02:49 - Pete Keen Introduction

03:59 - Business Entities and Taxation

11:23 - Choosing Professionals to Help You with Your Business

14:38 - Opening a Bank Account

17:04 - Common Misconceptions

22:26 - “Friendly to Freelancers” Areas in the U.S.

23:29 - Legal Issues

28:57 - Finding Clients

31:03 - Mistakes Made; Lessons Learned

34:32 - Healthcare and Health Insurance

38:58 - Liability Insurance

39:53 - Hiring People

Picks

The Independent Consulting Manual by Philip Morgan Use the discount code FREELANCESHOW for 25% off all packages (Philip)
Rohto Cool Redness Relief (Philip)
0.30000000000000004.com (Reuven)
WebEx (Reuven)
Freelance Remote Conf (Chuck)
All Remote Confs (Chuck)
Clash of Clans (Chuck)
Star Wars: Commander (Chuck)
The Independent Consulting Manual by Philip Morgan (Pete)
Neko Atsume (Pete)

 

Yeah, Mandy’s very good at editing and can fix your internet service as well.

Oh really? [Chuckles] That’d be pretty nice to have.

Yeah, she’ll edit all the dead spots in your internet.

[This week’s episode of the Freelancers’ Show is brought to you by Earth Class Mail. Earth Class Mail moves your snail mail into the cloud giving you instant access 24/7 and integrates with the tools and services you use everyday. It’s crazy that we’ve moved everything we do for the business over to the digital world but still need to pick up, sort and manage physical mail. With earth class mail, you can get all your mails scanned and accessible online 24/7. You can search your mail, send invoices over to your accounting software, sync important documents into cloud storage, deposits checks and really just make running your business a whole lot easier. You also get real professional address to share publicly with customers, business partners and investors, and you’ll never need to worry about someone showing up at your door if you run your business from home.

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Hey everybody and welcome to episode 182 of the Freelancers’ Show. This week on our panel, we have Philip Morgan.

Hi there.

Reuven Lerner.

Hi everyone.

I’m Charles Max Wood from Devchat.tv. This week, we have a special guest. That’s Pete Keen.

Hello!

Do you want to introduce yourself?

Sure. My name’s Pete Keen. I have been freelancing for like two years now. I discovered a whole bunch of pitfalls along the way about sharp edges that you can easily cut yourself on when you're setting up your business. I collected all that stuff that I’ve learned and wrote a book about it called Handle Your Business.

Awesome. I was thinking you should’ve called it Mind Your Business.

I thought about that but there’s actually several books already titled that.

Oh.

Wow.

I’m not as creative as I thought. [Chuckles] So you're talking about how to set up your business and you get things rolling – before we get going too far, I guess we should disclaim that I am not a lawyer. None of these guys are lawyers or attorneys or accountants. We’re professionals at what we do and not at all these other stuff.

Right. At least from my perspective, is very US-focused.

Okay.

I’ve had some interest about European stuff but I haven’t delved into it at all.

Cover your ears, Reuven.

Yeah. The US is such a big player in world commerce though so I’ll just [inaudible].

There you go. Where do you tell people to start? “I’m going freelance, what do I do?”

Right. Get a separate bank account is step number one. It doesn’t have to be in a company’s name or anything. Then get some clients. That’s a huge topic all by itself but that’s not really a focus of my book. Brennan Dunn’s work is great for that.

Once you have a client or two, then you can talk with a CPA about setting up what’s called an S Corp which is a specific type of corporation. That’ll save you a bunch of taxes but basically, the idea is once you have a bunch of money coming in as a freelancer, you have the privilege and honor of organizing your own taxes so you want to optimize it as much as possible.

Right. The way I have things set up – because you hear S Corp and LLC and C Corp and all these stuff. The way that I have things set up is I have an LLC that we file as an S Corp.

Yup. That’s how I’ve set up, too. Others doesn’t know about LLCs. An LLC is a type of business that is a lot less formal than an actual corporation but it still gives you a bunch of the protections that a corporation does. So they're super popular for anything that isn’t publicly traded. Like if you look at any – go into Starbucks and you look at their cups, it will probably have an LLC name on it for the licensing.

The IRS kind of doesn’t care about that so they let you decide to be taxes of corporation of one of the couple different types and S Corp is one of those.

Yeah. The way I understand it is that with an S Corp, I have a reasonable salary which, when my accountant told me what my reasonable salary was, I laughed and laughed and laughed. Then I said, “Okay, if that’s what they want to tax me on, that’s fine.” The rest of it gets taxed as capital gains if I remember right.

It’s still ordinary income but you don’t pay the [inaudible] taxes on it.

Okay.

That’s the big deal. You have to pay state and federal on the whole amount but you only have to pay payroll taxes on whatever your taxes is.

Right. And that payroll tax is around 15%.

Yeah. Exactly. Social security, medicare and for freelancers, it’s double because your employer when you're a W2 employee, actually pays half of that money.

