Best Practices for Freelance Business – Part 1

"Wanted: Employees willing to work long hours for uncertain wages in a chaotic and distracting environment. Candidates must be willing to work without set plans, retirement benefits, or meaningful supervision."

Doesn’t sound very attractive, does it? Yet for many of us who are self-employed, that job description is all too true. The worst part of it is, unlike working stiffs, we can’t even blame our troubles on the boss – we’ve done it to ourselves.

Don’t get me wrong here, I love being self-employed, and could never imagine going back to working a regular job in a big company. But that doesn’t mean that we freelancers can’t borrow best practices from the corporate world.

The fact is, corporations work. The corporate form and culture provide a valuable dose of structure and organization. The problem is that the diffusion of responsibility that takes place in most big companies makes those organizations seem bureaucratic and out-of-touch. In many cases, outdated rules and regulations get enforced simply because, "that’s the way we’ve always done it."

As entrepreneurs, we can sidestep that problem. To paraphrase the U. S. Army and Harry S. Truman, we are a staff of one — and the buck most definitely stops here. We can revise our structures and rules when the changing nature of our businesses makes them irrelevant. After all, we are the boss, the employee, and the dreaded HR department, all rolled up in one.

In this two-part series, I’ve compiled what I consider the top ten ways that you can apply the best practices of the corporate world to your freelance business, to get the most out of your staff of one. This month, we’ll discuss items ten through six.

Best Practice 10: Pay yourself a salary

As freelancers, we’re often tempted to treat our time as free. It isn’t, and treating it as such can cause us to make uneconomical decisions. For example, if it takes you 25 hours of work to win a $5,000 contract, and 25 hours of work to complete it, you’re making $100 per hour, not $200. If someone offers you a $125 per hour contract, you should take it. That contract may be below your nominal hourly rate of $200, but it’s above your real hourly rate (counting the time spent on business development) of $100.

You don’t actually have to write checks to yourself, just keep track of how your monthly earnings measure up to your monthly "salary." If your earnings exceed your salary, congratulations! If you’re running a monthly deficit, you should either lower your salary expectations or consider finding another line of work.

Best Practice 9: Offer performance bonuses and retirement savings

Incentives are incredibly powerful motivators. One wealthy father stipulated that his son would receive a bonus from his trust fund when he married. Naturally, the son got married 12 times!

You can also tap into these incentives. Sure, you can’t actually pay yourself more, but you can reward yourself for accomplishing your goals. Your reward may be a vacation, a nice dinner out, or a new television. The point is to give yourself an extra kick in the pants to achieve your objectives.

Similarly, you should continue to invest for your retirement. You may not be able to offer yourself a 401K plan, but you can take advantage of a Simplified Employee Pension (SEP) IRA. While your contributions will be limited to a little over 13%, versus the 15% limit on 401Ks, you can contribute up to $30,000 a year to your retirement fund — all of it tax-deductible.

Best Practice 8: Benchmark against the competition

There are always two sources of good ideas – you and your competition. Yet far too many of us seem to work in a vacuum, without taking the competition into account. It’s harder to benchmark when you’re a freelancer – unlike big companies, there isn’t a lot of readily available information in the form of analyst reports and SEC filings. On the other hand, there’s more information available than you might think. Ask your customers, past, present, and potential how you stacked up against the competition. Even more important, ask the customers that you lose – one loss provides more information about your weaknesses than all your wins put together.

Finally, though it might sound crazy, ask your competitors. Try talking to indirect competitors or potential collaborators. At my companies, I’ve always tried to develop relationships with at least three of my competitors. If I decide to pass on a project, I always try to refer the business to a collaborator or competitor – both the customer and the competitor end up owing me a favor.

Best Practice 7: Follow a business plan

When I refer to a business plan, I don’t mean a 100-page monstrosity filled with five-year projections. A freelancer’s business plan needs to have three qualities. First, it has to be written. The act of writing down your plan will force you to think it through much more carefully than if you "keep it in your head." Second, it has to set clear, measurable objectives. After all, how will you know that you’ve succeeded if you don’t define success before you begin? The old Supreme Court definition of obscenity, "I know it when I see it," just doesn’t cut it. Finally, it has to say what you intend to do to achieve those objectives.

Even a one-sentence business plan like, "My objective is to complete 10 projects at an average price of $10,000 each by targeting local real estate agencies," makes a difference.

Best Practice 6: Conduct regular performance reviews

It may seem silly for a one-person company to conduct performance reviews, but following a regular review process can dramatically improve your business. If you’re like me, your usual self-criticism is anything but constructive: "I can’t believe I lost that contract! I stink." Establishing a performance review process, complete with a standard set of evaluation questions, helps take unproductive and negative emotions out of the process while focusing your attention on areas of potential improvement.

My own personal review process is incredibly simple. Every three months, I fill out a form with four questions:

1. What are three things that went well this quarter?
2. What are three things that went poorly this quarter?
3. What are the three areas in which I showed the greatest strength this quarter?
4. What are the three areas in which I need to improve the most next quarter?

It takes me less than half an hour to conduct the review, and it focuses my attention on what really matters.

That’s it for the first five of our top 10 corporate best practices to bring to your freelance business. Next, we’ll look at the remaining top 5:

5. Monitor key operating metrics
4. Hold regular staff meetings
3. Take a systematic approach to sales and marketing
2. Maintain an orderly, professional work environment
1. Separate work life from home life