations, such as the Musicians Union, offer this insurance to their members. It is worth belonging to a relevant professional association for lots of reasons, but one of which is that they often provide insurance or access to insurance that is relevant to your field. If in doubt, ask other people in your area about any insurance requirements you should be aware of.

If you have a family or other dependents, you may want to look at disability insurance which would protect you if you were unable to work.

Finally, in some countries, such as the United States, a barrier to freelance working is lack of access to health insurance. Working without health insurance is not recommended. There are insurance packages available for freelancers, but they can be extremely expensive. Some find that working a certain number of hours per week in employment gives them health insurance and then do your freelance work in the other part of your week – this can be a compromise that works. Alternatively, some may get health coverage through a spouse or partner. Again, this varies from country to country to you will need to educate yourself as to health coverage requirements in your country. In the UK, you will have access to the NHS health system, so this is not an expense you will need to incur.

8. Physical workspace

You will need a physical space in which to do your work. This might be your kitchen table, a spare bedroom, your garage or it could be rented office space or a co-working space. Where ever you work, make sure you are set up in a way that promotes good physical health. Make sure you have a good chair that provides you good support, a proper monitor set-up and keyboard if you do computer work and whatever other tools you need. Hunching over a laptop while working from your sofa is not sustainable and there is a threat of short-term aches and pains and long-term physical damage from this. You will need a workspace that is fit for purpose.

9. Small business knowledge

You’ve already seen in this list a number of areas where you are going to need to seek out information and education, for example around tax and legal structures. But you are also going to have to invest in on-going training and education around marketing, finance, intellectual property, social media, shipping/transport, networking, business development, etc. This can either be seen as a burden or an exciting opportunity to continue to learn and develop. This is one of the great things (I think) about being self-employed is that you have a tremendous opportunity to continue to learn, and in fact, a requirement to keep learning.

This learning might be through formal courses or trainings, but can also be through talking to people, reading books and blogs, or taking additional courses on platforms like Future Learn or others. Whatever the source, you must commit yourself to ongoing learning around business.

10. Tools specific to your work

Finally, consider any specific tools you need for your work. I can’t tell you what those might be, but you may need physical tools or digital tools to be able to launch your creative freelance business and do your work.

Be cautious and mindful of spending money unnecessarily, but also be mindful about buying ‘cheap’ which can often be a false savings if you have to replace it sooner than anticipated or it isn’t fit for purpose.

While you are starting out, consider if there are options to rent, borrow, or share tools and equipment, or can they be bought second-hand thus not only saving you money but supporting the circular economy and avoiding things going to landfill.

Conclusion

That was a lot to take in! You may want to go back and revisit this list. Many of these items we will revisit later in the course, but I wanted to lay it all out now so you have a big picture view of what kinds of structures and steps you were going to have to take as you set-up and launch a freelance creative business.

It will take time to get all of these pieces into place. That’s okay. The key thing is to start working your way through the list and identifying the areas where you will need to do some more specific research for your unique situation.

© Kingston University
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Survive & Thrive as a Creative Freelancer: A Beginner's Guide

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