From being a Freelancer to a Business Owner

A lot of freelancers have aspirations to start their own business. They want to build a team of talent so that they can dominate in their niche. Besides a lot of benefits there also quite a few risks involved when a freelancer wants to start their own business.

Benefits of Expanding
There are some benefits of expanding from a solo freelancer to a team. For instance:

1. Problem solving becomes easier, because there will probably more talent in the team.

2. Your team can probably get nicer projects then before. Most companies won’t give larger projects to a solo freelancer. Projects are normally given to a business that can put more then one person on the project.

3. The head of a team makes probably more money.

4. You can schedule vacations, because there is someone who can take over when you take your vacation.

But the transition from a freelancer to a business owner and head of a team can be very hard. The failure rate of people who made the transition from a solo freelancer to small business owner is very high. A lot of freelancers who are attempting to expand by hiring employees find themselves facing cash-flow problems. The result is most of time that they have to disassemble the team and go back to being a solo freelancer or even worse, going back to work for a company.

Why Does this Happen?
A failure in planning is most of the time the problem. Every time you hire a new employee, you will see a dip in your earnings before you will see a rise. The problem is that most freelancers don’t anticipate and thus don’t plan for this dip. The result is a cash-flow problem.

1. Cash-flow problems start as soon as you hire your first employee, because your overhead increase as you will have to pay this new employee a salary. Most of the time the new employee won’t bring in any money in the first couple of weeks.

2. You also have to train this new employee in your rules, procedures and systems. The result is that you don’t have less time than before. The bad thing is that you needed that time to search for a project for the new employee and do your own projects to bring in money.

Getting Past this Dip
The question is how to get past this dip and how to succeed in turning a freelancing business into successful business. Below you will find some of the solutions.

  • A good mindset, a winner’s mentality, is vital. The people who won’t give up are the people who most likely will succeed. You will probably have some problems along the way and may even think about quitting. Only the people who have the right mindset will overcome these problems.
  • Training Solution. Planning is everything and you should therefore plan before you hire. Good and early preparation is vital. For instance you should create training material before you hire your first employee. This will save you time, the time you need to get past the first initial dip. Create process maps in a step-by-step format for everything a new employee should do or could come across. Also “how to” videos can help new employees.
  • Cash-flow Solution. Again good planning vital. Therefore you should plan ahead to prevent the cash-flow problem. Start saving money before you hire a new employee. Make sure you have enough saving to pay at least six months of salary for the new employee. (A year would be even better.) This will help you get past the dip. Also you should only hire people on a probationary basis. If things don’t work out, you can let them go more easily!
  • New Projects. You should also have projects lined up before you hire a new person. Timing is everything. For instance you have done all the things described above and are planning to hire a new employee. Then the time to hire a new employee is for example right after you’ve landed a big project. This way the new employee generates income right away. Don’t see a big project in the future then make sure you have a couple of small projects lined up, at least a months work. This will give you some time to find other work for the new employee.

Once you are past the first dip, things should go better. Remember it’s also a learning process for yourself, so it will take time for you to adjust to being a business owner and being a manager to employees.

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2 Responses to “From being a Freelancer to a Business Owner”

  1. Timur I. on January 28th, 2009 02:34

    Good work! Thank you very much!
    I always wanted to write in my site something like that. Can I take part of your post to my site?
    Of course, I will add backlink?

    Regards, Timur I. Alhimenkov

  2. admin on January 28th, 2009 12:21

    Using a part or a quote of a post is for most website owners never a problem as long you add a back-link to the original post!