Running a freelance design business

The day-to-day running of a freelance business may not be super exciting but it’s just as important as finding new clients. If you aren’t tracking expenses and taking care of yourself, you’ll risk burning out and failing. In this post, I’ll cover some basics about setting up and running your business. I’ll also go over some strategies for raising your rates and avoiding burn out.

Registration

Make sure you register your business before you start anything. In Canada, you can register as a Sole Proprietor for about $60. This is a must to make your business legal and it will also allow you to write off business-related expenses when you do your taxes.

Expenses

Once you’re registered there are expenses you need to track. The type of expenses you can claim on your taxes will vary from country to country and province to province (or states in the USA). Here’s a rough list of some of the expenses you can claim in British Columbia, Canada. Please keep in mind I’M NOT AN ACCOUNTANT. This info is just for reference, you should contact an accountant in your area to learn all the ins and outs of your tax laws. Here’s that list of items to consider tracking.

  • car fuel
  • car insurance
  • car maintenance and repairs
  • parking
  • office expenses
  • credit card interest (business card and expenses)
  • business banking fees
  • donations
  • internet connection
  • business phone
  • advertising
  • business entertainment
  • business travel
  • office maintenance
  • office supplies
  • other business expenses
  • postage
  • hardware and software
  • education costs
  • professional services
  • professional group fees
  • conventions
  • business leases
  • transit
  • office rent
  • office utilities

Make sure you keep all your receipts! In Canada, you need to keep all your receipts for the past 7 years in case you’re audited. This is just a list to get you started, talk to an accountant!

An expense tracking option you could try is Wave Accounting. It has a built-in tool to track all your receipts and issue invoices. It also has some built-in reports that are handy for seeing how your business is doing.

My expense tracking system is much more analog. I collect all my receipts in a shoebox all year. When tax time comes around, I pull out the shoebox and divide the receipts by categories (as mentioned above). I then create a Google spreadsheet and enter in all the amounts by category. Next, I use Simple Tax to do my actual taxes. They have a good wizard tool that will take you through all the expenses to make sure you don’t miss anything. When you’re done, you can export your taxes and submit them. Depending on the size of your business, you may want to use an accountant for this. It will cost you more but might be easier.

Banking

After you’ve registered your business, I’d suggest visiting your local bank and setting up a business account. Most banks will have a small business account that shouldn’t cost you more than $10 a month in service charges. I use the Royal Bank of Canada and I think I pay about $5 a month. Once you have the account set up they will provide you with cheques in your business name which will look professional. Avoid mixing your business income with personal income. It’s best to keep everything separate for taxes and tracking reasons. A business account allows customers to write cheques to your business name. This is a simple step but make sure you complete it early on.

Invoices

One of the most important parts of your business is your invoice. There are several things you should include in your invoice which I’ve outlined below. The taxes and business numbers listed below are specific to Canada:

  • Your business name and address
  • Your client’s name and address
  • The date the invoice was created and when it’s due
  • The invoice number
  • A line item for each part of the project
  • If you charged hourly, the number of hours and the rate per each line item
  • The currency the invoice is issued in
  • Thank your client for their business
  • Subtotal without any taxes
  • Taxes, if there are more than one than a new line for each tax
  • Some taxes may require you to include your tax number for them like the PST in British Columbia, Canada. This usually appears next to the tax line item
  • Grand total with all taxes included
  • The payment methods you accept and how the invoice can be paid

Another important thing you need is to decide on your payment methods. As outlined above you can ask people to make cheques payable to your business and then deposit them in your business account. You’ll also want to figure out a way to accept credit cards. The more payment methods the better. This will help speed up payment from customers who are slower at settling up their bills. For credit cards, I choose to use PayPal. The customer can pay with as little as my email address or I can generate a money request for them if they need it. Usually, they don’t as most people have a PayPal account. PayPal will take a small percentage but that is nothing compared to merchant fees from a credit card company and/or bank. DO NOT set up a merchant account with a bank or credit card company. They will rob you blind with service charges. If you’re not a PayPal fan, you could check out Stripe. If you go the PayPal route make sure you upgrade your account to a business one to unlock more options. There is no cost associated with upgrading and it will allow you to easily accept credit cards.

Should I use contracts?

I don’t use contracts for clients. I have a system for payment that is the same for all clients. If they don’t want to follow the system, I don’t take on their work. My system is pretty basic:

  • 50% payment upfront to start a project
  • 50% due on completion of the project

I never work hourly for new clients, only for a flat rate. For existing clients that I trust, I will work an hourly rate and allow them to pay me at the end of the job. New clients do not get this luxury. It will take you getting burned once to stick to your guns on that rule. Asking for a deposit is critical because it will often expose bad clients before you do any work for them. If they are balking at paying a deposit, they will likely not want to pay you at all. Thank them for the opportunity but politely turn down the work and move on.

