Your web design business is doing well. So well, in fact, that you’ve regularly been hiring subcontractors to help you with your work.
You’re thinking of moving beyond freelancing. You’re seriously considering becoming a full-fledged web design agency. Should you do it?
At first glance, starting your own agency may sound wonderful. If you do it, you can be proud that you’ve built something from the ground up and that you are able to give others a start in the industry. Owning an agency may also provide you with a chance to earn more money.
Naturally, there are quite a few differences between running an agency and freelancing. In this post, I’ll outline some of them. If you’ve made the transition from freelancing to running a web design agency, or are thinking of doing so, you’re invited to share your thoughts and comments at the end of this post.
Choosing Between Running an Agency and Freelancing
The first thing to understand is that freelancing and running an agency are different. Here is a list of six of the differences:
- Control. As a freelancer, you pretty much have complete control over your business. You control which clients you accept. You control the quality of your projects. And so on. As an agency, you will lose some of that control. You will no longer be completing every project personally. You may have partners or investors who will want a say in business decisions.
- Responsibilities. Your responsibilities also change. As a freelancer, you did some marketing and bookkeeping, but you were mostly responsible for getting the projects completed on time. As an agency owner or manager, expect to spend a lot more time on marketing and bookkeeping tasks. You will also have to deal with managing contractors or employees.
- Personnel. When you run a web design agency, you naturally spend a great deal of time managing your staff. Not only will you need to answer questions about the project work, you will juggle other issues like personnel conflicts between your workers. You will also be responsible for finding and retaining talent. (It’s not an easy thing to do. Ask any HR professional.)
- Taxes and Accounting. If you thought your taxes and bookkeeping tasks were complicated as a freelancer, know that they will become even more complicated when you become an agency. Not only will you have the normal freelance bookkeeping concerns, you now also have to deal with payroll for your contractors and employees. I highly recommend you engage an accounting professional.
- Marketing. Freelancers need to market their business, but so do agencies. While a freelancer may be able to get by on one or two clients during lean months, your web design agency constantly needs new projects to keep everyone busy and pay for all of the increased overhead costs. In fact, some agency heads spend most of their time on marketing tasks.
- Higher Overhead. As you scan this list, you will notice that many of the items listed are not directly billable to your client. Instead, the time you spend on these tasks will become part of your overhead costs. Expect to increase your rates to cover the cost of your higher overhead. (This is why agencies usually charge more than freelancers do.)
So before making the leap from freelancing to becoming an agency, examine your motivations carefully. Ask yourself why you became a freelancer in the first place. Then ask yourself why you’re considering becoming an agency.
Transitioning to an agency can be a wonderful move for some freelancers. For others, it’s just not the right choice.
Let’s take a look at what business form your agency might take.
As a freelance web designer, your business is most likely a sole proprietorship, meaning it’s just you doing business (although some U.S.-based freelancers operate as Limited Liability Companies).
When you transition to an agency, it is likely that your business form will change. In the U.S., here is a very brief overview of some business forms your new agency could take:
- Sole Proprietorship. A sole proprietorship is owned by one individual, even when employees are hired. You assume both tax and legal responsibility for the business.
- Partnership. A partnership is an agreement between two or more individuals to have ownership in a business.
- LLC. LLC stands for Limited Liability Company. Regulations vary by state, but basically an LLC allows you to combine liability features of a corporation with the flexibility of a partnership.
- Supchapter S Corporation. This a corporation that elects to pass income, losses, deductions, and tax credits to the shareholders.
- Corporation. Corporations are owned by shareholders who each own a small piece of the business. A corporation exists as its own tax and legal entity, so shareholder liability is limited.
A legal professional can help you determine which business form is right for your situation and help you to reorganize your business.
Now, let’s look at some of the management issues you are likely to face.
As the founder of a web design agency, you’re likely to be very busy with management issues. In large corporations these functions usually each have their own dedicated staff member (and in some cases a dedicated department with the company), but when you are starting out you will probably be responsible for many of these functions yourself.
I’ve already touched on some of these issues, but here’s a more detailed look:
- Client relations. You’ve done some of this as a freelancer, of course. As the founder of an agency, you need to make sure that every single client is satisfied.
- Hiring. As an agency, you’ll need to recruit and retain the most talented individuals and keep up with hiring laws and regulations.
- Financial Reporting. Since your business now involves investors or a partner, you need to produce regular financial reports.
- Payroll. There’s more to payroll than just paying those who work for you. You will also need track vacation and sick time and withhold taxes for employees.
- Sales. To survive, your small agency needs a constant influx of new clients. Someone will need to sell potential clients on using your agency’s web design services.
Of course, there are electronic tools that can help make these tasks easier. But even so, it’s a lot of work.
Another major factor is maintaining a high level of quality for all work that your agency does. In fact, your online reputation depends on it.
Even with talented and trustworthy workers, this is harder than it sounds. For one thing, it’s easy for a member of your team to misunderstand an instruction. Or, perhaps your process is slightly different than what your team member is used to.
Of course, if you hire a relatively inexperienced team member (which can be cheaper for you), you should plan on some rework and mistakes on their part until they come up to speed.
The bottom line is this–your agency needs to be good to compete.
Owning an agency can be challenging, but it can also be rewarding.
Have you made the transition from freelancer to agency owner? If you have, or if you’re thinking about making this transition, leave us a comment and share your experiences.