Open Debate: The True Costs of Starting a Freelance Business

Written by James - 68 Comments

Over at Freelance Parent, there’s another duo taking the world by storm. It’s the Berry-Brewer gang, two girls who think we aren’t realistic about the costs of setting up shop as a freelance writer. They figure starting a freelance business doesn’t cost much and that if you have $220 bucks, you can set up operations.

I arched a skeptical eyebrow when I read that. If you’re going to get into business, be serious about it from the start – and the reality is that it costs money to make money.

Now, before I start writing, let me just say that I adore those girls. Lorna and Tamara are a pair of determined professionals that say really nice things about me and talk about me on video. (Yeah, I caught you rolling your eyes, Lorna…)

But I do think the girls see the world through rose-colored glasses and gloss over certain necessaries of freelancing, such as the set-up investment required to form a proper, credible business that earns good money in a shorter period of time.

Here’s my opinion on the true cost of starting a freelancing business. There are a few basics you need before you start:

• Desk
• Chair
• Paper, pens, etc.

You can procure these items from around your home, but they do have a value and you did pay for them at one time. They have a cost. You could buy them at a garage sale or an auction. Great! You still need ‘em. You still have to pay for ‘em.

Now, we know many people who forego the desk and chair. We know businesspeople who work in bed, who use Internet cafés and who generally don’t really care where they work or how. That’s great for them… but if I were a client, I’d sure like to know my copywriter has some sort of an office to speak of.

A good chair is important. I work on a crappy chair that actually came from a bar I hung out at when I was young. It’s a nostalgic piece. It’s also uncomfortable and does all kinds of nasty things to my back and body.

You’ll need storage space too, so your desk should have drawers, a hutch or a filing cabinet attached. You might need a small bookcase as well.

Cost: $100 to 500 and up

Let’s move on to the needs in the electronics and computer areas of setting up shop. You’ll have to have:

• Computer (so you can work)
• Printer (so you can print stuff)
• Software (the good stuff, not the crappy stuff)
• DVDs, CDs or Flash drives (for work on the go)
• External hard drive (for backups)
• Laptop (optional, but really nice to have if your computer fries or you need to go out of town)

You can pick up your computer at a recycling shop, but they don’t come free and aren’t very reliable (and sometimes aren’t that cheap).

Skimping out on an old computer and outdated software isn’t really smart, and in my eyes, it doesn’t count as a low-cost setup to business. It only means that you’ve postponed an inevitable expense – usually one that occurs when your motherboard fails, your pirated software can’t be updated or your hard drive crashes and you lose all your client’s work.

There is open source software that carries no cost, but it’s not always the best software possible. There are workarounds you’ll need to figure out so that your clients aren’t stuck trying to open a file.

You can possibly make do with only a few DVDs for your work on the go and backup storage, but one scratch or a hot day in the car, and your client work is toast. Literally.

Cost: $1,000 to $3,000 and up

Onwards we go to business expenses!

Most likely, you’ll work remotely, at least for some portion of your job. That means you need an internet connection. Some people say that this doesn’t fall into start-up costs, because they would already have an internet connection for personal use.

I believe that’s a subject worthy of debate. Had I not been in business, I would have been quite happy with a dial-up connection to check my personal email. In fact, I lived with dial-up until about three years ago. Now I need a top-of-the-line ultra-high-speed T3 connection. Cost: $50 a month and up

Electricity costs also factor in. Alright, running a computer doesn’t matter a great deal to your overall utility bills, but it does count. Heating has an expense as well. If I were employed in a company, I’d turn down my heat during the day to save on electricity. Now I have to heat my home 24/7, all year round. Living in a cold area as I do, that extra heating affects my utility bill a great deal. Cost: $300 a year and up

Don’t forget the cost of telephones either. Basic telephone service is something people have regardless, so we won’t count that, but there are other perks to factor in like call waiting, call answering, call display, and long-distance plans. Cost: $50 a month and up

Because I’m a registered business, I have to pay the government each year for registration fees. If I wanted to incorporate to save myself liability, that would be an additional hefty expense. Cost: $40 to $1,000

I could do my own books (and I do a great portion of them), but I’m not an accountant and should buy great software or have my accounting verified for accuracy. That’s just smart business. Depending on the type of business or corporation I might own, the costs vary. Cost: $75 to $1,000 a year

I have a young child, and so I need to cover the expense of daycare. Some people choose to keep their kids at home while they work, and that’s okay, but children underfoot are an additional distraction from good work and hours spent on client projects. Cost: $140 a month to $400 a month

Let’s see… We’re up to a total starting at about $275 a month.

Ah, but we haven’t covered marketing expenses yet. This is another area where you can skimp a bit, but you’re postponing the inevitable. Not only that, if you can’t attract clients, how can you operate a business?

Here are a few things you shouldn’t skimp on:

• Web presence
• Web hosting
• Business cards

Cheaping out to host a portfolio page or site on free locations out there isn’t smart, because that damages business credibility and could cost you clients. People come to us for moving their sites all the time because they realize free sites hurt business. A reliable web host costs about $6.95 a month.

Web presence is a little easier. There are templates and free themes that let you set up your own site without paying anything. That’s perfectly fine, but branding your site is important for credibility and reaching your target market as well. If you use a job auction site, you’ll need a banner to represent your company at the very least. Let’s be really cheap and put $100 for design and branding.

If you want to have presence on job auction sites to give your business a jump start, the good sites cost money. Some have no upfront cost, but they’ll gouge you on earnings. Let’s estimate $15 per month.

Business cards are something I consider a must. You should have cards that save you the trouble of telling a potential client, “I’m sorry; I don’t have a pen.” (Not only has this happened to me in the past, but I’ve had people I might hire tell me this frequently.) Printing is cheap, around $30 for 500 cards.

Last on my list is the physical and emotional cost of starting up a freelance business.

It’s stressful to be the sole person responsible for success. It’s tiring, too. Operating your own business also means that you may need to put in long hours at first to get it running smoothly, and these hours don’t bring in any money. They don’t cost any money either, but they are a physiological tax on your health.

Family life takes a back burner and so does playtime – not always, but frequently. You may need more emotional support from them, and you worry about job security or being able to provide a decent income. Your marriage might strain, your kids might complain and you may have to fight to keep a smile on. That’s an emotional tax you have to pay.

I’ll be the first to admit that you can start a freelance business with next to nothing. The Berry-Brewer girls are living proof of that. I even write on various blogs on ways to save money when starting up.

But as I mentioned, I don’t think it’s smart and I don’t think it’s realistic to open a business on a shoestring. You’re only hurting your potential to earn money, possibly turning clients away and conveying your business as one that isn’t credible.

What’s your opinion? Do you think my views of business start-up costs are way out of line? Did cheaping out on your investments cost you money? Are you on the Berry-Brewer side of the debate, or do you think we’re right? Let us know!

Even better, stay tuned. The girls over at Freelance Parent have thrown down the gauntlet and challenged us to a debate. Keep an eye out for their reply to this post – and our reply to theirs.

Help spread the word!