Yup. Lucky you, self-employed guy, you get to pay ball.

I have an interesting question around that. I remember being shocked more than anything I’ve ever been shocked by my whole life. I’ve witnessed car accidents and I’ve seen people almost be killed. I’ve seen some stuff but I was never as shocked and appalled as the first time – my first year of freelancing – that I got a wake-up call about the tax rate because I did not do very well on my first year of freelancing. I was barely scraping by, if that.

So I was like wow, they just don’t give you a break. So here’s my question is what should the new freelancer be prepared for in terms of maybe just a rough ball part percentage of their income that they ought to set aside for the purposes of taxes?

A super – it depends on your state but most states, I would say, a really conservative estimate would be 0% of your gross. Put aside separate savings account until the end of the year for your first year. After that, you’re going to know better what to expect to reduce that but the first year, 40% is a good number.

Okay. That’s super clear. I bet a lot of people are going ‘wow’. [Chuckles]

Yeah. It’s a lot.

This are probably for people who are thinking about going freelance or thinking about starting a consulting business and they're like, “Wow. If I’m consulting, I can earn twice as much as I did as a [inaudible] employee.” The reason why consultants are charging twice as much or more, then [inaudible] employees is precisely for this reason, or among other things, for this reason. There are other reasons as well but you're basically paying for a lot of taxes that employees don’t even know about or think about.

Right. One of the great little bits about actually filing as an S Corp and paying yourself a reasonable salary is that you have to pay unemployment tax for yourself on the assumption that maybe one time, you're going to fire yourself and have to claim unemployment. [Crosstalk]

Which, I’ll tell you, I’ve been tempted.

Most states don’t let you do.

My boss is a jerk. He might fire me any day.

Yeah. Mine, too. He’s an asshole.

I have that also – obviously, I’m living in Israel so the taxes are totally widely different, structured differently, but you're required by law here. Employees are required. When you fire an employee, that employee then gets severance pay. Severance pay – for every year they worked for the employer, they get one month salary. So if you work somewhere for five years, you then get five months’ salary.

It’s typically not paid by the employer right away in one lump sum but rather it’s paid overtime. Every month, you put into a severance fund. So I’m required to put into a severance fund for exactly what you said so that if and when I ever close the company and the company fires me, I will then get severance for all of my years of service for the company, which, at this point, is 20 years so, huh, maybe I should fire myself. [Laughter]

I’m fired! I’m taking a sabbatical! I’m fired; I’m cashing out. And oh, I’m starting this other business.

20 months from now.

I know people who use that basically – and typically, especially in high tech, in other highbrow sorts of industries – even if you quit, you're typically then given the severance. That’s sort of a reasonable thing because the money was put into his fund anyway, and so I know people who left a job or fired and they used that five, six, eight, ten months of severance to do retraining and do something new or get their fee – I don’t know what the term would be, but sort of get their FEED study in doing consulting and that ramp up to it.

Yeah, that sounds like a really useful thing. For new freelancers in the US, it think the common guidance if you can save up six months because it takes a long time potentially to get a client and a steady workflow and everything.

Absolutely. And you’ll have months – hopefully not, but there are sometimes dry months that takes time to find clients and [inaudible] for them to hear about you and on and on.

I’ve started doing coaching for people doing technical training. I told them if you're starting now it might be six months before you get your initial gig because it’s going to take months to get your name out and do the marketing and people hear about you. Then, if they paying their plus 30 net plus 60 [inaudible] going to take time and definitely savings is just a good idea anyway.

Yeah. I want to, just as a counter point to that, say that I did get a couple of clients within a month of two with going freelance, but I guess the counterpoint – my counterpoint is that I already had an audience that I can market to. So there are exceptions but it is a terrific idea. When things have slowed down for me, they usually slow down for two or three months at least.

Yeah, I have the same kind of audience available which was a huge leg up. If you're able to do that, that is helpful and is continuing to be helpful.

Going back to the topic of an S Corp, I’m just going to point out that I have no idea how I changed from what I was before to an S Corp. My accountant did that for me so make sure that you have a top notching accountant who can take care of that stuff for you and explain the benefits on what’s going on. You don’t have to know all the details. I’m sure I signed some forms or something but I didn’t need to know all the details; I just needed to know how it was going to work and how to pay my taxes under the new set up.

Yeah, it’s actually just a half-page form but it’s definitely useful to have guidance and somebody just sit there with you and answer other questions.

And to fill out the paper work for you so that you're not paying us any more than you have to.

right. Actually, an interesting fact I learned – just having a CPA’s signature on your taxes reduces your [inaudible] risk. You do all kinds of other stuff and it actually reduces your [inaudible] risk [crosstalk] because presumably, they know what they're doing.

Presumably, yes.

And you already know a fraudulent accountant out there.

Oh no. None.

