When you freelance, you’ve decided to be a business owner. And, being a business owner means that you’re suddenly liable for everything that comes your way. There’s a new level of legal liability that can leave you exposed. Employees have certain protections against screwing up, but not freelancers.
Let’s take a simple example. You’re a freelance writer and you source a picture that is supposedly free to use for a client. Later, that client receives a cease & desist order to take down the photo. Worse, they are demanding a retroactive license payment amounting to thousands of dollars. Taking down the photo isn’t enough,
Now the client is mad at you and tries to come after you for the money so they can avoid legal issues. Could you handle getting sued by a client? Would it mean the end of your business? Or do you have protections in place that can help you weather such storms?
There are other considerations as well. What if you screw up your taxes? What if you lose the rights to your work and didn’t even know it? What if that non-compete clause now locks you out of your specialty? There are a lot of dangers out there.
Here are some things to consider for protecting yourself from these situations.
Changing your Business Structure
One of the reasons companies incorporate in the first place is to provide legal protection to the owners. If something bad like the earlier example were to happen, the suit would only be able to claim the assets of the business, not the personal assets of the owners. But this can only happen if the right business structure is in place.
If you’re in a sole proprietorship or a partnership, you have a lot of legal exposure. Granted, your taxes and business paperwork are a lot simpler, but hiring a lawyer to help you incorporate your freelancing business into an LLC or an S-Corp and then using an accountant to help with your taxes can really save your bacon if you ever end up being sued.
As an additional level of protection, some companies buy liability insurance. In the example, the freelancer thought the photo was licensed correctly but still got sued. Unexpected things happen.
Companies like Eager.to specialize in offering liability insurance protection to freelancers. This insurance protects you in case you are lconsidered liable malpractice, negligence, and even injury. For those sole proprietors and partnerships who don’t want to incorporate, this is an excellent way to protect yourself. Of course, having both will make your business even stronger.
Freelancers live and die by the contract. Successful freelancers must learn about contracts and what different clauses mean in order to protect their rights and even their entire business. Some freelancers don’t read the fine print and get caught in awful situations. And getting out of them can lead to a lawsuit that’s not in your favor.
Forewarned is forearmed. While the specifics of contracts will need to vary depending on your freelancing business, there are some general things that every freelancer should have in their contracts. An excellent post on this topic can be found at Hongkiat, but you should also scour blogs written by your fellow freelancers to see how they’ve gotten burned and what they did to protect themselves. Good clients respect strong, clear contracts.
One of the best contract education sites for freelancers is Work Made For Hire. If you’re completely new to contracts and freelancing, or if you got burned bad by a contract, this is the place to go.
This is another huge thing that can be missed in the initial rush of becoming a freelancer. Freelance taxes are always more complex than employee taxes. Do you know what you’re required to pay or what you can deduct at the federal level? How about the state level? What about quarterly taxes?
All freelancers should hire an accountant during at least their first year and whenever they change their business structure. But there’s a lot you can learn on your own to discuss with your accountant and perhaps take the taxes back over. Try reading the tax guides at Freelancer’s Union. There are a lot of them, but they’re all incredibly useful. And if you’ve found you’ve been screwing up your taxes, get that fixed!
While we’re on the subject of taxes, you will want to get health insurance as a freelancer. There are some huge tax liabilities for working without health insurance now thanks to the ACA (Obamacare). While it may be annoying to have to purchase it, the first time you need it you’ll be glad to have it. Just look at your hospital bill at the end of your stay and see what you could have paid.
Finally, you need a way to help clients comply with paying you on time. A client that promises the moon and doesn’t pay up can cripple your business. Contract education helps here, but it also helps to give your clients many ways to pay you. That’s where an app like AND CO can really help you out.
By just tapping a few buttons, AND CO lets clients pay you with whatever payment methods you like and ensures the money reaches you in a timely manner. The invoicing software keeps track of what invoices are outstanding and which ones are not. If you do end up having to take a client to court for non-payment, AND CO’s payment reports can provide proof that they received an invoice and didn’t pay up.
By allowing yourself to get paid in multiple ways, that gives clients the flexibility to choose a payment method that works for them. If all you take is PayPal, for instance, you’re not just potentially inconveniencing your clients. You’re also setting yourself up for huge transaction fees.
There are some crazy situations which happen out there. Every client that you take on will present new situations and new challenges on the business side. By having protections in place – like a solid contract, the right business structure, and liability insurance – the big rocks for others turn into small speed bumps for your business.