How to start your Freelance Business in IT
Disclaimer
First off, I should not be giving career advise. Everything written here is neither advise nor any type of recommendation. It is rather a task list I followed to ramp up my freelance business and get started. Some of these things might or might not apply to you which is why you should not blindly follow and expect to be covered with everything you need. If there is a thing such as an advice, I would advise this: If you want to get self-employed start with making up your mind about yourself.
Liability Insurance
As self-employed IT person, it seemed recommended to have a liability insurance specifically tailored for IT workers known under the term “IT-Haftpflichtversicherung”. After consulting price search engines, I ended up with an insurance plan from Hiscox from and insurance agent that contacted me after requesting a concrete offer. There are also other insurance providers that have even cheaper offers than Hiscox and I neither promote nor advise against any of them and of course hoping that I will never need it. The reason I choose this one, was that they seemed to be well established and specialized on that specific “IT-Haftpflichtversicherung”.
What does that cover? In short the following:
- Delay damage in the event of illness
- Claims for default damages or failure to perform
- Claims due to fault in contract negotiations
Hourly Rate
Make up your mind about hourly rate! However, no need to shoot into the blue. Karoline Grimm’s article from freelancermap is available in German only, but describes it better than any other resource I have found. It encourages you to make an actual calculation, which I did. It reminds you to consider things you would not think off as a fresh starter, such as taking time aside for work that you need to do but is not directly for the customer, such as administrative tasks, or education & training (super important for IT workers).
No matter what your calculated hourly rate is, every new potential customer will challenge it during negotiations. Therefore make up your mind how you want to go in. Especially, know your boundaries! As a self-employed you are faced with more economic insecurity than a employee at a company and therefore live on a more risky foot. This increased risk must reflect in your hourly rate. Similar to an investment, taking a higher risk must bring the chance for a higher return, otherwise it is a bad investment. In other words, when your freelancing salary cannot keep up with the salary and benefits of a comparable secure permanent employment, then you need to consider closing down your business and go back to being employed.
Tax Registration through ELSTER Web Formular
The questionnaire for Tax Registration with ELSTER Online 2022 is mandatory to receive your self-employed status at your local tax office. With 21 pages the form looks like a beast, but there is a great step-by-step guide on youtube from Melchior Neuman from Kontist that helped me to fill it out with good confidence within an or two hours.
Business Bank Account
Not mandatory, but more than recommended: A bank account, separate from your private bank account. It takes care of important things such as isolating away the VAT from your available budget to spend, reinvest, or to pay out as own salary. Mine also generates the bills for the customers
Plus, it is a great experience, when you receive a transaction on your private account called “salary” coming from your business account; it can produce some butterflies in your stomach.
I chose Kontist. It is a Berlin-originated Taxtech/Fintech company focusing on providing accounting and tax return services for freelancers and small business owners. They are of course others such as Lexware or sevDesk offering similar services , but I somehow got convinced by Kontist watching their awesome youtube channel; an easy entry for me as a video learner. There, you find all kinds of legal, tax, and accounting related topics when you own a small business, easily consumable.
Health Insurance
No to-do here to get started. Unlike most people might think, you do not need to switch to a private insurance. You can just stay statutory insurance similar to when you are employed
Talk to your Peers
Think it is good to talk to other self-employed people ideally in the same industry, but also different industry could be beneficial. If not, talk to the people you worked with in the past and tell them about your venture of getting self-employed. Listen what they say to your idea. Even if they are employed, they know you as a professional and they usually know the field and the industry where you are starting your business.
In my specific situation, I have been working with freelancers and self-employed people and saw their work life from the customer-perspective. That helped me a lot to start and know what to expect.
Get a Domain
Get a domain, professional e-mail address, and create your e-mail signature!
The domain I bought on AWSs Route 53 Service, where I also manage my HostedZone holding all DNS entries. For e-mail provider, I went with the classic MS Office 365 for Business; mainly because it comes with the OneDrive Cloud storage plus Excel, Word, etc. licenses.
The e-mail signature took more time than expected, especially when you are not a frontend guy like me. :D I ended up using this cool Github Project called “responsive-html-email-signature” from Dan Mindru allowing me to now create and maintain my mobile and desktop responsive e-mail signature completely as a code in a repo hooked up to some automation workflows.
Customer Acquisition
In my case, the first came to me via word of mouth. In addition to this I am registered at the job platforms GULP and freelancer map where I receive new freelance project postings on a daily basis.
Summary
The list above has been created four months after I decided to start a freelance career. It covers getting your things in order on tax, accounting, and insurance. To me personally, it feels as there are still some unknowns at this point.
Certainly, not all of the tasks mandatory to start off with your freelance MVP, yet I would do it the same way again. Even though a Business Bank Account is kind of optional, in my opinion it sets a solid basis on essential things such as taxing and accounting. I am expecting to benefit a lot from this solid basis in the future time saving-wise.