From Employee to Freelancer: How to Make the Transition

The leap into self-employment is exciting and scary at the same time. As an IT freelancer, you get freedom, better compensation, and exciting projects. But also uncertainty, sales work, and paperwork. This guide shows you how to approach the transition systematically.

Is Freelancing Right for You?

Before you resign, an honest self-assessment:

Signs It's For You

• Technical expertise: You have 3+ years experience in a demanded field
• Network: You know people who could refer work
• Self-organization: You work productively without a boss
• Financial cushion: You can survive 6+ months without income
• Risk tolerance: Uncertainty doesn't keep you up at night

Signs It's Not For You

• Sales aversion: The thought of selling yourself is unbearable
• Security need: Fixed salary matters more than potential
• No specialization: "I can do a bit of everything" sells poorly
• Family situation: Sole earner with mortgage and kids – high risk

Tip: Test freelancing part-time before going full-time.

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Phase 1: Preparation (3-6 Months Before Start)

Build a Financial Cushion

Minimum: 6 months of living expenses Better: 12 months Ideal: 6 months + first projects secured

Calculation:

Monthly fixed costs:
+ Rent/mortgage:         $2,000
+ Health insurance:        $600
+ Living expenses:       $1,500
+ Other:                   $400
= Monthly need:          $4,500

× 6 months = $27,000 minimum cushion

Sort Out Health Insurance

As an employee, you typically have employer-sponsored health insurance. As a freelancer, you're on your own.

Options in the US:

Option	Cost ca.	Pros	Cons
ACA Marketplace	$400-800/month	Subsidies available, comprehensive	Can be expensive without subsidies
COBRA	Previous cost	Same coverage	Only 18 months, expensive
Spouse's plan	Varies	Often best option	Dependent on spouse's employment
Health sharing	$200-500/month	Cheaper	Not insurance, limited coverage

Tip: Factor health insurance into your rate calculations!

Other Insurance

Important:

• Professional liability / E&O insurance ($500K-$1M coverage)
• General liability (if working on-site)

Optional:

• Disability insurance (expensive but important)
• Life insurance (if you have dependents)

Sharpen Your Skills and Positioning

Positioning questions:

• What can you do better than others?
• For what problems are you the go-to person?
• Who are your ideal clients?
• What's your "one-liner" description?

Examples:

• "Cloud architect for mid-sized companies migrating to AWS"
• "React developer specialized in e-commerce platforms"
• "IT project manager for SAP implementations"

Avoid:

• "Full-stack developer with broad experience"
• "I can do everything IT-related"

Line Up First Projects

While still employed:

• Prepare LinkedIn profile for freelancing
• Register on freelance platforms
• Contact former colleagues and clients
• Have conversations (without making commitments)

Goal: At least 1 concrete project or serious interest before you resign.

Find an Accountant

Yes, you need one. Latest by your first tax return, better from the start.

Accountant tasks:

• Advice on business structure and bookkeeping
• Estimated tax payments
• Quarterly and annual filings
• Business deductions optimization

Cost: $150-400/month (tax deductible)

Tip: Find one experienced with freelancers/IT.

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Phase 2: The Transition (1-3 Months Before Start)

Give Notice Properly

Check notice period:

• Review employment contract
• Standard: 2 weeks (varies by role and tenure)
• Some contracts: 30-90 days

Resignation letter:

[Date]

Dear [Manager's Name],

Please accept this letter as formal notification of my
resignation from [Position] at [Company], effective
[Last Day of Work].

I appreciate the opportunities I've had during my
time here and am committed to ensuring a smooth
transition.

Sincerely,
[Your Signature]
[Your Name]

Important:

• In writing (email usually acceptable, follow up in writing)
• Keep it professional and brief
• Don't burn bridges

Use Remaining PTO

• Take it or get payout (check policy)
• Use for preparation if possible
• Request reference letter before leaving

Protect Yourself

Be careful with:

• Non-compete clauses
• Non-solicitation agreements
• Confidentiality obligations
• Taking client lists or proprietary information

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Phase 3: Setting Up Your Business

Business Structure

Sole Proprietorship:

• Simplest to set up
• No separation of personal/business liability
• Report income on personal tax return

LLC (Limited Liability Company):

• Personal asset protection
• Tax flexibility (can elect S-corp status)
• More credibility with clients
• Costs $50-500 to form (varies by state)

S-Corporation:

• Tax advantages at higher incomes
• More complex administration
• Usually makes sense above $80K+ profit

Recommendation for IT freelancers: Start as sole prop or LLC, consider S-corp election once profitable.