I have a story. [Laughter] Not on a fraudulent accountant. The accountant that I went to, he had me set up my business as a partnership. I’ve told this on the show before so I’m just going to summarize. Anyway, the way that he had it structured, it turned out that the IRS decided, after I’ve been in business for four years, that they didn’t like that setup. All the people who were using him as their accountant, they had filed their taxes that way, had to pay back taxes.

I lucked out because he brought on a junior partner after I’ve been with him for a year or two, so I have been filed under his partner’s tax ID instead of his. So I lucked out; I’ve hadn’t had anyone come and ask me questions yet and I’m hoping that that yet becomes never. But it really is risky; if you pick the wrong person or if you pick somebody who’s doing something a little bit oddball and it turns out that the IRS decides that oddball is not cool, then you're going to have trouble.

It really is important. I went to him off of a recommendation. I’m perfectly happy with his partner now. He’s actually left the company for a mission – a religious mission for a couple of years so I am dealing with his partner because he’s not there. It turned out to be a risky thing picking the wrong accountant.

Yeah. And it’s hard to pick the right accountant. You're going to have to go by referrals. It’s like, how do you pick an honest person? You just have to evaluate them as a person. And it’s the same with attorneys; my aunt’s an attorney and I asked her how do I pick a good attorney? And she’s like, “I don’t know. I have no idea.”

Well, he wasn’t trying to screw anybody over. He thought it was auto-proof and et cetera. His partner wound up cleaning up a lot of that audit stuff.

Uh-hm. Yeah, that’s one of my motivations for writing the book. It’s not necessarily meant as a step-by-step guide; it’s more of a ‘here are a bunch of very basic bits of knowledge that you probably don’t have already’. You can then talk with an adviser and help to evaluate an adviser based on this.

I try to make it as correct as possible and by the book as possible so that when you go to somebody and they say, “Well, that’s okay but here’s a better way,” you can evaluate what they're telling you.

Pete, you mentioned that the first thing someone should do if they're just being in businesses, open a bank account. Presumably, people have bank accounts already.

Yeah.

My question is – I know the answer but I’m curious on your take on this – why open a separate bank account for the work that you're doing if you’re just doing freelancing?

It helps with budgeting and it helps with sanity; really, it’s the big thing. It’s just depositing your client checks into your personal bank account and then mixing all that money together. Now you have to pay taxes out of that and it just gets crazy. The best thing to do is to segregate that money off and pay yourself a salary. Give yourself a steady income that you can budget your household on and maintain some [inaudible] of sanity in this line of business that is not steady or not necessarily steady.

Yeah. My experience with this – because initially, I was doing that. I was just putting it into my personal bank account. My account was like ‘no, no, no’. It wasn’t because I couldn’t do that. I couldn’t once I had the LLC and wanted the LLC to get paid; the real issue was that, like you said, it’s a budgeting thing and you have to be able to justify any purchases you make as deductible – at least in the US – as business expenses. It’s much easier to do that if all of those deductible expenses come out of one account, and all the non-deductible ones come out on the other.

Right. That’s a good point. Yeah, and the same with the credit card. If you use a credit card that you should probably have, if you haven’t set up a formal business and at least use a credit card – that’s the only thing you use it for – is your business expenses.

Yeah. I have my corporate credit card right here. [Laughter]

I see. Did you get that number?

Yeah, right now. Screenshot.

Great, it’s frozen. Missed the numbers on the back; I’ll show this, too, now. Actually, I found having separate accounts and separate credit cards to be a relief for me; not just for the accounting and for tax purposes that it allows me to say ‘this is for me’ per se and this is for the business even though I do, as much as possible of my personal expenses, under the business.

The daily newspaper we subscribe to is a business expense but that’s a legitimate one who [inaudible] my accountant who I believe is legit. But in every country, and I’m guessing every state also, has different rules about what you can and cannot expense and what’s acceptable but this allows us to really have a fairly clear separation between the two which I find really to be a relief.

Hey Pete, I’ve got a question for you. When you were researching your book, what kind of common misconceptions did you find that you would like people to know about?

One of the big ones is – LLC stands for Limited Liability Company. There’s a really widespread misconception about what liability means in that because people think about their car insurance; liability, when you have a car insurance, is ‘I ran into that guy’s car and I injured his car and that insurance protects me from having to pay out of pocket for that’. But that’s not what that means in terms of LLC. What that really means is if the LLC takes on debt, like you have to get a bank loan to buy a machine or something; the bank will probably make you sign for it personally.

But assuming the bank doesn’t make you sign for it personally, if the LLC goes under, you're not actually reliable for that personally. They're not going to go take your house to satisfy that loan for example. Or if someone sues you, they can only go after the money that’s in the business which is another reason to have separate accounts for the business because if you mix them, then it muddles things and lawyers can go after, pierce the company itself.

Were there other things that were surprising to you that you learned going through the process of writing a book on the subject?

The huge variety of state tax laws. [Laughter] They don’t go through much in the book but every state is different and every state is more or less aggressive on certain things. It turns out that New Jersey is super aggressive on taxation for some reason; more so in California which I thought was the worse.

