While it is true that all freelancers are technically business owners, not everyone perceives them as such. This can be partly attributed to freelancers who do not treat their work professionally, but it can also be attributed to misconceptions about freelancing in general. Nonetheless, there are ways for freelancers to overcome negative perceptions and establish a successful freelance business. Here are eight steps that freelancers can take to make their business official and credible:
1. Choose a type of registered business entity: Freelancers can start out as sole proprietors, but it has its drawbacks, including unlimited personal liability for business debts, lack of business name freedom and protection, no tax flexibility, and lack of credibility. Freelancers can overcome these drawbacks and gain credibility by forming an LLC or corporation. An LLC offers limited personal liability for the business’s debts, business name freedom and protection, tax flexibility, and enhanced credibility.
2. Designate a registered agent: Most states require business entities to have a registered agent who will accept important notices and documents on the business’s behalf. Business owners may be their own registered agent, but it may not be ideal.
3. File LLC Articles of Organization: Freelancers must file Articles of Organization or Certificate of Organization to form an LLC, which varies by state.
4. Obtain an EIN and set up a business bank account: Freelancers must obtain an EIN (Employer Identification Number) from the IRS and set up a business bank account.
5. Apply for business licenses or permits: Freelancers may have to hold certain licenses or permits to conduct business legally, depending on their work location, industry, type of work, and other factors.
6. Use the LLC name and don’t commingle personal and business funds: Freelancers must keep their personal and professional transactions separate and use the LLC name for business purposes.
7. Notify clients and vendors: Freelancers who change from a sole proprietorship to an LLC must notify their clients, vendors, and contractors to use the LLC name on checks and invoices.
8. Hire employees to grow the business: Freelancers can expand their business by hiring employees.
By taking these steps, freelancers can overcome negative perceptions and establish a reputable business that instills trust and confidence in potential clients, project partners, and lenders.