Register Your Business

Steps:

1. Choose business name (check availability)
2. Register with state (if LLC)
3. Get EIN from IRS (free, immediate online)
4. Open business bank account
5. Register for state/local taxes if required

Set Up Business Banking

Why important:

• Separates personal and business finances
• Easier bookkeeping
• More professional for clients
• Required for LLCs and corporations

Options:

• Traditional banks (Chase, Bank of America)
• Online banks (Mercury, Relay, Novo)
• Fintech options (Brex, Ramp for credit)

Professional Liability Insurance

Coverage needed: $500K-$1M typical for IT work

What it covers:

• Errors and omissions
• Negligence claims
• Data breach (some policies)
• Defense costs

Cost: $500-1,500/year for most IT freelancers

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Phase 4: Operations Setup

Basic Equipment

Hardware:

• Capable laptop
• External monitor (recommended)
• Good headset for calls
• Webcam (built-in often sufficient)

Software:

• Office suite (Microsoft 365 / Google Workspace)
• Development environment
• Time tracking
• Invoicing software
• Backup solution

Workspace:

• Home office or coworking?
• Ergonomic setup
• Reliable internet connection

Invoicing

Invoice requirements:

Your Business Name
Your Address
Phone/Email

Bill To: [Client name and address]

Invoice Number: 2026-001
Invoice Date: January 17, 2026
Due Date: January 31, 2026
Service Period: December 2025

Description: IT Consulting - Cloud Migration
Hours/Days: 10 days
Rate: $1,400/day
Subtotal: $14,000

Total Due: $14,000

Payment Instructions:
[Bank details or payment link]

Thank you for your business!

Time Tracking

Why important:

• Basis for invoices
• Proof for questions
• Your own productivity analysis

Tools:

• Toggl, Clockify (free)
• Harvest, FreshBooks (paid)
• Spreadsheet (minimal)

Create Professional Proposals

First impressions count. When a client requests a proposal, design and content determine whether you win.

Elements of a good proposal:

• Professional layout
• Clear scope of work
• Transparent pricing
• Personal approach

Many freelancers underestimate the effort: 2-4 hours per proposal is normal. With the right solution, it takes minutes.

More on proposal writing →

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Phase 5: First Months as a Freelancer

The First 90 Days

Focus 1: Sales

• Schedule time for marketing daily
• Use LinkedIn actively
• Activate network
• Work the platforms

Focus 2: Deliver on First Projects

• Over-deliver (build references)
• Collect testimonials
• Nurture relationships

Focus 3: Learn and Adjust

• What works in sales?
• Which projects are fun?
• Where's your sweet spot?

Avoid Common Mistakes

Mistake 1: Pricing Too Low

• "I need to get my foot in the door" leads to bad clients
• Better: fewer contracts at good rates

Mistake 2: Taking Every Project

• Does the project fit your positioning?
• Difficult clients cost more than they're worth

Mistake 3: No Buffer for Sales

• Don't book yourself 100%
• Reserve 20-30% for sales and admin

Mistake 4: Ignoring Finances

• Check profit monthly
• Set aside taxes (25-35% of profit)
• Track expenses

Surviving the Slow Periods

The first months can be tough. Projects don't come immediately, invoices aren't paid immediately.

Strategies:

• Use your cushion (that's why 6+ months!)
• Make short-term compromises (smaller projects)
• Don't give up – building takes time
• Keep a success journal (what's going well?)

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Checklist: From Employee to Freelancer

6 Months Before

• Build financial cushion
• Research health insurance
• Define positioning
• Prepare LinkedIn profile
• Start making contacts

3 Months Before

• Find accountant
• Check notice period
• Secure first projects
• Research business bank accounts

Upon Resignation

• Give written notice
• Request reference letter
• Use/cash out PTO
• Plan handover

After Last Day

• Set up business structure
• Get EIN
• Open business bank account
• Get professional liability insurance
• Set up health insurance

Operational Setup

• Create invoice template
• Set up time tracking
• Create proposal template
• Launch website/portfolio
• Order business cards

First Projects

• Write proposals
• Prepare contracts
• Execute projects
• Send invoices
• Collect testimonials

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Conclusion: The Leap Is Worth It – With Preparation

The switch from employee to freelancer is one of the best decisions many IT professionals have made. More freedom, higher income, more interesting projects.

But: It takes preparation, persistence, and willingness to sell yourself.

Key success factors:

1. Financial cushion – Minimum 6 months
2. First projects before starting – Don't jump blind
3. Clear positioning – What do you stand for?
4. Professional appearance – From proposal to invoice
5. Persistence – Building takes 1-2 years

Are you ready?

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First project in sight, just need a convincing proposal? With SimpleProposals, freelancers create professional project proposals that win clients.