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Employee to Freelancer - Transitioning from a full time employee to business owner

I recently had a call with a very talented individual starting their transition from employee to freelancer. They did not spiral, by the way. However, they were unexpectedly let go from their full-time position.

They already had a good grasp on the initial steps to take and were well on their way to being a successful freelancer/contractor. Here are some of the highlights that came out of the transition conversation.

Update your portfolio and reach out to your network

The first step is to put it out there that you're available to take on new projects. For some, this can feel like begging for work, but let's think about it from the other side. I, for one, was low-key excited to hear they were out on their own now because I have projects I would hire them for now.

So, when I saw their announcement, I first felt empathy because the safety net was just cut out from under them, and then I felt excitement because this meant they were available. So, please, never feel like announcing you are available for new projects or work is begging. When you have the skill and talent you worked hard for years to cultivate, you are doing others a favor by being available.

So go get on Squarespace, Webflow, Framer, or similar. Highlight what you do and show examples of it in practice.

Post on LinkedIn, Twitter, Facebook, etc., and tell your story. Remember, your next client is only three degrees of separation away. Start the conversation.

Setup your business

If you don't already have one, form an LLC and find a reputable accountant. In many cases, you should opt to be taxed as an S-Corp; more on this later.

Once you have your S-Corp/LLC papers, set up a business checking and credit card, and ALWAYS keep personal and business purchases separate. This will help protect you legally and reduce your possibility of being flagged for an audit.

Once your bank account is active, set up a payroll manager like Gusto and add yourself as a W2 employee. I have my salary set up to be paid once a month. Set yours to match your preference.

Salary & Dividends

Discuss this with your accountant: The 60/40 rule is a simple approach that helps S corporation owners determine a reasonable salary for themselves. Using this formula, you can divide your business income into two parts, with 60% designated as salary and 40% paid as shareholder distributions. Remember that 60/40 is a rule of thumb, and the IRS does not officially approve it. Decide what the split should be. Say you make $100k in a year. You could set your salary to $60k, paid monthly, and then a dividend or profit distribution of $40k at a lower tax rate. * Discuss this with a qualified accountant in your state. *

Landing your first client as a freelancer

There are so many ways to accomplish this. Staff augmentation, agency partner, full projects.

Staff Augmentation: You can offer "staff augmentation" style services where you make your skills available to agencies and studios and work alongside their in-house team. This style's margins are a little tighter, but you can set your schedule and deliver top-quality work, which gets you in the door and opens up more opportunities down the road.
Agency partner: Some of the biggest agencies will use freelancers to fill skill gaps. For example, some agencies regularly hire freelancers for design work, Unreal & Unity development, animation, and list goes on. Reach out to some agencies and offer your services. Many of them are already actively looking for people just like you.
Full projects: The direct approach. You land the client, scope the work, build the team, and deliver the assets. With this approach, you can do all the work yourself, hire other freelancers to fill your team, or bring in an agency partner.

Once you find a potential client, start the five-step process: 1. Intro meeting, 2. Discovery, 3. The proposal, 4. Scope & Contract, and 5. Execute.

Being informed and organized will help keep everything in its place. Find a project manager app that fits your style and use it for everything.

When an intro call is scheduled, I create a new project in the app and create a document/page called Project Summary. I break it into sections that will get built on over time. The first is RFP (Request for proposal), where I copy any relevant comms, i.e., emails, direct messages, and phone conversations. Then, I list relevant people, what they do, and what I know about them.

As the intro and discovery move on, I keep building requirements and notes as they come in.

Record all your meetings and have them transcribed and summarized using available AI tools. Pull from these to help build your project summary.

NDAs and non-competes need their own article, too, but here are some quick tips. ALWAYS read them. Change the legal jurisdiction to your home state, and make sure the total term is three years or less. Also, ensure this is a mutual NDA and not one-sided, protecting their company and hanging you out to dry. Once you have updated it, use a digital signature service and make sure you have a copy of the fully executed document, i.e., your signature AND theirs. A non-compete often doesn't make sense and could prevent you from working with other clients. Consult an attorney before signing any legally binding documents like a non-compete.

1) Intro meeting:
Before the meeting, research the client. Find as much information about them as possible and compile it into a Company Profile. Next, look up all the people who will be in the meeting. Grab their LinkedIn profile photo, recent experience, and anything relevant to get to know them professionally. Add this to the Company Profile.

Start a list of questions you need answered to understand the potential project fully. This outline will keep you from scrambling during the meeting. If the flow slows or stops, you'll have a list of questions to get the meeting productive again.