How can I increase my rates?

A common question I receive from designers is how do I increase my freelance rates without losing clients? This is an ongoing problem, but not as hard to solve as you might think. Your client's average workday doesn’t revolve around what you are working on. They are focusing on running and building their business; design is just one part of that. Therefore, the last thing they want to do is babysit a designer or chase them for work that is late. You need to be dependable, the guy or girl who always delivers on time. Believe me, it might not seem like a big thing to you, but it is one of the best services you can offer a client if you plan to keep them.

Anyhow, getting back to raising your rates, let’s create a sample scenario. Let’s say your hourly rate is $50/hr and you’d like to raise it to $75/hr. Now that is not an insignificant hike, and your clients will definitely notice a difference. Instead of worrying about how they will react on their next quote, get out in front of the problem and let them know that the price of doing business has just changed. When you email or call them, you need to hit a couple of key points:

  • Thank them for being a great client
  • Let them know why you are raising your rates
  • Let them know when the new rates will go into effect

That might not seem like much, but if you have been doing a good job of being indispensable that is all it should take. The reality of the situation is, your client has an established relationship with you. They like you (hopefully), they know what caliber of work you are capable of, and they know you give excellent customer service.

As long as you are providing good work and awesome service, the client is not going to want to go to the trouble of finding a new designer. They don’t want to jump through all the hoops of finding someone new, testing out their quality of work and service. Bottom line, you’re not selling your work, you’re selling yourself. If you’ve been doing a good job of meeting their needs, they will not balk at the price increase.

The exception to the rule

There will be some clients who will have a problem with the rate increase. Much of the time this might be small business clients, who don’t have a huge design budget. In these cases, if it’s a long-established client, I would recommend offering them a discount. This technique is a judgment call you need to make. Some of the factors you should consider are:

  • Are they a good client?
  • Do they pay on time?
  • Are they easy to work with?
  • Do they provide you with a regular stream of business?

If you answered yes to one or more of those questions, I would recommend offering them a discount. Good clients can be as hard to find as good designers. Reward your good clients by offering them a compromise. In this case, everyone wins because you still get to increase your rates and you make the client happy by showing that you care enough to be flexible so you can continue doing business. As far as how much of a discount to offer, I’d recommend 10–25% off.

How to avoid burn out

One reason freelancers fail is because they burnout. There is a ton of work to be done and potentially a good amount of stress if things aren’t going well. To avoid burnout you need to take care of yourself by eating properly and taking breaks from the grind to recharge your batteries. Something simple you can do is just get out of the house to work. It’s really easy to put your head down and not leave your house for a week when you are on a deadline. I’d encourage you to find a local coffee shop or somewhere in your neighborhood where you can work and get a change of scenery. Even if it’s only for an afternoon. Having the flexibility on where you actually do your work is one of the bonuses of being a freelancer so make sure you take advantage of it.

When you’re having creative block or just need a break it’s also a good idea to just go out for a bit and walk. Getting back into nature can be a good way to calm your mind and refresh yourself. If you want to optimize this time bring your camera with you. Snap some photos which you could then use as stock photos later in a project. You might even develop a passion for photography which can be a good way to bring in a few extra bucks on the side selling your photos at a website like photodune.net.

If I’m feeling blocked or overwhelmed that is a sign for me that I need to turn off the computer and do something creative with my hands. Personally I enjoy painting and drawing. I’ve taken a course or two but I’m no Picasso. However, you can apply design principles around color and contrast easily to painting. I find painting can really help me replenish my creative juices when I’m going through a design drought. The other advantage is you will produce a ton of work that you can use in your design projects. In the past, I launched a bootstrap portfolio theme and used photos of my paintings as the sample projects. This is great because I don’t have to worry about licensing some stock photos and it also looks good. Diving into other mediums also helps you develop into a better designer. At the end of the day design is everywhere and learning to see and apply it in multiple mediums will increase your overall quality of work.

Another important activity to avoid burnout is networking. This could be attending a conference or simply hanging out at a coffee shop with a friend. The danger with freelancing is that you lose out on those human interactions that you get at a regular job. You need to do your best to keep that up so you don’t go insane. It’s also a good way to keep meeting new people which will indirectly help you grow your business over the long wrong. Remember to take care of your body and your mind if you want to be successful at freelancing.

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