02nd Oct 2017
FROM FREELANCE TO BUSINESS: What’s the difference?
You’ve started your business, but you keep hearing that one question that almost sounds snide, and as if though you have to be defensive and stand your ground.
Oh, so are you a freelancer?
Why oh why does it worry us Small Business Owners when someone says this?
I think it’s because… a. you have gone to the effort to set up a business and freelancer just sounds a little mediocre for you and/or b. because you think that said person isn’t taking you seriously.
Or you’re like the minority of us, that when asked that question, you’ve got to a point that you don’t mind it. Thus, this post isn’t going to entertain you too much.
But if you’re in the early stages and struggling to understand the difference between a freelancer and a business, read on.
It took me a decent 3+ months into business for me to shrug off that question and now embrace it.
I worked as ‘freelancer’, well before I started 2aT Startup. I personally did freelancing as a side project whilst studying to make some extra cash.
The reason I didn’t turn it into a business just then, was partly because it wasn’t until after I finished study, that I realised my passion wasn’t in the services I offered, it was being a support system for small businesses and startups.
Sure I love digital and design, but it is the passion of helping others that made me start my business properly and it was the gap in the market that allowed me to see validity in my business concept. Both crucial factors when starting a business.
Soon after I registered my ABN and Business name, I had quit my 9-5, finished my study and lived off what little savings I had to create what has now become a successful business and my full-time job.
This may sound like it was all smooth sailing, but I worked from home for months and found myself having to occasionally defend my work as a ‘real job’ to others. I found the people around me saw freelancing as waking up at noon and taking long lunch breaks with friends, they didn’t see it as anything remotely like what they saw a business as, something with structure, staff and cash-flow. Cash-flow what even is that?!
It wasn’t until after I moved into our co-share office and I was surrounded by other like-minded small businesses that I soon realised the person that I was defending the most was myself. It was the first time I’d been around other individuals, some confident freelancers and others established businesses who were doing things on their own terms, and that made me realised there’s very little separating the two.
According to Wikipedia a freelancer is:
A person who is self-employed and is not necessarily committed to a particular employer long-term.
And according to ASIC:
A small business as one that has annual revenue turnover (excluding GST) of less than $2 million. Fair Work Australia defines a small business as one that has less than 15 employees.
The ATO even states “there is no single factor that determines if you are in business” vs if you are pursuing a hobby as a freelancer.
I soon realised that I was so worried about people not taking me seriously and having a touch of imposture syndrome that when people asked me that question I felt the need to be defensive. Little did I know, it doesn’t really matter what they saw me as, so long as I was ticking off my goals and making my clients happy, I knew it wouldn’t be long before my business spoke for itself.
However, whilst I believe a lot of it is mindset, below are what I believe the key differences between a business and a freelancer are:
- A freelancer often works under their own name, whereas a business owner generally creates and registers a business name.
- A business owner has found a way to solve a problem for the customer and fill a gap in the market, whereas a freelancer works within the established needs of the market and just offers their services as needed.
- The customer can expect to pay less for a freelancer, meaning you may have to start with lower costs to build a portfolio. Whereas a business usually has a website, social media, and a marketing plan to build credibility with potential customers, making them less reliant on their portfolio.
- A freelancer works independently and usually as a contractor for clients, whereas a business owner has intent to expand, hire staff and grow their profit.
It’s critical that you do determine your structure, as it can affect tax, super and employment obligations, so I strongly advice seeking advice on this topic if you are unsure.
I’d suggest starting with this article I found on the ATO website about choosing your business structure and how to get started.
The moral of my post is, if you are just starting out and someone asks you if you are a freelancer, it’s not a bad thing, it’s a learning thing. If you feel unsure, figure it out and then answer them with confidence. There’s nothing wrong with being a freelancer, and being a small business owner doesn’t mean you are any better, it’s simply a title. Embrace it, whatever it is.