My Path to Becoming a Freelancer

This post was translated from German to English by AI. The original German content was written by me. Zum deutschen Original

No guarantee for any of the information provided! This article is not a substitute for adequate consulting services from tax advisors, financial and insurance advisors, etc. and reflects exclusively my own experience and opinion.

My Motivation#

Why did I even want to try becoming a freelancer when I was in a good employment situation?

Well, for one, I am a freedom-loving person. I like to be free in my working hours. Of course, I am aware that there are constraints here as well, since I will generally work within a team and need to align with their schedules. Nevertheless, I want to be able to decide for myself whether, for example, I work twelve hours on one day or use a weekday for personal development and make up the work on Sunday. Freedom also means being able to decide for myself in which environment and with which technologies I work. Both of these points are also advantageous for my clients. Flexible working hours and projects I am passionate about greatly increase my performance and output.

For me, learning and gathering experience is like fuel — it is what drives me. Through my freelance work I will learn aspects that are very new to me, such as dealing with taxes, reserves and accounting, marketing, project agreements, and more. Of course, professional development should not be neglected either. However, this is not an exclusive feature of self-employment, as this opportunity can also exist as an employee.

Another aspect of my motivation is harder to explain. I want to experience what I like to call “total personal responsibility.” There is no superior who takes responsibility for my commitment off my shoulders. On the other hand, my performance is largely in my own hands, and it is up to me what output I deliver and when. Here too, the conditions of the project and the client naturally apply.

Preliminary Considerations and Common Concerns#

When you share your thoughts about becoming a freelancer, you may encounter concerns — or you may have already had these concerns yourself. I want to address such concerns here and how I have “defused” them for myself.

For better understanding: my personal circumstances made this decision easier. At that time I was unattached, had few financial obligations, and had a small financial cushion to get through several months without income. Moreover, I wanted to already have a first project “in the bag” before even taking this step.

The Stakes Are Too High#

Becoming a freelancer, especially in the IT industry, requires virtually no startup capital. There are no founding costs to account for, no notary fees, and no costly equipment to acquire. Depending on the client project, you may even be provided with a laptop. Nevertheless, the “hidden” costs should not be underestimated. It may be necessary to adjust or take out new insurance policies (see Insurance). Additionally, costs for marketing (website, business cards, etc.) and “infrastructure” such as a tax advisor, accounting software, etc. may arise. One should definitely keep an eye on payment terms and deadlines. It can happen that you have no income in the first two months if, for example, the payment terms are: 30 days from time recording, meaning the recording at the beginning of the month to be paid and the actual payment in the second following month. Even if the stakes are not high, it never hurts to be able to get by for a few months without income.

The Risk Is Too High#

Let’s assume the unlikely scenario in our industry occurs and you find no projects or you miscalculate. That is regrettable but by no means a disaster. You can pack up your tent almost as quickly as you set it up and return to employment. What remains is not the shame of failure, but the certainty of having taken this step and gained valuable experience!

No Work#

Again, at the time of my self-employment in early 2019, the demand for skilled professionals was enormously in favor of employees and freelancers. Nevertheless, as already mentioned: the step back into employment is not too complicated and nothing to be ashamed of. Especially if you maintain your online presence, you will be contacted regularly. An old-school network of colleagues and friends in the industry is also valuable.

“Self” + “Employed” (i.e., “Constantly Working”)#

This false cliché can often be encountered. Since you don’t have to keep a production line or similar running, you are quite free in how much “constantly” you want. As a freelancer you do not have to work 40 hours or more per week. By agreement with clients you can also settle on a smaller scope and have the rest of your time as free time. Of course, you should weigh this financially, but in principle there would be nothing against a 20-hour week.

Loss of Income#

But when you’re sick, no money comes in!

That is true at first. The key here is to build up or already have enough reserves to bridge a loss of income of a few weeks or months. Besides, at my age I don’t expect major outages. Of course something can always happen, but should that really stop you…?

Bogus Self-Employment and Compulsory Pension Insurance#

Bogus self-employment and pension insurance is a hot topic, and I deliberately do not want to go into more detail here. If you pay attention to certain things, you will get along fine in this area too. Here you can find a good first overview of the topic. Regarding the pension insurance obligation, you should keep an eye on the 5/6 threshold of revenue from a single client.

