Protecting Your Business as a Freelance Designer
Being a freelance designer lets you flex your creative muscles, serving clients with various design needs.
A career as a freelance designer has many advantages. You have the freedom to choose the clients and industries with which you want to work. You can work from anywhere with reliable connectivity, with design programs and technologies available to help with your creative process.
Freelance designers are in high demand, meaning it’s a good income source. In addition, you can be your boss, choosing when and how much you work.
There are some challenges to having your own freelance designer business. You will need to source and manage your clients and manage your finances. You’ll also need to address various legal matters and regulatory mandates.
You must know your way around the relevant legal matters you need to consider for protecting your business. Here’s a closer look at the primary legal and financial considerations.
Use Contracts and Agreements
As a freelancer, you will be negotiating deals with clients. The details of those deals should be included in a contract that spells out the work to be done, deadlines, payments, interim deliverables, revision cadences and dispute resolution.
You may need to sign a contract prepared by your client or use your own. Either way, you’ll want legal expertise to help you with the process. You can have a lawyer draft a contract template for you or create one each time you secure a client. It would help if you also had an attorney review the terms of a client-created contract.
Having a well-defined and reviewed contract makes good business sense for both partners. It can prevent a freelancer from being exploited by an unethical employer and ensures you have protection at each stage of the process.
You may also work with other freelancers or suppliers and need to draft work agreements or other legal forms that determine the terms of the relationship. Again, having legal support in your corner is a good idea.
The days of working on a verbal agreement or a handshake are long gone. As a freelancer, you should insist on a contract for every engagement.
Address Privacy and Security Considerations
As a freelance designer, it’s easy to blend personal and professional. However, to protect your privacy and present yourself as a credible business, you should take several steps to separate the personal and professional, including:
- Build a Website. A professional website allows you to share a portfolio of your work, list your skills and experience, and give potential clients a place to see your ability and contact information. Be sure your website uses SSL encryption to protect you from cyberattacks and signal that you take cybersecurity seriously.
- Use a Business Email Address. There are better approaches than using your Gmail or Yahoo address for your professional work. Obtaining a business email address is easy and inexpensive, allowing you to manage your business from a distinct account.
- Have a Business Phone. It makes sense to use a second phone number for your business work. Doing so allows you to use a professional voice greeting and keep your work and personal lives distinct.
Select a Legal Business Structure
Choosing the proper business structure is a critical step. The business structure is the legal organisation your company uses. Each structure has advantages related to taxes, management, and liability.
The two most common freelancer business structures are a sole proprietorship and a limited liability company (LLC).
Sole Proprietorship
In a sole proprietorship, the owner is the single manager and decision-maker. This structure is the simplest to establish and requires no formal paperwork to form.
Sole proprietors carry any business revenue and losses to their tax returns. There is no separate business tax paid. Business-related finances are included on Schedule C of Form 1040.
From a liability perspective, a sole proprietorship carries some risk. In the case of a court judgment against the company or a bankruptcy filing, your assets are at risk. That means a creditor could come after personal property, including your home, auto or savings.
LLC
An LLC is a popular choice among small-business owners. It offers the same tax pass-through provisions as a sole proprietorship.
However, an LLC is very different from a liability perspective. With an LLC, an owner (called a “member”) is not individually liable except in cases of gross negligence. That means your personal property is protected in case of a legal judgment.
In addition, you can choose how the company is managed, either by the owner/member or by a manager hired for that purpose.
LLCs are filed in a state, and the fees vary. In addition, each state may require simple annual paperwork to be filed about the company’s owners and management. Delaware and Wyoming are two of the most popular states for filing among freelancers.
In Wyoming, you’ll have more credibility and a professional stance as an LLC, allowing you to operate more flexibly. With a Wyoming LLC, you can establish credit for the business separately from you as an individual. You also make yourself more attractive to employers hiring your company and not you individually, which can have employment tax implications for the employer.
Another great example is Delaware, which has a favourable corporate climate and business-friendly laws and rules. Owners of Delaware LLCs can choose to have the company taxed as a sole proprietorship, partnership, an S-Corporation or a C-corporation. The latter tax structure lets the company roll forward any losses, which can offset future profits.
Obtain Business Insurance
Business insurance is an essential consideration for your freelance design business. You want to determine the policy types that apply to your company. Among the most common for freelancers are:
- General Liability. Protects against bodily injury or property damage, medical expenses and legal fees
- Errors and Omissions. Covers your company for mistakes you make that lead to a client or customer losing business
- Property. Covers the costs of any equipment, space you rent or own for your company, tools and personal items
- Business Interruption. If your business is disrupted due to a natural disaster, it will cover the losses of business operations.
- Cyber Liability. Protects your company from the effects of data breaches, malware, ransomware or other cyberattacks and hardware failures
Keep Good Records
As a freelancer, you need to keep yourself organised. Maintaining good records of each engagement, including contracts, deliverables, notes, and contacts, is essential. It helps you analyse your work and the customers with whom you excel.
Develop a system and use free online storage tools to keep your work in files and folders. Establish naming conventions so you can quickly find materials or documents you need.
Record-keeping is also crucial for your finances. Tracking your expenses and income is essential for filing federal and state tax returns and having documentation in case your business is audited.
Establish a Privacy Policy
Your privacy policy should be used on your website, in contracts, and in other materials. Having a privacy policy is essential for maintaining compliance with various guidelines governing the use of data.
The privacy policy should include details about how you collect and use information, how customers can provide or withdraw consent and how users can update or correct personal information.
The policy should also address how payment data is collected and stored and the use of any third-party services for data and payments.
In addition, the privacy policy should include any updates and contact information if users have questions.
Protecting Your Business Property
As a designer, you need to protect your intellectual property, including your logo and any visuals you use within your work with trademarks or copyrights.
It gets tricky regarding the intellectual property of content you produce for clients. In most cases, the client will take ownership of any content you have for them, meaning they own the intellectual property.
However, you still want to be able to use what you create for your portfolio and show your talents to future clients. You can arrange contracts to retain the right to feature those materials to promote your business.
A freelance design business is a heady opportunity, allowing you to build a company that reflects your skills and creativity. By ensuring you're protecting your business rights, defining your business structure and managing your work, you’ll be positioned for long-term success.