When you say aggressive, you mean the rates are high or they tax many things or they enforce it more?

They enforce it more. There are certain conditions where you do business with the client in New Jersey even though you’ve never step foot in New Jersey. You may own Jersey state tax.

Oh God.

Yeah, I find that a little ridiculous.

Yeah.

Come over to Utah and get me. [Laughter] Dork. I’ve heard the same things about certain countries where if you do work for or with a company in their country, and it’s like, “Yeah, we’re a sovereign nation. Go for it.”

US does that, too. Just so you know.

Yes, they do.

There’s a whole – it was going to be a mess but I think they fixed it. There was this whole VAT MOSS thing for people who sells software. I don’t think it’s necessarily part of their consultancy but for people who sell software or eBooks or something, even if you weren’t in the European Union, if you’ve never set foot on the European Union; if your customers live there, you have to pay tax on that.

That’s true. The rule in Europe is the same – as far as I know – as the rule in Israel which is VAT is paid by local companies or local people to local companies but not if you're from abroad. It could be that within the EU, they pay VAT to each other but basically then – this was a year ago, a year and a half ago; something along those lines – the EU said, “Well, if you're selling digitally to people in the EU, then they need to pay that. It doesn’t matter whether, as you say, the person selling is locally there or not.

I was, at that time, transitioning from using DPD – Git DPD for selling my eBooks to Gumroad. So I got announcements from both of them saying, “We have taken care of this; you don’t need to worry. That is going to be included. Just sit tight and people who are in the EU will see this.” A few weeks later, I got very angry email from someone, I think in Germany or Austria saying, “Hey, I wanted to buy your eBook. How dare you charge me that on this?” I was like, “It’s not my fault! It’s yours!” or your government’s at least. That is something people need to think about but it should be transparent if using any served [inaudible] delivery service.

Absolutely. It’s just maybe a surprise.

Yeah.

The first couple times.

Yeah. I guess my main issue is just that if you don’t have jurisdiction here, then how can you tell me that I have to pay this?

But you're not paying it. You never have to say ‘don’t worry about it’ if you see these guys.

Right.

I mean if you set up your own e-commerce store, then I’m guessing you do and, in theory, they can come after you but I find it really hard to believe that the EU tax authorities are going to come hunt you down in Utah, Chuck, for your conferences.

Yeah, exactly. Well, the other thing is I’ve talked to my accountant about sales tax because I am selling a digital good or whatever. He’s like, “You have to pay if you're selling these kinds of things. You have to pay if you're selling these kinds of things,” which is another reason to have an accountant, right, because I had no idea. And the conference tickets, it turns out I don’t have to pay sales tax on but in another state, I might have to.

If I were selling physical books or t-shirts or something like that, then that’s a different story.

Yeah. It’s weird. I love in Michigan. Michigan doesn’t charge sales tax on downloadable eBooks but it does charge sales tax on downloadable software. So I wrote a Ruby Gem and tried to sell it. I would ask – I had to write a bunch of code to collect sales tax just for Michigan residence.

Ohh.

Yeah.

That is crazy.

Yup. Never done it.

Maybe you could package it as a book and say you can either get the source code to the gem as an eBook or a completely packaged digital version.

Yeah. If I were mailing out physical books, then any book I sold in Utah, I would have to pay sales tax on.

Yup.

So Pete, is there a number of states in the US that are particularly friendly to freelancers from a tax or business perspective?

That’s a good question. I think Washington state laws are kind of weird. They don’t have any income tax but if you're a business, you have to pay this thing called B&O tax. I think Texas is actually really friendly to freelances because they don’t have state income taxes at all and their other taxes are relatively low so cost of living is just pretty low in general.

I’ve heard the same thing about Nevada.

Yup.

Because they collect most of their taxes off of gambling and things. Florida also doesn’t have a state income tax. I think Tennessee may not either but I’m not sure on that one.

Alaska pays you to live there.

Yes.

But then you have to live in Alaska. [Laughter] I don’t know about the other listeners but I’m not really a fan of it.

I lived in Alaska for three months during the summer. It’s beautiful up there.

But it doesn’t get dark.

Yeah. In the summer, it doesn’t get dark. In the winter, it stays dark.

Doesn’t get light. [Chuckles]

But yeah, this one makes sense. What about legal issues? So we talked a lot about the financial and accounting issues but what about legal issues like contracts or insurance or things like that?

What do you recommend for people on those accounts?

Always use a written contract. No exceptions. Verbal handshake contracts aren’t worth anything. Really, business is about trust so you start with a verbal agreement then you document. It’s not as if someone’s going to try and necessarily screw you but they may forget – or you may forget – so it’s really useful to have written documentation that you know you both agree on at one point in time in order to reference.