Going Independent#

Here I want to describe my steps and experiences on the path to self-employment.

First Assignment#

A personal preference that others may see differently. I wanted to take the leap into self-employment only once a first assignment was already within reach :)

Tax Advisor#

My first appointment was with my trusted tax advisor. He gave me a crash course in taxes and accounting and helped me fill out the questionnaire for tax registration. This questionnaire goes to the tax office and marks the start of self-employment. In return you receive a tax number and optionally a VAT ID, which you should apply for at the same time. This is needed for activities abroad, but it doesn’t hurt to have one even if you are not currently pursuing activities abroad.

Formally, nothing more is necessary and you can get down to business :) It should be noted that depending on the tax office the processing time can be a bit longer. We are definitely talking about weeks in the normal case! Of course there are a few things to keep in mind over the course of your work, but for the start that was it with the formal hurdles!

Insurance#

In my case, the legal protection insurance, which until then had only covered private matters, had to be adjusted. I had to extend it to commercial legal protection. Furthermore, it would be worth considering increasing disability insurance when expecting a salary jump. I also took out professional liability insurance. Since as a freelancer I am liable with both my business and private assets, this is in my opinion indispensable.

Marketing#

The online presence must be polished, or if not yet existing, created promptly. The online presence includes the homepage, portals such as Xing and Linkedin, or service providers specializing in freelancers such as Hays and Gulp. Of course, a well-maintained CV is also part of this. I do not (yet) have a business card. That is still on the to-do list. Word of mouth among acquaintances and former colleagues in the industry should also not be underestimated.

Infrastructure#

For me, this primarily refers to accounting. I want this to be as convenient as possible and therefore do not hesitate to use a paid service in order to operate cleanly and with few sources of error. I decided to have a separate business account in order to draw a clear line. Besides, many private accounts are not intended for business use and you can get into trouble with the bank! I chose an account with Kontist because it was specifically made for the self-employed and offers a range of automated features. Kontist offers a normal “German account” covered by deposit insurance, and the option of a real credit card. A pleasant surprise was the account opening process and the general handling — everything runs primarily or even exclusively via the mobile app.

In addition, Kontist can be linked to other services, including lexoffice. I use that for my accounting. Lexoffice offers access for the tax advisor, who can in turn fill his DATEV from it. This facilitates the exchange of data — no more folders to the tax advisor ;) Furthermore, a wide variety of other export options are available. Another plus is an integrated scanner and uploader for receipts which, according to the manufacturer, meets the requirements so that the originals can be destroyed afterward.

I also installed kimai, an open-source time-tracking application, on my server. I use it to track my working hours for client activities. Various export options such as .xlsx and .csv are available here as well.

Being Remote#

As a freelancer, it happens more often that you work a large share or even exclusively remotely. With this way of working, you must be aware that you can be confronted with a number of challenges. These depend greatly on how you shape your remote work. More on that in a moment. The following points are, in my opinion, the greatest challenges of remote work:

1. Separation of work and private life
2. Lack of social contact with colleagues
3. Discipline and structure required

In principle there are at least three ways of shaping remote work.

The first is renting an office space or a coworking space. This allows you to create a workplace that is already quite close to that of an employee, and the first two challenges become easier to handle. Discipline and structure never hurt, but many temptations are absent when the workplace is physically separate. Depending on the distance, commuting can have a negative impact though.

The second option is a separate home office. This still provides some separation. Social contact during working hours is generally scarce here. You save yourself the rent and commuting costs, but you need a property that provides such a room. Of course, the temptations at home are higher.

The last and most minimal option is working from home without a dedicated room. Here you have the maximum challenge but also the maximum freedom. Even with little space you should try to find a “work corner” to at least maintain the appearance of a separation between professional and private life. I have had good experiences with a mobile laptop stand like this one.

Last but not least, there is also the variant of the modern “travel worker.” Since in the IT industry usually only a laptop and an internet connection are enough, you can pack your bags and go on a trip during which you naturally also work. At the same time you get to enjoy foreign places and people.

There is no right or wrong here, as this depends extremely on the character and working style of the person.

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