Let’s get into some of the nuts and bolts of the freelance writing business, shall we? Whether you’re new to the freelance writing business or whether you’ve been doing this gig as long as I have, you may not have stopped to consider the options when it comes to the structure of your business.
The vast majority of freelance writing businesses are sole proprietorships, not because that’s the best model for their business, but because they haven’t had a need or seen the possible benefits of another structure.
Today, I’ll look at two of these business structures, and talk a little bit about each one from the perspective of a freelance writing business.
Sole Proprietorship
A sole proprietorship is sort of the default small business. A freelance writing business will usually start out as a sole proprietorship. With this business structure, you as an individual receive all of the income generated by the business, and the profits of the business go right into your own tax return. You’re liable and legally responsible for any debts the business incurs.
From a freelance writing business perspective, this isn’t a bad model. Because freelance writers typically don’t require huge investments in a storefront, inventory or equipment, the liabilities of a freelance writing business are usually smaller than other businesses. Unfortunately, if you want to spend some money on things like marketing for your writing business, your ability to raise funds is usually limited to your savings or a commercial loan.
Partnership
With a partnership, two or more people share the ownership of the business. A partnership is like a sole proprietorship, but with multiple people. That is, the individual partners receive the income of the business, and those profits hit their personal tax returns. The partners are jointly responsible but individually liable for the actions of the other partners.
A partnership can be a good thing in the freelance writing world. Most often, a freelance writer will partner with a freelance designer in order to offer more robust services to clients. Partners with complimentary skills can then work together to grow the business. On the down side, a business can dissolve when one of the partners withdraws. Make sure your freelance writing business partner is someone who can work through the kinds of difficulties that come with a business.
Come back next Tuesday, and we’ll look at the remaining options for freelance writing business structures. Better yet, just subscribe to Business Tips for Writers and you’ll get the update automatically in your feed reader or email inbox.
Be VERY careful about partnerships — too often one or more partners doesn’t carry his or her own weight, pulls out unexpectedly or has spending or other habits that can lead to the downfall of the business. From what I saw in my years as a business writer, small partherships ofthen don’t work. Larger ones like law and accounting firms usually have multiple partners and well designed partnership arrangements — but even with those professions, some of the pitfalls of partnerships are overlooked.
I tend to agree with Phil that partnerships (even with those people you think you know well) is a fraught with problems: the key being new partnerships plan only for success, not failure. When the business is going great, everything is fine, but it is the dissolution or failure of a partnership when the problems arise.
I look forward to your take on whether an LLC (with emphasis on limited liability) is more suitable than straight sole proprietorships. I think we all want the flexibility of sole proprietorships with the limited liability of an LLC but not the book-keeping nightmares of a Corporation. Somewhere in my research (this is usually a week before tax time) I found a middle-ground – and lost the link
I’ve started two businesses, coach entrepreneurs, and write. If you’re a freelance writer considering business structure, there is much, much more to know and understand.
In my opinion, partnerships are a bad idea for freelancers. If you ever form a partnership, ALWAYS get your agreement in writing and have an attorney review it. I don’t care if your partner is your best friend or your sibling; get it in writing.
You need to do careful research into the major business structures: sole proprietorship, LLC companies, and corporations. There are legal, tax and administrative ramifications of each.
Find a local business attorney. Many give a free consultation. Call until you find one who does. Then meet with him or her and get their advice on which business structure is right for you. You may also wish to consult an accountant. It’s worth it.
Because I write as well as provide consulting and coaching (and we own an
e commerce site too), I incorporated my business. I draw a salary from my company. We must maintain certain records, complete tax forms monthly and file a lot of papers with the state. But it was the right business structure for our group of businesses operating under the same umbrella and gives us certain benefits we did not get as a sole proprietorship.
Talk to an attorney and an accountant. While it’s great to read articles on FWJ, there’s so much more to understand.
Jeanne is right that there is much more to understand, though I don’t think Bob’s post was meant to be a definitive answer, but rather “food for thought.” Posts aren’t expected to be legal (or CPA-type) advice.
Before talking to an accountant or lawyer, I would recommend talking to a represenative from SCORE (Service Core of Retired Executives). SCORE chapters tend to be available at local universities and many colleges. Discussions are free, and they have no vested interested. An accountant or lawyer may have you set up the structure that is best for him/her rather than for your business. I’ve known of businesses who were set up on an accrual basis rather than a cash basis just for the convenience of the accountant.
@All – Partnerships are tricky. I’ve seen some work very well (a family friend has been in business with his partner for more than four decades) and I’ve seen some go the way you’ve all described.
I’m a little surprised to see so much resistance to partnerships; I’ve seen folks have as much success with them as I have seen failure. I’m not saying one shouldn’t be cautious, of course, and I have no idea how the overall statistics on partnerships look.
@Ed – You’re stealing my thunder
Today’s new post covers the LLC and the corporation, although I don’t (yet) go into the SP vs. LLC debate. That’s the topic of a future post. Feel free to include more of your thoughts on it here or there, though!
@Jeanne – @Phil is right; I’m not trying to offer advice here so much as point out some of the options available. I think (hope) most people are going to do more than read this article and it’s companion article from today before making their decision about what kind of business they ought to run. I’m just covering the basics.
Thanks for your thoughts, all, and keep ‘em coming!