Dr. Freelance, what do you recommend as the basic freelance writing business formation steps? I’ve been successful at getting clients, but am not sure if I should pursue a trademark or LLC first, and so on. I didn’t know if you had any advice or an order that has been more successful.–H.E. Saunders
As I discuss in The Science, Art and Voodoo of Freelance Pricing and Getting Paid, I am a big believer in forming a legal entity for your freelance writing business at the outset.
A next step includes getting an Employer Identification Number (EIN) rather than using your Social Security number–it takes only a few minutes and it’s smart practice with today’s concerns about identity theft. Finally, with those in hand, you can get a separate business bank account. I know that there are freelancers who are successful without going through the formalities, but you need to do what makes sense for your own situation.
Here’s the SBA’s handy state-by-state list of the agencies that you need to contact when forming a business. In Arizona, you can form an LLC on your own inexpensively and fairly easily; some states are more complicated, but it shouldn’t cost too much even if a lawyer does it. I’ve recently had colleagues go the S Corporation route for the tax advantages, so you might review the options with your friendly CPA. Finally, others use a Doing Business As (DBA) name; not all states require registering, so check the state-by-state link.
The “Whys” of Creating an Official Freelance Writing Business
There are a couple of reasons I recommend establishing a formal freelance writing business structure: 1) It makes the business more “real” to you and separates your personal and business finances, 2) it signals clients that you are serious about being in business, 3) it offers clients assurance that they don’t have to be concerned about crossing the independent contractor/employee line, because that is something the government is cracking down on to increase their tax haul. Uncle Sam prefers payroll employees–biweekly checks are a far steadier income source than those of us in the 1099 brigade. Theoretically, it’s also liability protection, but that’s something to address with your friendly attorney, in case your business warrants additional coverage. (UPDATE: As Cathy points out in the comments, Jenn Mattern at AllIndieWriters.com addressed this same topic today. Her detailed caveats about liability are well worth reading: “Freelancers and LLCs: Not as Much Protection as You Think.”)
Trade names and trademarks are a separate issue. Start by researching your proposed trade name at the U.S. Patent and Trademark Office’s TESS database and in the appropriate state database before you commit to a name–even if you don’t decide to secure the trademark. Part of the reason I chose Boomvang for my freelance writing business name was *because* I could trademark it. It cost something like $1200 to have an IP lawyer do it, but well worth the peace of mind to me.
In the comments: Which structure, if any, did you choose for your freelance writing business–and why? Do you have a trademark on your trade name?
Okay, it must be LLC day. I just came from Jenn Mattern’s All Indie Writers blog with the same topic. 🙂 Shows it is on freelancer’s minds.
Thanks for the heads up, Cathy. I’ve updated my post to include Jenn’s link, because it’s must-read stuff. As I commented over at her place, what was really weird was that I went to a networking meeting this morning–about an hour after publishing the post–and the featured speaker was an attorney talking about employment law, including a big discussion about independent contractors.
Jake, I’ve always been a sole proprietor, though I’ve considered LLC.
It hasn’t really been an issue so far in my niche, although one of my clients did require that I get an EIN.
Thanks for commenting, John. Were you able to get an EIN without a formal business entity? I always believed it was a prerequisite, but I may be mistaken.
I haven’t needed an EIN yet but that is because most of my customers are German and here in Germany – it’s harder to find customers back home from here in Berlin. I’m in the process of finally getting up to speed, though.
@Jake: I was able to get an EIN outside of a business entity. It was one of the first things I did because there was no way I was going to be handing out my SSN to clients … when I’m doing information security consulting (among other things) for them. 🙂
It was a pretty simple online process a few years ago and I think I even got it instantly (which was good because I needed it for a new client request that day, ha!)
Indeed, it still looks to be the same online process:
http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Apply-for-an-Employer-Identification-Number-(EIN)-Online
And a quick poke at the online application still shows Sole Proprietor as an option when applying.
EP, thanks for the comment. Based on my experience of living and working in Canada for a year, I’m guessing your multi-country taxes are complicated!
Josh, thanks for the interesting clarification. Getting an EIN is definitely a simple (and, as you point out, essential) step for every business owner. Even if we’re not involved in security as a line of business, it’s about our *own* information security.