You should – the way that I advocate structuring in the book is to use what’s called a master services agreement and then statements of work. The way that that works is you basically sign one big contract at the start of any engagement with a new client. From then on, all those terms are basically copied automatically to every other engagement with that same client without having to sign new things. You can negotiate fine points at the start and then every other engagement is just a one sheet – this is what’s going to happen; sign here; this is how much we cost.

Now, I know that Jonathan works a little bit differently. I don’t think he actually hands out paper contracts or digital paper contracts. I believe he just gets paid upfront and then just promises to give the money back if he doesn’t deliver.

Yeah. That’s a way to go. I think there still should be at least – Nick D. uses something like that where he actually has just a generic contract that you agree to; you pay him upfront and by paying him, you agree to this generic contract and that includes every fund.

Yeah, I use a contract like that as my master services agreement and that was exactly it – was that you pay me a deposit and that’s a green to the contract. And I had run it by my attorney and he said that that was perfectly legal and perfectly binding, and yeah, I would just provide a services agreement that says ‘this is what we’re going to do and this is what you're going to pay for it’.

Uh-hm. Exactly. Those are both valid ways. The important point there is to talk with an attorney about it because like every – just like with taxes, every state, every local places is going to have different things that have to be included or can’t be included in a contract so talk with an attorney.

Yup. It was the contract killer. I get ask about this all the time and I’m not the one that’s recommended it over and over; it was Curtis McHale. “Where’s that contract that you talked about?” [Chuckles] We’ll put a link to that on the show notes as well but I took that to a couple of folks and same thing; it was – [inaudible] to my attorney. He was like, “Yeah, that’ll work, too.”

One thing that I’m wondering about though with contracts in particular – I’m going to put a link to Nick’s episode on productized consulting in the show notes but one thing that I’m wondering about is international. This is something maybe Reuven can talk about a little bit because I’ve had international clients; we had a contract but I can’t really sue them in Dubai or Hong Kong or wherever they were at.

You can [chuckles] but clearly, if you can’t afford to go after them, then you're not charging enough, Chuck. [Laughter] Look, it’s a problem and I’ve gotten bitten by it. It means – because look, in theory, if I have a client elsewhere and – I have plenty of clients in Israel but I have plenty of clients abroad elsewhere. If I have a client elsewhere in the USA, sure, in theory, I can go and sue them and so on and so forth and I have US citizenship. I don’t have any problems getting a Visa to go in but it’s going to be a long, expensive, drawn-out and probably unprofitable haul. So I basically go into projects with people abroad on the assumption that – hoping that it’s going to work out because if it doesn’t, then I’m just going to – it’s going to be awash. I’m just going to take it as a loss.

I [inaudible] to joke with people on the US about how – why don’t we say in the contract with the jurisdiction as London so both of us would need to fly. [Chuckles] Clearly, this is absurd but at the end of the day, those contracts are worth something but not a lot. I hate to say it.

Yeah, and I’ve written off thousands of dollars because of that. It was like I could sue them and that – my contract with the jurisdiction here but getting a judgement against them wouldn’t do any good.

Right. Because they would have no incentive to compete.

Right. They come to the US and they might get in trouble. If I know they're here and I can get a sheriff after them.

Yeah, good luck.

Exactly.

Now it’s – in such cases, you can say ‘you need to pay in advance’ or ‘more in advance’.

And that’s what I’ve done.

Right. I think I have someone in Japan for whom I did some work. He would just pay – it wasn’t exactly weekly billing but I would say, do two week chunks like ten hours a week or something like that. He would just pay for each chunk in advance. We were both pretty much okay with it because it was small enough that if I did a terrible job, he’ll take – fine, I lost a week of payment, two weeks of payment. If he didn’t pay me, I would say the same thing. So both of us were on the hook for much less and there was less risk associated with it.

Right.

Yeah. That’s a really good way to stretch with things. Illuminate your loss on both ends.

Yeah. That’s the way Eric does it where it’s – you pay for the next weeks’ worth of work. The only risk is he doesn’t deliver and they're out a few thousand dollars, whatever his weekly rate is.

The other end of this that I guess we haven’t tackled yet is you said get a bank account and find clients. Well, we talked about bank account – get a separate bank account. What about finding clients? What do you tell people there?

I specifically don’t cover that in the book because there’s so many other great resources for that. I really liked Brennan Dunn’s work, the Double Your Freelancing book. It was super helpful starting out. I didn’t have any clients but I still read it and it was still super helpful.

Every client I’ve had has been from networking and really just one or two particular Slack chats over the course for the last couple of years.

Wow.

Yeah. It wasn’t intentional; it was just I went into these chats, I was invited in and I just was super helpful and people decided to pay me.

That’s pretty good.

Yeah.

I think what you described there, Pete, is sort of the framework of half of the type of marketing that really works which is just being helpful at some level of scale; either one to one or one to many, and that often does lead to people saying, “Wow. I would pay you to be more helpful.”

Right.

Nice to hear that that worked for you.

Yeah. I wrote my first book about doing Stripe integrations in Rails apps and that generated, in excess, of $200,000 for me in client work alone, not even including the book sales.

