Lifestyle Business
- 12 mins cosminGym session is over today and I feel pumped to write a blog post. Since my last post about how I became independent, I got a bunch of messages from my peers asking how should they start their own freelance careers, or how they can start their own startup, how much should they charge, you know, this kind of logistic questions. And since I’ve advised some of my friends about this before, I thought it would be best if I can write this down, since it’s basically my experience as a freelancer and I think would help a lot of others who just started or want to start.
Lifestyle Business
The title of this post is lifestyle business. A quick search on Wikipedia yields the following definition: A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more; or to provide a foundation from which to enjoy a particular lifestyle.
Let me translate that for you. A lifestyle business is a business on which you have full control of. You decide how much you want to earn, when you work, what will you work on, where you want to work, and you’ll also make a lot of compromises on those as well, at tough times. It’s not as good as it sounds, but it gives you total freedom and puts all the responsibility on your shoulders.
I love that. It’s pretty much what I want to do my entire life. The reason is pretty simple: I can write blog posts, I can learn French, I can do a Masters, I can work from anywhere in the world, I can work on whatever I want, I can express myself freely without being afraid of some company’s policies. That’s because I make my own policies. Now please make sure you understand the word “can”. Although I can do all of that, doesn’t mean I always do them. As a matter of fact, I don’t work from anywhere in the world, but I have more flexibility on my life, and that feels good. It feels like I am not a prisoner of my own life, but I shape it the way I want.
Some people might not like that, and I totally understand and empathize with them. This is not for everybody and certainly, it won’t be even in the future. I actually had a controversial post on Facebook where I said that I don’t understand why some people like to stay on local jobs when remote jobs can get you twice the amount of money or even more. Some of the answers were: I like to hang out at a beer with colleagues, I like to feel a human presence, I like to connect with them. Those are all valid reasons. I just want to ask: do you actually like those persons genuinely, or would you rather hang out with your real friends, not some imposed colleagues that you have to tolerate and with whom you have to censor yourself? Or it’s just that most programmers are so bad at social interactions that this is the only chance to actually make friends and girlfriends: at the damn office. For those who are in this position, I hope you are now aware of this! Grow up.
Freelancing
Lifestyle business can come in many forms. Some guys like Pieter Levels make around 50k per month while working on his side projects. John O’Nolan has a business that makes $1M in recurring revenue with 0 employees and open-source code. Others make less than that by doing freelancing (some might prefer the word consulting because it sounds sexier).
Of course, I don’t have the experience of the other types, so from now on I will focus on freelancing. Feel free to stop here if this is not of interest to you because you’ll get bored, I promise. Moreover, the exact numbers in here are specific to Romania because that’s where I’ve incorporated my company, but the reasoning is the same as well in Switzerland or pretty much in any other country, except the numbers might differ.
Quick note: I’m writing this on a hurry because I don’t have so much time today, and I really want to write this article before my intensive French course (ulala).
Legals
Before actually getting paid, you have to have a legal instance. First, because that’s the best way to get paid. Second, because it can cover your ass in case things might go wrong. In Romania, you can actually live without a legal instance, and you’ll have to pay a 10% taxes on all your income from your independent activities. 10% is not bad after all, but what happens if some client sues you? What happens if you lose the case? Business bankruptcy is different than personal bankruptcy. In the former case, the business just goes away, in the latter case your life basically goes away. So please, make sure you’re well covered. I actually recommend this YouTube video that will give you some tips you really want to know.
Incorporation
In Romania and pretty much everywhere the process is quite standard. You open google, you type in “incorporation of a company in X” where X is a country name. Then you just do simple research and find the steps needed. For Romania, I will summarize a little bit the process. Feel free to leave a comment into how stupid or good the process looks to you.
- You reserve the name of your company and print the reservation confirmation
- You gather a bunch of documents like:
- Your identity card
- Proof of address of the headquarters of the company (can be your living address)
- Company status - basically the bunch of rules of your company: how many shares there are, how they are split
- Open a bank account for the company and deposit at least 200 RON (approximately $50). This money is still yours, but they just need some kind of validation that you are really serious about incorporating a company. In Switzerland, I think this is as high as $10k.
- Pay some other taxes which are below 100RON ($25)
- Waste one or two days on the registration office, depending on your luck
- Wait one week for the documents to arrive
Note: You can always pay somebody to this for you, for a quite reasonable amount, but I did it myself just to understand the whole process.
Now, this is the procedure for opening a Limited Liability Company - LLC in the US or SRL in Romania. If you want to open an SA (don’t how to translate this but it’s basically share-based company), that’s more complicated, but you don’t need that for freelancing, just trust me.
Finances
Cool, now that you have the company, you don’t have anything else to do except you can start to find actual work to do. Or if you already have clients, you can start invoicing then on you Brand New Company LLC. There is something you need to understand here.
