How to Become a Freelancer: 8 Steps to Self-Employment
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Freelancing: an exciting opportunity to be your own boss and break free from the 9 – 5 routine. Getting there, however, involves a few crucial steps to ensure you’re doing it the right way. Read on to find out what they are.
What Is a Freelancer?
As a freelancer, you work with a temporary service or work contract. You bill your clients via an invoice, on which you state your hourly or daily rate for the service provided.
What this means is, you’re not integrated into the contracting company. You also aren’t bound by the company’s requirements for employees. The only thing that’s required of you is to complete the tasks to the satisfaction of your client. How, when and where you do that is up to you.
The Differences between a Freelancer and a Freiberufler
In Germany, ‘Freiberufler’ and ‘Freelancer’ are often used interchangeably, but there are crucial differences between the two. Put simply, ‘Freelancer’ describes the working relationship you have with your clients and ’Freiberufler’ specifies the tasks you’re performing. In summary, we can say that every Freiberufler is a Freelancer, but not every Freelancer is a Freiberufler.
These distinctions are due to the so-called catalog professions, the definitions of which correspond to § 18 of the Income Tax Act. These professions fall into the following categories:
- Medical professions, including doctors, non-medical practitioners, physiotherapists and others
- Legal and business advisory professions, such as lawyers, tax consultants or public notaries
- Technical and scientific professions such as architects, engineers or pilots
- Media and language professions such as journalists, interpreters or photojournalists
If you fit into one of these categories, you can become a freelancer. Read more about the tax implications below.
What are the advantages and disadvantages of working as a freelancer?
Certainly one of the biggest advantages for freelancers is their independence. You make your own decisions and you’re ultimately accountable only to yourself. You pick your clients, which provides you the opportunity to create an atmosphere to your liking. This kind of independence offers more opportunity for work life balance, enabling you to divide your time among yourself, your family and your career.
Of course, there’s another side to all this. Before you decide to start freelancing, consider the disadvantages and ask yourself if they outweigh the advantages. Living as a freelancer means never having a fixed income, creating a consistent uncertainty. You’ll also pay taxes yourself, on top of health insurance and nursing care insurance. You don’t get sick pay or holiday leave, so throughout the year you need to save to allow yourself some time off.On top of this, you are responsible for the quality of your own work and delivering it on time.
Having weighed these up, continue reading if you’re still convinced freelancing is the path for you.
How to Become a Freelancer in 8 Steps
If you want to start off as a freelancer, there are eight essential steps you need to take on your way:
- Choosing your field of work
- Plan your customer acquisition
- Plan your time and fee
- Register as a freelancer
- Know about insurance and taxes
- Design a daily work routine
- Manage assignments and negotiate your fee
- Save money for future occasions
Step 1 – Choosing your field of work
Before getting down to the real work, you should first clarify everything you can about your chosen industry. This includes analysing the market and your options. What does the competition look like? What services do your competitors provide? How can you stand out? And very important: Who is your target group? Once you’ve answered these questions, you can start planning.
Step 2: Plan your customer acquisition
There are many pathways to customer acquisition, all of which are industry-specific. One rewarding way of gaining clients is to attend networking events. Here, you’ll get in touch with other people from your industry and learn a lot from more experienced members.
Another method is direct acquisition. While this requires more time and effort, it can effectively lead to new orders when you’re recommended by your clients.
Owning a website is also hugely advantageous. Show your work there and introduce yourself so that your potential customers understand what you do and can connect with you personally. If you don’t feel ready to create a website, begin by making a company profile on whichever social media platform best displays you and your work.
Also consider freelancer portals. In these, clients post requests for workers like you to complete. In these same portals you can advertise yourself and your specialties, encouraging potential clients to come directly to you.
Step 3: Plan your time and fee
Approach your workday realistically. How much time do you need to complete each task that comes your way? Because it’s not just about getting the work done. You need to make time for customer acquisition, invoicing and accounting. Avoid too rigid a schedule, otherwise you risk getting stressed, affecting your mental health and ultimately your work.
Think carefully about your weekly expenses. This will allow you to calculate an appropriate hourly rate.
Step 4: Registering as a Freelancer
The registration process depends on whether your work belongs to one of the catalogue professions. Once you find this out, you’ll need to determine whether you become a Freiberufler or if you’ll need to register yourself as a business.
As a Freiberufler, you need only register with the tax office to become self-employed. You’ll then receive a questionnaire for the tax registration, and once that’s done, you’re registered. Only if you’re an artist or publicist you still have to register with the artists’ social insurance fund in order to secure pension, health and nursing care insurance benefits.
If you register a business as a Freelancer, you must register with the tax office as well as with the trade office. After that, you will receive your tax number and can register with the IHK or the HWK. It’s also worth finding out whether you need to belong to a professional association in your industry as a freelancer.
Step 5: Insurance and taxes
As a freelancer, you are responsible for your own insurance. Highly recommended insurances in Germany are:
- Health insurance (mandatory in Germany), pension insurance, long-term care insurance.
- Accident insurance
- Occupational disability insurance
- Public liability insurance
- pecuniary damage liability
- Legal expenses insurance
There are also some necessary taxes you’ll pay as a freelancer: sales tax must be paid at either 19 or 7 percent, depending on the service provided. Under the small business regulation, however, you are exempt from VAT up to a certain earnings amount and do not have to show it on your invoice.
The same as any employee, as a freelancer you have to pay income tax. The amount will be between 14 and 42 percent of your income.
Step 6: Design your daily work routine
If you want to become a freelancer, it’s important to figure out when, where and how you can work best. Do you prefer to work from home or out of the house? During the workday or through the night? In a quiet library or a crowded cafe? Think about the environment most conducive to your productivity and take advantage of the freedom offered by freelancing.
Step 7: Manage your assignments and negotiate your fee
If you’re planning to take on several jobs at once–which is a common scenario for most freelancers–make sure you’re managing your time well. Your top priority should always remain the quality of work, because this is most likely to land your more work and recommendations to other clients.
When negotiating fees, insist on what covers your needs. Avoid underselling yourself to outbid competitors, as you risk getting overloaded with work and developing an unwanted reputation as a cheap worker.
Step 8: Don’t forget to save
Freelancers need to budget and plan ahead more than the average employee. This is because, as previously mentioned, you need to cover all your taxes and insurances, plus holiday and sick pay. Plan ahead with all these things in mind and save accordingly.
To make budgeting easier, set up a business account first and avoid mixing your personal and business expenses. If this seems unnecessary, you’ll be glad you did it when tax time comes around. One way to avoid a headache at this time of year is to build reserves. With the Penta business accounts you can create sub-accounts for building reserves. If you still haven’t found a suitable business account yet, find out all the details in our pricing plans.
Becoming a freelancer requires some planning, patience and expertise. It’s a lot of work, but if you’re the right person for the job, you’ll be glad you took the time to do it right.