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Starting a business

Smart Business Planning Strategies for Independent Contractors

Suppose you are working as an independent contractor or freelancer. You have to source clients and manage professional relationships, and if you do it full time, you get to retain control over much of your day-to-day schedule. That makes you sound a lot like a small business owner, but does that mean you should plan your business like a small business owner? Not necessarily.

Independent Contracting Is Different, But Not Easy to Define

The first hurdle that freelancers have to clear is what they call themselves. According to the Canada Revenue Agency, there is no universally applicable answer. The CRA says “the facts of the working relationship as a whole decide the employment status.” But it gets even more complicated. It turns out your employment status is not only affected by the type of relationships you have, but where those relationships take place. A freelance web designer doing work out of Ontario may be subject to a completely different legal interpretation than another freelance web designer doing work in Quebec.

Nevertheless, here are some basic factors that suggest you are probably an independent contractor:

  • You entered into a work contract without the expectation of creating an employer-employee relationship.
  • You usually or always work independently.
  • You are free to work when and for whom you please, and your client does not have exclusive rights to your work product(s).
  • You can accept or refuse work from the client.
  • You supply your own workplace and equipment.

Once you know you are an independent contractor, you are going to need a business plan that addresses the specific challenges of your freelance work. Under Canadian law, most independent contractors operate as a sole proprietorship, which means you are your business. Your business income enters your personal bank account, and you do not file business registration forms.

Basic Business Planning Strategies for Sole Proprietors

The main reason independent contractors and freelancers should avoid planning exactly like a small business is because sole proprietorships have different legal and tax treatments than most small businesses.

Your first goal as a sole proprietor is to understand your gross income, expenses, and net income. You need to track how much income you receive from freelance activities and must be able to measure the income against the costs of performing work. Most expenses are tax-deductible, so it is very important to keep good accounting records. These are very important steps since they’ll help you target how much to charge and how many hours to work.

Next, you need to set up a system through which you can pay income taxes and cover unexpected costs. It may be a good idea to set up separate accounts for tax obligations or business expenses. As you grow, look for good accounting software.

Finally, create some kind of reputational presence. Maybe a profile on sites such as Upwork or Freelancer, or your own website/blog. Good client feedback can build your professional trust so you also want a way to showcase that feedback.

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