You won’t get a salary anymore, you will invoice your clients, and they will pay that invoice. An invoice is a piece of paper that clearly states: your company’s information, your client’s information, the items that you sold, the price for each item, of course the total amount. For example, if you did consultancy you will write: “Consultancy work as stated in contract number number 123 - $10000”. I’ve missed a very important thing that there exists on an invoice: the due date. It’s basically the maximum date when the client has to pay that invoice. Pretty easy.
There’s a catch (there’s always a catch)! You won’t be able to use those $10k to buy groceries for your family today, nor will you be able to go on a date with your significant other and pay a $10k champagne. Not today. After each quarter (yes, there are 4 quarters), you can move your money from the company’s account in your personal account, after paying your taxes, and then you can buy a slightly less than $10k champagne to celebrate that.
Ad-hoc
I came to some conclusions after trying out different things. First, make sure you create a TransferWise account - it’s free, and you can create an account in every currency. They have the best conversion rates and no fees for receiving money. You can have a debit card attached to all those accounts and use it anywhere. Pretty damn awesome. I wished I knew of them before, would have saved so much money on damn fees that I was not aware of. After you have TransferWise, you can pretty much receive money from everywhere.
Now, how much should you actually charge? My rule of thumb is this: given your experience, ask at least twice the amount that a company is willing to offer you for a full-time position. Why? Because you have to cover your business expenses as well (accountants, lawyers, other consultants, marketing, etc). Especially if you just started out, it’s maybe better to have a lower rate because then you become more competitive on the market, you will get more clients, more trust, and then you can start charging more.
To get clients, you should always look for websites like Freelancing or UpWork, RemoteOK, subreddits, or freelance communities like Toptal. The point is you have to research and send a lot of emails, and from my experience, out of 100 sent emails, you usually get a couple of responses back.
Taxes
Now that you understand you have to pay taxes, let me tell you the exact numbers in Romania. Basically, there are two types of taxes if, on the last taxable year, your company had less than $1M revenue per year, which is always the case in the first year. These are:
- Income tax - the tax you have to pay for each amount you invoiced.
- 3% if you have no employees
- 1% if you have employees
- Dividend tax - the tax you have to pay when you move your money from the business account to your personal account
- 5% of the amount
Which brings to a total of 8% if you don’t employ yourself, or 6% if you employ yourself plus the taxes that you will pay on your salary. For the minimum salary, that would be about 1000RON (~$250). The rule of thumb here is this: if 2% of your company’s revenue is greater than 1000RON, you could employ yourself to pay fewer taxes. Glad I brought that up. If you don’t actually employ yourself, you must be aware of something: you are not health insured by the national health services in Romania (which suck anyway - but at least they are ‘free’ even if your fingers hurt). In the US, health insurance is mandatory and private.
I recently heard a story of some US millionaires which decided not to buy insurance because they were young, and, in expectancy, they will not have a lot of health issues so they can take the risk and will pay the whole amount when they need medical services. That sounds like a great idea if you like to take risks. They did this for 10 years already, and it seems it was worth it. The amount they spent on this year is less than what would have paid if they were to buy the insurance. It’s up to you to decide if this suits your needs or not, but don’t take this as personal advice.
Now, let me clarify some things. Other folks prefer, instead of opening an LLC, to create a so-called - ah, so hard to translate - one-man-show authorized professional (PFA). The taxes would be more, except if you decide to pay a one-year flat income free. This depends on where you live You can see the fees for this year here. For example, if you live in Cluj, that would be $15k per year. In Bucharest, $7.6k, etc.
Let’s say you make $100k per year. If you were to have an LLC, you will pay $6k in taxes plus the $250 for 12 months on your salary, to a total of $3k. That’s roughly $9k. It clearly doesn’t make sense to open a PFA if you live in Cluj because you’ll pay $6k more per year, but might make sense in Bucharest.
End of story
So that’s pretty much the whole story with a freelancing business. You can go deeper and analyze what will happen if you employ other people and take advantage of the fact that you can pay them less than your clients might be willing to pay them and so on, but that’s the story I don’t like to talk because it’s what most of the companies in Romania do anyway.
In the end, I’d like to thank you for reading this and I hope it will help you if you decide to pursue a freelance career. It’s not easy for sure, but it’s different. There are certain downsides which I will probably talk in another post, but this is pretty much what I wanted to cover in this post. If you feel like you have more questions, feel free to write me an email at cosmin [at] dutylabs [dot.] ro or leave a comment below. If you enjoyed this article and want to have the next one delivered directly to your inbox, subscribe below to my newsletter.
Till next time,
Cosmin
Cosmin-Ionuț Rusu
A simple action-taker who likes to just do stuff