Can I start a freelancing company?

Can you start a freelancing company? If you're thinking of flying solo and incorporating, here is everything you need to know to get started.
Can I start a freelancing company?
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Back in 2019, 35% of the US workforce was freelancing. Fast forward to the present, and this number has likely risen even further thanks to the global pandemic. 

Are you thinking of joining the swelling ranks of freelancers? Becoming a freelancer comes with numerous perks, such as personal freedom, flexibility, autonomy, and potentially better pay. 

But, how are you going to stand out from the crowd as more and more people become part of the gig economy? 

One way to do this is to start a freelancing company. 

If you've been wondering whether starting a company for freelancing is possible, the answer is yes. In many cases, it might be just the step you need to boost your freelance career. 

However, there are drawbacks to starting a company as well. If you're curious to know about the pros and cons of starting a freelancing company, read on. 

Benefits of starting a freelance company

If you are wondering how to become a freelancer and whether it's worthwhile to start a freelancing company to further this goal, it's important to understand the benefits and drawbacks of company formation.

Here are the main perks that come with starting a freelancing company. 

It can help with your branding and marketing strategy

One of the advantages of starting a freelancing company is it instantly gets you into a professional mindset. When forming a business, there's a mental shift that often happens. Suddenly, instead of just thinking about how to land clients, you're forced to think about things like branding, your mission statement, and your why. 

Once you've defined these and incorporated them into your marketing plan, they can play a big role in drawing in clients. If your passion for what you do saturates your branding, it gives potential clients a clear and emotionally powerful reason to choose your services over someone else's. 

A freelancing company creates a clear definition between you and your work

Another pro to creating a freelancing company is it marks a clear divide between you and your business/work. 

Many freelancers make the mistake of mixing their personal business finances. If you create a company, you can't do this.

By clearly dividing your personal and business finances, you'll get better insights into your business's financial health and how you can nurture it. 

A freelancing company is more intuitive to scale

Scaling your income as a pure freelancer can be difficult. Once you've figured out how to start freelancing, you will have more freedom, but ultimately your income will always be tied to how much time you put in. 

Of course, you can increase your rate, but there is a limit to how much one can charge for certain things. 

However, if you start a freelancing company, you can scale it over time and grow your income to be independent of your time investment. By expanding your client base, hiring on help, and outsourcing where necessary, you can turn from freelancer into entrepreneur. 

One day, if you want to pivot to something else, you could even potentially sell your company. On the other hand, if you freelance without scaling, this isn't possible. Everything you will have built up will likely fall by the wayside if you pivot to an entirely different career path. 

Limited liability

One of the risks of freelance careers and sole proprietorships is you take on all liability. However, most company structures are a separate entity. This means you can enjoy limited liability on things like business loans and creditors. 

Potential tax advantages

Another benefit to starting a freelancing company is the potential tax advantages. If you operate as a freelancer or sole proprietor, you will pay income tax at your personal rate. 

In some cases, you may find that the business income tax rate you'd pay through opening a company is less. 

Thanks to the 2017 Tax Cuts and Jobs Act, the tax rate for companies in the US is now 21%. If your personal tax rate is relatively high, you could save by opening a company and paying the company tax rate. 

What's more, if you open an LLC, even though this is a pass-through entity (which means you'll pay your personal tax rate), you may also be eligible for the 20% Qualified Business Income (QBI) deduction.

When determining what route is best for your taxes, always talk to an account or tax professional. There are many influencing factors when it comes to tax, such as what state you live in and your personal tax bracket. Therefore it's best to seek qualified advice.

Disadvantages of starting a company

While there are many advantages to starting a freelancing company, there are also a few potential cons. 

Let's take a look at what these are so you can make an informed decision around whether to start a freelancing company. 

More paperwork

If you create a company for your freelancing business, there will be more paperwork. You will need to maintain the legal entity and hire an accountant for its financials. 

More admin

Besides the paperwork involved with maintaining a company's legal status, if you begin to scale your freelancing company, you will also have more overall admin to deal with. 

Transitioning from being a pure freelancer to a freelancer/entrepreneur with a company comes with its own workload. You may have staff to manage, decisions to make, and even more hats to wear.

How to start a freelancing company

If you are wondering how to start a freelancing business and open a company, it's generally best to speak with a financial advisor, accountant, or tax expert. They will be able to help you choose the most advantageous business structure for your needs and assist you in registering and maintaining it. 

Not sure where to get help? The Hectic platform offers all of its members access to qualified experts, including tax professionals, accounts, and financial advisors. 

Start a freelancing company and run it like a boss with Hectic

Are you ready to take the leap, start a freelancing company, and become a solopreneur? 

If the answer is yes, we have a success ingredient that will change the way you manage clients and run your freelancing business forever.

Freelancing can get complicated when you have multiple projects on the go, and this only gets worse the more you scale your business. Hectic is a one-stop platform for all your freelance business needs. With Hectic, you can create branded invoices, statements, proposals, contracts, and more. As well as manage all your projects and clients from one easy-to-use dashboard.

Ready to level up your freelancing business? Sign up for free today.

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Hey, Freelancer.
Control your freelance business so it stops controlling you. From client to project management, time tracking, invoicing, and everything in-between — Stay on top of it all in one intuitive platform with Hectic.

I highly recommend this platform if you're a freelancer seeking a client/project management system that allows you to focus on nothing else but the quality of your work.

Jason Little