You’ve taken the big decision to go freelance. Well done… but how much start up capital do you really need to take the plunge? Here is our guide to identifying your start-up costs.
1. Legal stuff
You will probably need some form of professional indemnity (PI) insurance and maybe Public Liability Insurance. If you are a member of a professional association, you will normally get a hefty discount on your PI insurance. Some professions, such as law, require you to have a ‘practicing certificate’ before you can be your own boss. Check with your professional body what they recommend that you have in place to be an independent. It’s difficult to put a price on what PI insurance will cost you, as it depends on what work you will be doing.
2. Subscriptions and membership fees
These may come as a bit of a shock to you if your employers have always paid your yearly subscriptions and membership fees. You will need to pay your professional association’s fees and any trade or federation body fees, and then any networking organisation’s membership fees. For example, I am a member of my local chamber of commerce, the independent learning practitioner’s association, Chartered Institute of Personnel & Development, Business For Breakfast (B4B)… these all add up. If you are considering being a member of a breakfast club such as BNI, 4N or B4B, your yearly membership fees are likely to be over £500, and normally do not include the weekly, fortnight or monthly cost of the breakfasts.
3. IT equipment
As you are probably handing back your work laptop, you will probably need to get your own personal laptop. A reconditioned machine or netbook will set you back £250+, but remember to factor in the extra cost of peripherals and software such as Microsoft Office, Mouse, keyboard, monitor, accounting software, printer, external hard drive… all-in-all, a budget of £1250 will get you a pretty decent laptop, essential software, and reasonable quality peripherals.
4. Accounting fees
Whilst you can do your own books and set up your own limited company, you may find it simpler and more cost effective in the long run to ask an accountant and their book keeper to do this for you. For example, if you can charge yourself out at £100+ per hour, do you really want to be doing your own books, when a book keeper will charge £10-15 p/h? Many accountants will set up your limited company for free, as a way of getting your business.
Whether you are a sole trader or director of your own business, you will need to complete a self assessment for your personal tax return. You can either do this yourself, or ask your accountant to do this for you.
5. Your salary
Even if you have gone freelance with guaranteed work lined up, there is always the gap between doing the work and getting paid. My first assignment, for various reasons, took over 4 months to be paid in full. You need to factor in a worst case scenario for how long it will take you get booked for some work, and how long it will take for you to then get paid. There is no good reason for it, but most companies will generally pay up 30-60 days after they have received the invoice. If you are acting as an associate, you will tend to only get paid after the client pays the person you are working through.
If you decide to get a web presence, then you will need to think about domain hosting and registration fees. The cost of your design and build of your website can be anything from £0 (you do it all) through to many thousands of pounds. There are website solutions to suit every budget… for example, a wordpress blog hosted within your own domain, has a good level of functionality and can be quickly and easily customised to build your own website. To have your domain registered and hosted with some e-mail addresses will set you back somewhere between £50 and £100 for the year.
7. Personal insurance and protection policies
Up until now your employer has probably paid for a range of great benefits like life assurance, private medical insurance, pension contributions… Speak to an independent financial advisor for a quote for what this will cost you.