Don't be afraid to be the "dumbest" person in the meeting. This means if you don't understand something, ask questions. Don't give in to the insecurity of "if I ask this, they'll know I don't know". Here's the thing: if you do ask all the questions, you leave the meeting being the most informed, and because you weren't afraid to ask, everyone is now on the same page because you all discussed it as a group.

This meeting should be pretty quick. Try to keep it around 30 minutes. Key information you need to get:

  • What do they want you to do, build, or deliver?
  • Can you deliver the type of work they need?
  • Can you do the work yourself or hire a team?
  • Why is this project valuable to the client?
    - Are they getting paid to deliver this?
    - Will this increase or add revenue streams?
  • Do they have the budget to afford you? Don't be afraid to talk about money.
    - "A project like this usually costs around $100k to $145k. If we come in around the higher end of that range, does that work with your budget?"
  • Is there a hard deadline? i.e., An event, pre-arranged agreement, etc.
    - Can it be changed? Can you deliver in phases? i.e., MVP, then post-launch additions?
  • How do they measure success?

2) Discovery:
You may need more information before you lock in a price and create a proposal. In this case, you can offer to run a discovery session. Depending on the time needed and the project size, you may need to charge for the discovery session. I have had some projects with a one-week discovery and some as long as a full month of discovery. Treat this like its own project scope, and the deliverable is the proposal along with a written scope outlining the needs and requirements of the project.

3) Proposal:
Some projects require a beautifully designed, detailed proposal. But you're not in the proposal business. Make a judgment call and decide what's needed to close the deal. I have used many methods for proposals, from the 20-page slide deck and formal presentation down to a text with the amount and an estimated timeline.

For most projects, I use my website's CMS to create a personalized private page for the client. Then, I will host a video call and review it with them. After the initial presentation, I'll share the link so they can review it independently. When you present the proposal, you can control and inform. If there are any questions or misunderstandings, you can resolve them right there rather than any assumptions being made.

Don't be a paper tiger. i.e., don't email a link and hope for the best. Get out there and close the deal.

Estimating the project price can be a challenge. Pricing will be its own article, but here are a couple of tips to point you in the right direction. Build your estimate from the perspective that you are only managing the project, even if you are the only one going to be working on it, and include operating charges for things like software licenses, hardware, payroll taxes, internet, office space, etc.

And once you have all those numbers added up, add 5% to 20% on top as company profit. That's right, after you pay everyone and settle any expenses, your company will have a profit! Use it to reinvest in your business, as a bonus, or to expand.

4) Scopes & Contracts:
Now that you've figured out the price for the project and a proposal agreement, you have to create a legal agreement of what will be delivered and how.

With a scope of work, you want to balance detail and ambiguity. If you're building a website, you don't want to over-detail items, i.e., "The CTA button will be red and positioned in the lower right". This can get you into trouble because when designing and building, it may now make sense to have the button be blue and centered. But there, you just violated your scope definition.

Write in the range style. For example, if you're going to build a 5-page website, you can word it as "up to five pages".

Scoping lessons are a whole other article. The important thing is that you have one, and you send it to the client to review, approve, and sign. Each scope should also include or be accompanied by a service contract.

Your contract should give you rights to display their logo on your portfolio website and include a case study detailing the project and how you solved issues.

Always get your legal contracts reviewed by a qualified attorney.

5) Execute:
Closing the deal feels amazing. Very quickly, though, the responsibility of delivering everything sets in. Let's get to work.

Now, it's time to hop back into your project manager app and break the scope into tasks. I try to create tasks in a way that will fit into a changelog list. Imagine if, at the launch, the client was delivered a list of changes included in that release.

Utilize release tracking in the management app to track your accomplishments for each release you deliver or demo to the client.

Keep time-stamped notes of any changes, late deliveries, milestones, etc. Here are a few things I always track:

  • When the client made contact
  • When we met, who was there
  • When the proposal was sent and accepted
  • When the scope and contract were sent and signed, and by who
  • When any changes were requested, especially if they will require a change order
  • If any deliverables were received, when (especially if late), who sent them
  • Many more...

You could probably search your inbox, look at your DocuSign account, and find most of this info after the fact.

You should know, having this information organized in a single place gives you superpowers.

With all of this in place, you will be confident of crushing the project and having a long-term client.

Extra credit

Talk about what you accomplish as you do it. Keep notes of little stories you can share to inspire others at the end of each day. Did you crush designing a new feature? Resolve a conflict? Share the story, the tools you used, how you approached it, etc. Find a way to talk positively about the experience, even in a negative situation. This will help countless others and positively affect you in the long run.

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