8 Legal Mistakes New Freelancers Make (and how to avoid them!)
This guest post is contributed by Brittany Ratelle. Brittany Ratelle is an attorney that helps modern online entrepreneurs become more confident business owners. Follow along with her on instagram.
New (and even veteran) freelancers have to wear a ton of hats – and that usually includes wearing the “legal” one, especially at the beginning of their entrepreneurial journey. But, have you ever wondered what you’re supposed to do to protect yourself as a freelancer and thus – a business owner? How can you go from “I don’t know what I don’t know” to getting “legally legit”? How can you protect your revenue streams and serve your clients with confidence and make sure you aren’t coming off as a hobbyist or amateur? Read through to hear about what you can do as a freelancer to protect your profit, your boundaries, (and your sanity!) when working with clients as a modern business owner.
Freelancers have to wear a ton of hats – and that usually includes wearing the “legal” one.
Mistake #1: You delay (or outright skip) on setting up your legal foundation.
Having a legal foundation means registering or incorporating your business (both used interchangeably) as a LLC or C-corp (a sole proprietorship doesn’t give you any legal protection, it’s what you are automatically if you run a business!) And that usually means you need to set up your LLC! The law doesn’t care whether you make $1,000 or $1 million – if you get in trouble and someone sues you they will have access to ALL of your money and assets, if you don’t have a business entity set up (and nope, a DBA or sole proprietorship isn’t the same thing as a limited liability company). Make sure you build a secure foundation for your business and set up as a limited liability company with your state (LLCs are usually the best fit for 99% of freelancing businesses, but check with a business attorney if you have any questions).
Mistake #2: You don’t separate your personal money from your business money.
Look, the only place your assets should commingle is on the dance floor, ok? Because if you mix your personal money with your business money (including sharing one account, or one credit card, one Paypal email) then all of that money is part of the same big bucket. Keeping your money separate not only protects you on the liability front – it also makes it so much easier to manage your business finances and to stay on top of bookkeeping and taxes. Nothing will help you say “no” to a discount or an offer of “exposure” in lieu of payment then knowing exactly how much money you are (or aren’t) making! The ideal workflow for a freelancer would be to set up an LLC, get a EIN/Tax ID and then use those documents to set up a separate business bank account and online payment processing.
Mistake #3: You are using unprofessional/unbranded email and payment processing details.
A modern small business needs to look cohesive and professional – and a professional email account that matches its domain and its branding inspires confidence in new customers. One study found that 75 percent of ecommerce customers thought a domain-based email that matched a website was a “very important factor” when it came to trusting an online small business. Same with payment details – you want your payment processing to be clear, professional and consistent with your branding – otherwise you are practically begging for the client to flag your charge when they don’t recognize your name on their statement.
Mistake #4: You don’t use a contract (or you don’t know what your contract actually says).
Clear contracts protect both sides of a deal and are nothing to fear. A solid freelancer contract should help address the expected (the what, how, and when of services), but also what to expect when the unexpected happens – like cancellations, people stonewalling, payment delays, pandemics, etc. A well-thought out and professional contract also signals to the client that you are intentional in your business and that you know what you’re doing from the first conversation to the last deliverable. Make sure your contract spells out exactly how you should be paid (are you invoicing them? How many days do they have to pay? Are there late penalties? If they need to send a check, made out to who and sent to what address? Note* – larger companies still favor checks, I don’t make the rules here…so you may have to go with it!) Contracts should also have all of the official legalese to make sure they qualify as a real contract that can be enforced (if they ever need to be).
Mistake #5: Vague (or no) scope of work.
A solid proposal and/or contract should include a detailed scope of work about what the freelancer is doing, especially as part of a flat-fee project or package. Scope creep is a real and scary beast and it can quickly eat into your profits and calendar if you don’t have clear boundaries with your client. Hot tip – make sure you have a timeline of when the client is supposed to do their homework and what the freelancer should do if client approvals are dragging (or getting stuck with too many stakeholders, ideally you should have ONE contact person named in your proposal!).
Mistake #6: You wait for one big check.
While this may not seem like a legal issue per se, money issues are usually what start most legal issues (or aggravate them!). It is somewhat of a Murphy’s law of freelancer work that the bigger the check for a job, the higher the chance that the client just isn’t “feeling” it. Don’t do this to yourself! Structure your contract so that you have payment milestones and keep everyone motivated to keep working, reviewing, editing, and doing their part to push the project over the finish line (but also make sure you are getting paid for all of the great work you are doing along the way!)
Mistake #7: You had a bad feeling about the client and you signed them anyway.
If a client is showing you some red flags in your initial consult conversations, including saying things like “I’m so glad I found you because everyone else I have used has just been garbage” (the flatterer) or “I could do it myself, but I guess you know what you’re doing and this will be worth it (the DIY-er) or the worst – “This is all really organic and free-flowing and I’m not sure what it will all look like, but I KNOW you should be involved (the existential wanderer) – RUN. Protect your boundaries and your sanity and when someone shows you their true colors – believe them. Remember that it’s a good practice to collect something from a client at the outset of the engagement to make sure you are both serious about working together and to protect your limited time and resources.
Mistake #8: Nobody talks about intellectual property.
If you are a freelancer who is providing deliverables to a client of any type (or just providing consulting services), then it’s likely the most important product you are selling is intellectual property – the designs, sketches, copywriting, wire frames, slide decks, org charts, etc. that you are putting together because of your expertise. Don’t assume that you and your client are on the same page in terms of who owns what and what you can each do with anything that is produced from your working relationship. Make sure your contract has protected you and that your proprietary materials and processes are protected after the project is done.
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