But: are you in line with the law? Are you handling your business in a professional manner, protecting yourself from loss and planning for the future? Are you sure?
Reading Stephen Fishman’s Working For Yourself is one of the best ways to make sure that you are. I’ve read this book twice and I use it as an ongoing resource. Fishman has talked to a lot of contractors like you and me, and he explains the game in an easy to understand way. Let’s take a look at some of the most helpful points for audio professionals.
The Pros & Cons Of Working For Yourself
The first chapter of Fishman’s book is dedicated to the question, “Why do people do it?”
It’s a good question. Why go out on your own where you have to run your business and do the work, when you could just work for someone else and leave the the first part to your boss?
In my interview with him, 10 Critical Tax Questions Answered For Sound Engineers, both Fishman and I agree that it’s all about control. As an employee you must follow policy and complete work in a manner specified by someone else. Independent contractors thrive on controlling all aspects of our working conditions. We want to choose our clients, when we work, how much we make, and maybe most importantly, how we do our jobs.
With more control and agility, you should be able to make more money as an independent contractor. By making the right choices, you can maximize your personal value better than any employer. If I were to fill my schedule with gigs, that would be true, but the most important aspect of control for me isn’t money, it’s time. Being a freelancer allows me time to work on other projects that I care about, like Sound Design Live. I might make more money as an employee in the short term, but I’d rather focus on building an audience of life-long readers.
As a contractor you also have a lot more tax deductions that are not available to employees. See my article, Save $500 On Your Taxes This Year.
My favorite part about being a freelancer is that I feel agile. Any time I have a business idea I can immediately put it into action. I don’t have to convince anyone else of my idea’s validity. Does this mean that I have tried a lot of ideas that have failed? Yes. But they aren’t stuck in my brain, making me anxious and crazy with a lack of creative expression in my business.
My least favorite part about being a freelancer is the lack of support structures. When I go into the hotels and music venues where I work part-time, I get to see friends and colleagues. My favorite jobs of all time have been defined by relationships. Same with the worst jobs I’ve had. Being a freelancer means that I get a mix of the best and the worst, instead of being a member of a reliable group.
One of the biggest problems with working for yourself in the past has been the lack of health insurance. Not any more! Since October 2013 anyone can buy health insurance on the public exchange despite any preexisting conditions. Fishman predicted that many people would leave their jobs and go independent once they weren’t tied to insurance anymore, and he was right!
“So what do you do?” Do you have trouble answering this question at parties? I think more and more people are thinking of their work as a portfolio of services instead of a single job title. Many sound engineers have clients from more than one area like film and corporate AV. Some even work in completely different areas like massage and photography. I usually say that I’m a world-famous author. 😉
Legal Form For Your Business
You can pretty much skip the second chapter since, as confirmed by Fishman in our interview, there is really no reason for any sound engineer to be anything other than a sole proprietor, unless you have a partnership with someone else.
Pricing Your Services & Getting Paid
This is the most valuable part of the book. You have to take care of these things in a professional manner or you won’t survive. Or maybe you will, but you won’t be confident that you are protecting yourself and keeping all of the money you deserve.
Fishman includes an Hourly Rate Worksheet to help you calculate your fee, but this has never worked well for me. I usually put some unrealistic numbers into the worksheet for yearly profit. It’s more useful to just ask other local sound engineers what they charge, aka “investigating the marketplace,” which he also describes.
Fishman also explains different pricing models. You may only be familiar with charging by the hour, but the truth is that is often the weakest model because it doesn’t allow for any sort of compression. I’m in favor of a fixed and hourly fee combination. That way if work is going well I can take more breaks or finish early, therefore making my time more valuable, but I’m also protected against conditions out of my control. It usually goes something like this: Day rate $350, anything over 10 hours is billed at $50/hour. Because I really don’t want to work more than 8-10 hours, but if it has to happen, I want to feel compensated for the effort. I also try to upsell by packaging other equipment or services like live event recording and my wireless mix system.
I’ve never had a retainer agreement with any clients, but one of the people I’ve interviewed on the podcast does and enjoys it. That way you still have the control of being an independent contractor, but more of the stability with guaranteed hours like an employee.
Performance billing and taking commissions are two things I’ve always been interested in, but I don’t know anyone who is using them as a sound engineer or designer. Basically you get paid according to the value of the results you produce. No one goes to an event because of the sound engineer who is working it, so it seems impractical, but there might be a way of profit sharing that would work. Let me know if you’ve seen this anywhere.
How and when you get paid should be described in your written agreement with the client. Fishman includes a simple sample you can fill out to build your own independent contractor agreement. I’ve been using it and modifying it with my own clients since reading this book. One of my clients even adopted it for their other contractors. When you are just doing work for a day this can feel like overkill, but ignoring the details will bite you in the ass so I demand that you follow these two rules:
- Write it down. If you agree on your rate and arrival time over the phone, email that client ASAP to have a written record. Simply say, “Hi Nathan, just confirming these details from our phone call.” People will appreciate your reliability. Event producers have a million details to keep track of. Don’t expect them to deliver on everything you just discussed over the phone while they were driving, drinking coffee, and thinking about their next phone call.
- Don’t make assumptions. Just because you have done the same event two years in a row doesn’t mean that it will pay the same or have the same responsibilities this year. You can still agree to do it over a text message, but email that client ASAP so that you know that they know that you know that they know. Otherwise, you’re going to end up working the load-out at 2am for pennies.
Fishman recommends asking for a down payment and periodic payment schedule. I typically only do this on jobs that will last for more than a week or bill for over $1,000. It’s completely reasonable to ask for ⅓ or ½ up front, especially for first-time clients.
When it comes to payment format, Fishman recommends accepting some form of electronic payment, like Paypal. I totally agree, but I’m not 100% on board with Paypal. I am still occasionally surprised by fees I wasn’t expecting and even had one client pay the wrong person. Instead, I recommend SquareCash. It’s unclear how long it will be a free service, but it’s super simple and I’ve convinced clients to use it who previously would only handle cash or checks.
Fishman’s book is also where I learned how to send invoices. You can see my process in Easy Invoicing For Sound Engineers. For example, instead of charging late fees, sometimes I will offer a discount for early payment.
Taxes & Savings
Fishman dedicates four chapters to dealing with taxes. I covered a lot of this in my last two posts: The Sound Engineer’s Pain-Free Guide To TurboTax and 10 Critical Tax Questions Answered For Sound Engineers. Fishman goes into more detail about avoiding and dealing with IRS audits in his book. He also goes into much more detail covering the deductions you can use to lower you income taxes and paying estimated taxes. I’ve never paid estimated taxes. Have you? I put 10% from all my income into a special savings account and use that to pay taxes yearly.
The chapter about retirement options for the self employed was helpful,
but I have to admit that I haven’t taken action on any of it yet (UPDATE: I just opened a Roth IRA at Ally Bank. I already had an account so it only took five minutes. Yay!) I would guess that there are many of you who put these kinds of financial responsibilities off just like me. You probably think it’s too complicated or boring. You should watch Ramit Sethi’s guide to automating your savings.
When you watch it you are going to say, “But wait, that’s for employees who have a pay check every month. My income varies from month to month.” Ah-ha! I have an answer for you. I watched Sethi’s workshop with a bunch of freelance photographers who asked the same thing. His suggestion was to save into an account until you have six months worth of normal income, then setup the automation process to pull from that. Boom.
Read The Book
If you found any of this information helpful I encourage you to read Working For Yourself. Your situation is slightly different from mine and you should make your own business decisions. I’m sure you’ll come up with some good ideas. Let me know how it goes.