Going Solo, Successfully

Three years ago I quit my job and started consulting full time. It's worked out really well. I get to spend more time doing things I like to do and I've been able to deliver great products for clients. I wanted to go over some tips for starting a successful consulting business.

  • Charge more - Everyone says it and it's true. I started out charging a monthly rate that was close to my full time salary / 12. This is not a good idea because you have overhead that your employer is no longer covering - health care probably the biggest one, you don't have paid vacations, there may be unpaid downtime between contracts and also companies might not pay you. You need to be charging a lot more to just break even.

    I dread "what's your rate" conversations every time and they haven't gotten easier. Before I quote my rate I reread the details of the High Tech Employee Antitrust case to pump myself up - it reminds me that I'm negotiating with a company that couldn't care less really and I am the only one who's going to stand up for myself. If you think you don't need the extra money - get it anyway, and then donate more to charities at the end of the year/buy CD's/put it in the stock market/give it to the government. Amazon just made $11 billion and paid $0 in taxes; you are going to spend an additional dollar better than Amazon's executives will.

    If you are not sure how much to charge, quote each new client more than the last. Your quote is often a signal of your quality so it's not even really the case that demand slopes downwards as you charge more.

    If you are working with a client and they are very happy with your work and want to extend your contract consider asking for a higher rate. "Now that you know how good I am," etc.

  • Get the money - Signed contracts, work performed, don't matter until the money hits your bank account. I learned this the hard way. If a company is going under your invoices are worthless. You can hold onto the company IP but that's probably also worthless. You can sue but at the end you will win a judgment that you can collect money from a company that doesn't have any to pay you.

    Try to get as much of the contract as you can paid up front - I generally ask for half or more up front. If a company offers Net 30 ask if you can shorten it to Net 5 or 10 or submit your invoices in advance. Submit invoices on time - it's a very costly mistake and you won't learn its importance until it's too late.

    Try as hard as you can to figure out the financial health of the company - if you can do your homework in the press or ask questions to your primary point of contact, like how much cash they are burning, how many months of runway do you have. If a company is not forthcoming with this information it's a red flag that they may not be able to pay you.

    If you see any red flags - the company wants to cut the contract short, people start leaving, company suddenly cuts back on perks - tell your contact that you need to be paid upfront or you are not going to work anymore. If they push back on this they may not have the cash to pay you at all. It's a crappy situation but better to cut your losses than to work for someone that can't actually pay.

  • Don't charge by the hour - I have never actually done this so I can't speak to how bad it is but don't do this. You don't want a client to cut you loose at 3pm and suddenly you lose three hours you were counting on. Charge per week.

  • Get a lawyer - Get a lawyer to review every contract you sign. Read through them, flag concerning things to the lawyer. They will suggest language. Send the language to the company. You are not being difficult when you do this, the company does this all the time. Lawyers are expensive, expect to pay north of $400 per hour and contract review can take 30-60 minutes. This money is worth it.

    A good clause to try to push for is limitation of liability. You don't want to be in a situation where $2 million of damages occurred or a high value client left the company because of an error you pushed and the company is suddenly coming after everything you own. Similarly the company may want to protect against you trying to sue them for a high amount of damages to your reputation, future business etc. Limiting the total liability to the size of the contract, or a multiple of the size of the contract - on both sides - can be a good move.

  • Register as a Company - Consult with the lawyer you hired on what kind of company you want to be. Generally the more "company-like" you are the harder it is for companies to try to take your personal assets. I don't have employees or shareholders so I have a single member LLC that is disregarded for tax purposes — read this description from the IRS. Sometimes businesses are confused what this means when I tell them or try to sign up for things. Still, it is a good fit for me. It may not be for you - I am not a lawyer, you should talk with one, learn the tradeoffs and see what makes sense for your business.

  • Make Sure Contracts Are Signed With the Company - The contracts you sign should be between the client you are working with and your company NOT between the client and you personally. Discuss this with your lawyer.

  • Get an accountant - As a small business a lot of stuff is tax deductible - a home office, client travel, for example, even if it's just across town - and you want to make sure you are getting ~35% off on everything that you can. An accountant will help you with this.

  • Market yourself - Not necessarily ads or sponsorships, but: everyone you've worked with full time should know they can hire you now. If they don't then reach out to people and let them know. Put up a website that engineers can send to their boss. My website isn't fancy but it is effective. Order business cards - VistaPrint is garbage, order from moo.com. If you have a website or open source projects put a note at the bottom advertising that you're available for hire, like the one at the bottom of this post.

  • Set up separate accounts for everything - Open separate accounts for your business. Get a business credit card or just a separate cash back card on your personal account. I don't have a checking account registered for the business but I opened a second checking account that I call my "business account". Clients pay into that account and I pay the business credit card out of that account. I even have a separate Clipper card that I use for business travel.

    There are two reasons for this. It makes tax accounting a lot easier. I know that every transaction on the business Clipper card is work travel and can be expensed; I don't have to try to remember what I was doing when I paid $2 to SamTrans at 5:34pm on July 27.

    Second, if you don't keep good records for the business - if you "commingle" funds between your personal life and the business - it makes it much easier for clients to go after your personal assets, what's called "piercing the veil." Separate accounts (and discipline about transfers!) make it much easier to argue that your business income and spending and personal income and spending are separate even if you don't necessarily have the legal structures to back them up.

    I also set up a new Github account for every company I work with. This avoids any issues with emails going to the wrong place, or the need to grant/revoke permissions to any 3rd party tools a company uses. I use github.com/kevinburke/swish to swap SSH settings between my Github accounts:

    $ cat $(which notion-github)
    #!/usr/bin/env bash
    ${GOPATH}/bin/swish --identity-file ${HOME}/.ssh/github_notion_ed25519 --user kevinburkenotion
  • Balancing multiple clients: If you can do this or do things like charge retainers, great. I find it really hard to switch contexts so I work with one client at a time and treat it as a full time job. Do what works for you.

  • Give back to the tools that make you successful - I give a percentage of my earnings every year to support software tools that help me do my job - iTerm2, Vim, Go, Postgres, Node.js, Python, nginx, various other open source projects. You should consider doing this too. (If you are an open source maintainer reading this - tell me how I can pay you!!)

Liked what you read? I am available for hire.

2 thoughts on “Going Solo, Successfully

  1. Sion

    As a freelancer myself, I agree with all the above. I especially like the part about giving back to the tools that make you successful.

    I would also put insurance on the list. I am a father and own a house – if I fall ill my company makes no money, and in turn, I can’t get paid. My business has insurance to protect against that scenario.

    Reply

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