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Comment by tptacek | Hacker News Reader

This is a pretty good post; the latter half, I think, probably applies well to all solo consulting practices.

I particularly liked how flexible her thinking was on billing. "Hourly, with a cap" is one good way to do it; we tend to do "flat rate, fixed schedule" to similar effect. My only critique is with using "hourly" as your time quantum. Hourly sucks. It's probably some kind of standard in design, but even if you're a designer, I recommend pushing it at least to "daily".

Has anyone else here obtained a "line of credit" (say from a bank)? Do we think she just means "get an Amex card"?

Two other points I'd add:

* Incorporate: LLCs are (very) cheap and absorb most of the risks that are most likely to bankrupt you or take your house away.

* Get an accountant. Less cheap, but almost certainly cheaper than doing your taxes yourself; in several of the last 7 years, my accountant has made me money.

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About line of credit: she is Canadian, and in Canada line of credit is a revolving debt instrument pretty much like credit card, but with lower rate and no card attached to it, so it is less convenient to pay from it. This is designed for medium-ticket one-off purchases, like say TV or washing machine.

Wow, I had no idea that was just a Canadian thing. What do Americans do?

Business with significant capital get loads secured against that capital. Smaller or low-overhead businesses get loans personally guaranteed by the company officers (often against their personal assets) Or they get by with corporate credit cards (which they used to hand out like candy at the doctor's office) and work out separate payment terms with the vendor for any bigger-ticket items.

Those corporate credit cards are still pretty easy for an individual to get because they don't fall under the same bankruptcy laws as personal cards.

Bank loans are all but unobtainable by many (most?) fledgling entrpreneurs. Credit cards fill the gap.

If you have a good enough credit score, one stategy is to continually try to transfer your balance to new cards with low (0% if you're lucky) introductory rates, while paying the minimum monthly requirement.

You can get a line of credit in america too. Especially if you have a house, those are called "Home equity lines of credit" - very common.

The work like checking accounts in reverse, you write a check off of the account to pay for things (or do a bank transfer), and you send them money to pay it down.

You can also get unsecured lines of credit but those are harder to find.

Europeans do the same, btw. It's very uncommon to have a credit card that is not attached to a bank account in Europe (Netherlands, Germany).

It isn't just Canadian. The French do it that way too. Interestingly, you can also have a credit card without having a line of credit associated with it, at least in France, I don't know if it's the same in Canada... I personally have an Amex and a Visa card, both linked to the same bank account, which has no line of credit.

I don't know if this is uncommon, but on both business checking accounts (in the US) I've set up, I asked for and got attached lines of credit. Basically, it lets you bounce above and below a zero balance in case your cash flow is tight. You could certainly use it to get yourself into trouble, but I didn't and it was very useful.

While I generally agree with and recommend getting an accountant, I've found a personal satisfaction over the past 8 years of doing my own taxes (10 years of freelance development). It can be tedious and confusing, but it forces me to stay in tune with the laws as well as my own income / expenses.

It doesn't hurt that it costs far less than an accountant, although that time can be considered lost considering the billable time lost gathering information, adding it all up and entering it properly (Mint.com has shaven days off of this process for me).

Every year I tell myself I'll go back to having an accountant, but then I feel I'll miss that couple days of better understanding where my money came from and where it's gone. I also appreciate understanding the details behind the chunk I send to Uncle Sam.

Some people are like you. I suspect more people are like me. If you're not sure whether you're going to enjoy / be good at doing your own taxes, screwing them up is not a good way to find out. I managed to get myself into quite an annoying hole by not delegating this particular business problem.

Interesting perspective. +1 for using Mint.com for business - my partner set us up and it's a great way to get a global view of the inflows and and outflows.

I've gone the opposite route (hired an accountant) and feel I have a much better understanding of what's going on than when I did it myself. I have the accountant walk me through everything - no more guessing my way through Turbotax and having an anxiety attack each April.

I asked my lawyer about this when setting up my LLC. He told me to get an accountant for the first year, watch what they do, and then you'll be able to do it yourself every year after that.

> Get an accountant.

This is where I specifically fumble on. From all the research I've tried to do online, I'm still not sure how to look for an accountant. Are there different types that specialise in the work that freelancers/contractors do? Is there a specific title that I should research? etc.

I would suggest finding someone who's trusted in working with local small businesses - probably themselves a small local shop with a few accountants - ask your hardware store owner, coffee shop owner, etc. If you are within a taxing municipality it can be helpful to have someone who knows the local ins and outs.

Generally speaking, the tax implications of being a freelancer are less complicated than small scale retail (e.g. no inventory).

But note that the tax implications of being a freelancer are way more complicated than those of being a W2 worker.

I learned this lesson the hard way several years ago.

I can't stress enough the importance of making sure wherever you go isn't a place that just rubber-stamps W2 returns.

I made the mistake of going to H&R Block during the year I was 1099'ing, and aside from the person doing my return having to go ask someone for guidance at every line item on the forms, I ended up getting a letter in the mail from the state saying that they'd calculated I overpaid by a few grand.

I can't even fathom how bad of a job they must have done, if the state was the one to inform me that I'd given them too much money.

Accountants are like mechanics. You are only going to find a good one by word of mouth... and even then you have check to make sure that he fits your business. You should approach an accountant like a job candidate; ask questions about his business practices and those that pertain to your business.

I found my accountant through a network of co-workers that all have the same type of freelancing business (single founder; very few clients). I know he makes a lot of money doing my taxes, but he ends up saving me more money than what he's charging me and keeps me worry-free with regard to the CRA (IRS; US-equivalent).

If you are in the Vancouver area, I can recommend a good accountant that works with small/micro businesses. Hit me up on Twitter.

One of the main differences in accountants is risk tolerance. Freelancers have considerable leeway in the way they structure their taxable income and accordingly can have considerable variation in their risk of an audit. Make sure you interview a couple accountants and try to find an accountant whose risk tolerance matches your own. Don't expect that a big firm will be more conservative than a small one--the opposite is often the case.

My account finding tip would be to avoid focusing on the amount that they charge, but get references and find out how much money they saved their clients. Cheap accountants generally provide less value in my experience.

My company has a line of credit from our bank. Thankfully, we've only had to draw heavily on it once, but it was a life saver at the time.

We had a situation where we simultaneously hired new employees, kicked off several sizable consulting projects and were stuck with late payments on several projects. As a result we were cash-flow negative for several months. Drawing on the line of credit helped keep payroll, AP, etc running smoothly. As a small company it's a nice low cost way to have ready access to money which you can use for anything (not just purchases).

With decent credit we were able to get a line capped at about 1/6th of our yearly revenues with a ~4.25% interest rate. This was a much higher limit and better rate that we could get with AMEX advances. The only downside is the amount time and paperwork involved, since you generally need to provide tax returns, P&L, balance sheets, AR statements, and go through lengthy approval process.

I'm not sure about all banks, but my credit union offers an unsecured line of credit for up to about $10k with a rate around 9%. They go a little higher for small businesses.

If you're looking for a cushion to reduce the impact of receivables, it's a good option.

At the mega-bank in my neighborhood, they try really hard to sell a line of credit to every business customer, even if it's only a couple thousand dollars. Their standard small business application package has a checking account, savings account, debit card, and credit card and then they try to up-sell a line of credit.

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