Freelancing? Think Like a Business Owner

So you've had enough of your rotten boss or the hideous job market and decided to give freelancing a whirl. Congratulations. But before you settle into your SpongeBob slippers and turn to the day's project deadlines, ask yourself this: How's business? Be honest. Are you bringing in enough work? Making enough money to meet your expenses--and your saving goals? Happy with your current client lineup--or frantically nabbing any project within spitting distance for fear it will be your last?

If your freelance business has yet to meet your expectations, don't fret. With a little strategy and planning, this could be the year you get there. Here's how.

Track Your Time
Sure, many freelancers get paid by the project, day, week, month, word, session or click. But it's helpful to do the math and see what your efforts are yielding per hour. This applies to all indie workers, whether you're a writer, designer, photographer, programmer, bookkeeper, virtual assistant, social media expert or project manager. If you're scarcely clearing minimum wage for that client you thought was such a coup, Houston, we have a problem.

Happily, the web is rife with free tools you can use to track your time per project. Examples: myHours, Slim Timer and Toggl. If the hours show that you're grossly underpaid, you have two choices: ask for more money or replace the client with one that actually pays a living wage.

Raise Your Rates at Least 50 Percent
Time-tracking aside, if you've been self-employed less than a year, I can almost guarantee you're not charging enough. You might think $40, $50 or $60 an hour sounds like a lot. But factor in taxes, business expenses, health insurance, retirement savings, vacation days and the fact that you're hustling for work 5, 10 or however many unpaid hours a week, and you're lucky if you take home $20, $25 or $30 an hour.

To determine what you need to earn per hour to cover your costs, draw a salary and make a profit, try FreelanceSwitch's hourly rate calculator. Obviously you need to take into account the market rate for your profession, industry and experience level too. If everyone can afford you, your rates are too low. If no one can, your rates are too steep. You know you've hit the pricing sweet spot when about 20 percent of your prospects can't afford your services.

Invest in a Standard Contract
Although freelancers do it all the time, accepting a project on nothing more than a handshake is a bad idea. If you don't specify in writing every last parameter of the gig--from revisions and copyrights to deadlines and payment dates--you might find yourself negotiating various minutiae throughout the course of the project. Worse, if your contact leaves the company, you'll have no proof of the terms you both agreed to.

It's worth hiring a lawyer who caters to small businesses to draw up a contract or review one you've cobbled together from the web. For those on a limited budget, many law schools and legal organizations offer clinics that serve small business owners and artists. Professional associations like the National Writers Union, Graphic Artists Guild, and American Society of Media Photographers also offer their members contract assistance. And the legal advice clearinghouse Nolo sells affordable books on the topic as well as contract templates you can download.

Get an Accountant Already!
Hopefully you've heard the basics of freelance tax law by now: save at least 20 to 25 percent of your income for Uncle Sam, pay the IRS directly each quarter, track deductible business expenses and so on. You're bound to have questions about all this as well as city and state licensing and tax regulations--questions your equally green freelance friends won't be able to answer.

For this reason, I suggest hiring an accountant who specializes in small business ownership. And I suggest you do it now; any accountant worth his or her salt will be slammed come late February. Besides helping you navigate the minefield of ever-changing tax laws--and thus avoid penalties--a good accountant can help save you money on your tax bill. Don't be the freelancer desperately scouring the web on April 14 to see if she's eligible to write off her home office or claim a portion of her last vacation as a business expense.

Get Out of the House
I know many new freelancers think the way to market themselves is to slap up a website, open a Twitter account and scour sites like Elance, oDesk and Guru for gigs. I couldn't disagree more.

Yes, a website is a must and Twitter is a fantastic schmoozing tool. And yes, some freelancers swear by sending their resume into the anonymous void on those job bidding sites (not this gal). But if you can't list 75 people in your industry you know well enough to invite to coffee--freelancers and staffers alike--you're missing a critical component of small business marketing.

Biznik--a community of freelancers and entrepreneurs--makes jumping into the face-to-face fray a cinch. So do the happy hours, workshops and other events sponsored by countless professional associations and co-working spaces. Most successful freelancers land a majority of their client introductions and gigs through their professional network. Isn't it time you joined them?

Michelle Goodman is a freelance business writer and author of My So-Called Freelance Life: How to Survive and Thrive as a Creative Professional for Hire and The Anti 9-to-5 Guide: Practical Career Advice for Women Who Think Outside the Cube. Her weekly career column appears on ABCNews.com. Visit her at Anti9to5Guide.com.