I was going to say, “In book sales? Whoa.” [Laughter]

No, it was not that successful in book sales.

But it establishes an expert in something that is [inaudible] critical for business. Payments don’t – it doesn’t get more critical than payments

Right.

They're willing to come to you and they're like, “Well, we could have our guide to the payment or we could have this guy who wrote a book.” Right, that’s great.

I thought about Nathan Barry’s process for that first book. The thing I knew how to do and then his book is actually called Authority and it’s about how to actually express the fact that, yes, you do know about this and then get people to pay for it.

It’s a great book, too.

Yeah.

Pete, I’m just curious to know what mistakes you made because you said you’ve been a freelancer now for a few years. What mistakes have you made on the business side that you included in your book that – because all of us have these horror stories of these deep gashes and scars that we try to warn others away from doing, so what are some of yours?

I’ve been incredibly lucky and haven’t had too many terrible clients. I guess I’ve had a couple of clients that weren’t ideal. One of them was a local tiny startup and that wasn’t great because their cash flow’s not very good. Another was a giant military contractor and also not great. The cash flow was fine but they didn’t want to share it with me very frequently. [Laughter] Also, they were super inflexible.

Really big clients seem to have – especially really big clients for a subcontracting have these target hourly rates and target hourly rates over all of their subcontractors. That’s really not very convenient when I bill higher than that and typically bill by the day. So now there’s a lot of weird negotiations; they have to happen to make that work.

Personally, I will stay away from both of those genres of clients from now on. As far as business mistakes, I can’t think of any but I do a lot of research before I do anything and that has saved me, I’m sure, a whole bunch. I ask stupid questions, too, to accountants. I have no shame about that. [Chuckles] I ask stupid questions to accountants and lawyers and that’s fine.

Luckily, I have – my aunt is a lawyer and showed – will answer questions for free.

Look, I [inaudible] from a positive to horrible, once a year, I have to do a guide. I don’t remember exactly what we call it, like an annual report. Well, I don’t have to do it but my account prepares an annual report to the Israeli tax authorities, paying taxes every month or every other month depending on the type of taxes, but you have to submit something to the tax authorities so I have to go on and sign. So that’s the chance each year for my accountant to go over the profit and loss statement and all these other stuff.

It’s actually a fascinating experience for me because that’s when I get to know what my clients feel like. [Laughter] The accountant’s saying all these things and my eyes are glazing over. I’m like, “Uh-huh, uh-huh.” I’m thinking, “I’m sure this is really, really important; I am maybe getting 20% of it. Uh-huh, uh-huh.” [Laughter] And I sign on the dotted lines and he says, “Okay,” and I ask a lot of questions but I just feel like at the end of the day, it’s totally trust and I am betting/trusting that my accountant knows what he’s doing and what’s on my best interest. I’m glad that he’s dealing with this and not me.

I had a mistake that it wasn’t mine, actually. So I pay a payroll company to do my payroll just for me and it’s pretty cost-effective because they talked to the state and the federal government for me so I don’t have to deal with that at all except that sometimes they do it wrong.

Oh no.

I paid all the taxes correctly, everything was fine and then I started getting these mailings from the state of Michigan. I was paying myself a weekly payroll at that time so I got a mailing every week that’s like, “You send us money but we don’t know what it’s for.”

Oh gosh.

Submit a return. I’m like, “What is this?” And it took months for those things to stop even after we cleared it all up just because, for some reason, the state of Michigan’s cue was backed up.

Oh wow.

Yeah. That wasn’t very much fun but that’s why I pay the payroll company.

Is there anything else that people should know about when they're starting up a freelance business?

Other than what we talked about?

Yeah.

In the US, health insurance is really important.

Oh, don’t get me started. Yes, that’s important.

It’s really important to have. Don’t go without it; that would be penny-wise and pound-foolish.

And, as Chuck is [inaudible] to remember, isn’t it now the law as well?

Yes, you have to have it or you have to pay.

You have to pay a fine, yeah.

Yeah.

It’s a pain but it’s totally worth it. And the great thing about being a small business is that you can write it off. My wife and I have really good health insurance and we just write it off and it’s just, in our cost structure, in my rate structure, it’s included in that.

I can’t afford really good health insurance but I’m not going to go into the political debate over that.

I want to add a few points about that. So first of all, a lot – I realize now, things are changing with health insurance in the US. It’s creeping close to being a civilized country in that sense. [Chuckles]

You really want to open up this can of worms, don’t you?

No, but I do want to say a lot of people when they're younger say that, “Well, I don’t need health insurance,” but that’s when if you get on certain plans, it’s much cheaper. My wife and I have now been looking into getting private health insurance in addition to supplement what we’ve got here in Israel through the public system. It turns out, now we’re all [inaudible], we’re on our forties. Now the insurance agent is saying, “Well, I have to check this, I have to check that because we now have pre-existing conditions that they’ll say what will take you, but this and this and this won’t necessarily be covered.” But if we [inaudible] ten years ago, obviously, those conditions mostly wouldn’t have existed so the earlier you get in a whole lot of things, the cheaper, easier and better it might be.

It’s one of those things where if you're in your twenties and thirties and be like, “Ugh. I’m going to live forever.” You won’t and you should get [inaudible] early on. And if you're outside of the US and you have a public health system, even though US public health system is pretty good – I didn’t say very good – it doesn’t cover everything so well and so we’ve decided to get supplemental insurance. I’ve been surprised by how much it covers and what it does, and I’ve been here for twenty years now. It’s definitely worth it if you're outside the US looking into these sorts of supplements, at least finding out good, bad or otherwise and how expensive they are because it was actually surprising and not expensive also.

Yeah. I’ve heard the same thing about the health plans in Canada. The public health care covers a lot but, for example, it doesn’t cover prescription to drugs. If you want insurance to pay for that, you have to pay for the insurance.

Yup, but yeah [crosstalk]. I’m just going to throw out there, too, with the current wave that healthcare works in the US, get a professional to help you with that, too.

I’ve got a company here in Utah that – they have a guy that I’ve talked to over and over and over again. He has helped me navigate that system so that I could actually get what I need. Without him, I really had no idea. I would’ve made a poor decision because I was about to make a poor decision and then I talked to him and he said, “Actually, consider this, this and this,” and it turns out that it’s a couple thousand dollars cheaper to pay a little bit higher premium and get prescription coverage for me.

Absolutely.

Because I have the diabetes medication that I have to purchase and pay for. So if I got a plan and had to hire deductible that included the prescriptions or if I had a higher plan or a plan that didn’t have a prescription deductible at all, then it would cost me a whole lot more. We wound up getting a little bit more expensive plan even though our out-of-pocket every month is higher but in reality, our out-of-pocket over the year is lower.

Yeah, absolutely. Those people typically will be free to you because the insurance pay – the companies pay them a referral fee.

Yes.

And they work for all the insurance companies so you’ll get the best.

Yeah. Go with an unbonded agent; it’s what you're looking for.

Yup.

Because then they are not – they're not selling one company’s products, they're selling everybody’s products.

Yup. The thing with any insurance really, if you decide you need professional liability insurance which some contracts and some clients will want you to have, go with the broker; find a broker and they will find you the best deal.

Yup. That has almost always been the case for me. When I went with somebody who only sold one company’s product, I wound up finding out that there was a better deal on a better product from another company that I could have gotten if I had just talked to somebody else.

Wow.

I was going to talk about liability insurance briefly.

Go ahead.

It’s a thing that clients will want you to have and it covers things like if you mess up, usually your contract will say ‘you can’t sue me’ but they may try to sue you anyway. The professional liability insurance will cover up to a limit, and also pay for lawyer which is very helpful because lawyers are expensive. And then off-chance things; usually, they’ll include a mini policy where if you lose some data and they get sued and you expose some PII somehow so that’s useful and pretty costeffective. I think I have a million dollar policy and it’s a hundred bucks a month maybe. I think it’s several million dollar policies kind of bundled together.

Yeah, they're not terribly expensive. In a lot of cases, it only takes you getting sued one time in order for it to be worth in.

Right. Exactly. Again, that’s a deductible cost that you can bundle into your rate.

So have you dealt much with hiring people?

No. I’m trying desperately to not hire anyone except maybe my wide. [Chuckles]

I have a few subcontractors that work for me but then I don’t have all of the withholding taxes and al that garbage.

Yeah. There’s a [inaudible] that again comes with hiring people.

Yup. And I know that varies from country to country and state to state as well. You’ll want to talk to a professional before you do that.

Yeah, but hiring people is definitely a big step. I’ve done it a few times; I’ve got someone working for me now. There’s a big difference between hiring someone. Even if at the end of the day, legally, there’s no difference even if there is. But even if there weren’t, emotionally, it’s a huge difference between having someone working for you and someone just subcontracting for you. Emotionally on both sides; there’s an implied, at least, loyalty that’s perhaps too strong of a word between the two sides that you're going to try to help each other out for everyone’s mutual benefit.

Yup.

There’s a lot of legal things, too. Before the recent changes in health insurance, one of the big things was providing health insurance for people. There’s a lot of explicit responsibility there which changes. I imagine it changes how you look for clients, how you maintain client relationships – everything related to your business changes.

And you have unemployment so you have to pay unemployment insurance to the state and you’ve also got to –. The thing is that depending where you are and what the setup is – my dad’s a dentist here in Provo and he had one girl that worked for him. He had dental assistants. He’s had two dental assistants that he’s fired for a cause. One stole from him and the other one committed payroll fraud. Basically, she claimed time on her time sheet that she didn’t actually work. They both were convicted and had to pay reparations and he still had to pay on insurance form – unemployment form.

You really have to be aware of where the limitations are and what the risks are because it may be worth it to hire somebody as a full-time employee or it may not.

Right.

Alright. Any other thoughts on this before we go to picks? Alright. Philip, do you have some picks for us.

I do. I have two picks. One’s a follow up to last week. I mentioned The Independent Consulting Manual last week. It’s a giant book with contributions from a bunch of really smart people about how to get past that six-figure barrier as a solo person with no employees. The discount code elves have been hard at work, making a discount code for the Freelancers’ Show. So if you go to independentconsultingmanual.com and use the code FREELANCESHOW – I think there’s a character on it so it’s not freelancer, it’s just freelanceshow all in one word as a discount code, you will receive 25% off of any package you order for that book.

Secondarily, as someone who spends voluminous amounts of time in front of a computer display, I use eye drops to moisten and lubricate my eyes. I have discovered a new eye drop that I was unaware of. I live in California in Sonoma County which is home to many, many potheads. I have found the pot head eye drop – the choice of potheads – by this company I have never heard of before. It’s called Rohto; comes in this little, weird, egg-shaped bottle and they are some of the best eye drops I have ever used. So those of you who suffer from dry eyes, irritated eyes like I do, suffer no more. Those are my picks for this week.

Alright. Reuven, do you have come picks for us?

Yeah, I got two picks this week also. First of all, when I’m teaching my programming classes, one of the things I love to point out to people is that floating point math is not exact. Even programmers who have been working for many years are surprised to discover that if you do 0.1 plus 0.2, the answer is not 0.3 in most languages. You might have missed it, but there’s a fantastic called website called 0.30000000000000004.com [laughter] that list all of the different languages this guy could find. I don’t know who did it, but someone spent a lot of languages and finding which ones actually have accurate pointing float math and which ones don’t. That’s a fun one to shock the programmers among you and the ones you love.

My peachy research group produces a programming language and it’s based on Java. We would get questions every so often saying ‘your language is broken because it has this problem’ and we had to explain to them this is actually an official standard of the IEEE and Java does this, too; you just never notice it. It became part of our FAQ. That’s pick number one.

Pick number two is I’ve been doing a lot of training online recently using WebEx. It takes a little while to get up and running and understand how to – understand the nuances of it but I’m actually enjoying it more and more. I think it’s a pretty robust and useful system. I’ve had a bunch of teaching class this week with 20 people in it. Most of us – not everyone turns on the camera, but more people using video between video and audio and shared screen and everything, it’s been pretty good and I’m actually thinking of starting to teach classes online by myself independently. I might well use that. I’ve been trying to Crowdcast a little bit as well. We’ll see exactly which one’s out but I wouldn’t be surprised if I go with WebEx. Anyway, those are my picks for this week.

Alright. I’ve got a few picks here. The first one if Freelance Remote Conf. I think I’ve roped most of the current panel in the speaking. It not, you're invited. [Chuckles] So yeah, we’re going to be doing a conference in February and we’re going to be talking about Freelancing. I’ve invited a whole bunch of people. Call for proposals is also open if you’d like to speak so go check that out.

I’m actually doing thirteen conferences next year and you can get a season pass if you would like or you can get a pass to three, six or nine. So if you see that you want to go to some half or most and not all then you can get that. I’m still working out what I’m going to do with the podcasting conference. I swapped that out with React because I have a whole lot more request for React than I did for podcasting, then all the people who were looking at it and going, “Where did the podcasting one go?” I said, “Okay, I’ll do that one, too.” So that’s the deal. You can go check that out.

Commander. They're pretty similar so if you like one, you’ll probably like the other. One is Star Wars themed and the other isn’t but yeah, lots of fun – you build a base, you join a clan or squad depending on what game you're in. you can send troops to other people, you attack other people. Clash of Clans, the clans actually ward against each other which is kind of fun. Anyway, lots of fun so I’ve been enjoying that. Those are my picks.

Pete, what are your picks?

My first pick is actually the same as Philip’s. Not the eye drops, but The Independent Consulting Manual. If you buy one of the packages – I’m not sure which one, but you get a discount on my book as well. I don’t think it’s stacks but if you click through, you’ll get 25% off my book.

The second pick is – I’ve been playing a game. It’s called Neko Atsume. It’s sort of ridiculous. It’s super casual game where you put some toys out in a yard and some cats come and play with them and it’s adorable. I’ll put a link in the show notes here. It’s fun and it’s free and it’s pretty relaxing if you like cats.

If people want to find out more about you, about you're book or what you're up to these days or hire you for some brilliant coding, where do they go?

My website is petekeen.net. You can go there and find links to my books and articles and consulting page and go from there. If you want to hire me for consulting, there’s a form that you can fill out on my website.

Yup. And Keen is spelled like it sounds, K-E-E-N.

Yup. Petekeen.net.

Alright. Thank you for coming, Pete. We’re going to go ahead and wrap up the show.

Okay. Thanks for having me.

Yeah. We’ll catch you all next week.