Five steps to becoming an independent software consultant
What to do and take into account before becoming an independent software consultant? How should the transition from employment to entrepreneurship be handled? And how to find projects? On this page you will find the answers to these questions, among others.
Many brokerages help independent software consultants to find projects. Most will require a meeting with you before you become a part of their network. Most of the time, the meeting is casual, since you are becoming partners that help each other.
Brokerage companies handle the customer acquisition for you, adding 5-20% on top of your hourly rate. You’re billing a brokerage company that bills the end customer.
What happens at the meeting?
- The brokerage company presents itself, the depth of their presentation is dependant on how familiar you are with the company.
- The company wants to hear your story.
- The company wants to know which industry you would like/do not particularly want to work in.
- The company will ask for your hourly rate.
- You can ask about the company’s operating methods and the priorities of possible cooperation.
- You can ask if the company offers other services in addition to project brokerage.
- You can ask about payment schedules.
- You can ask about possible restrictions (NDA, non-competition…) if you go to a project through them.
In Helsinki, the average software developer working on an average customer’s average project is billed at €90-130 per hour, depending on the brand of the invoicing company, developer’s experience and customer relationship. In some specific situations, experienced developers can be sold for up to 150-200 euros per hour.
Please note that the above examples apply to direct sales between the company and the customer. If the brokerage company connects you with the end customer, the hourly price is reduced by 5-20%, which is the share of the brokerage’s hourly price. When there is one middleman, this means that you can expect to charge the broker between €65 and €105 per hour.
Witted Partners assists senior-level developers and designers in becoming entrepreneurs and acquiring customers for absolutely free. All you have to do is get in touch, and then we’ll go over your details. If everything seems good, we invite you for (remote) coffee. We are very interested to hear your story: who you are, what your superpower is and what you would rather do. By describing what kind of projects you are most interested in (industry, technologies, duration, location), we can find projects that are right for you. We also provide support in contractual and legal matters.
You can relax while our agents hunt for a project that matches your expertise and wishes. When a potential gig is found, our agents will present it to you. Your profile will not be presented to the end customer until you have given permission to do so.
If everything goes well with the end customer, you decide your own hourly rate and invoice the working hours from Witted Partners at the end of the month. Witted Partners adds its own commission on top of your hourly rate and handles invoicing the end customer.
- Once a good-sounding project has been found, check the terms of the contract drawn up by the client and have a lawyer check it as well. You can get the help of a lawyer, for example, through Witted Partners or a trade union.
- If you are planning to apply for a start-up grant, ask the customer to give you a few weeks before signing the contract so that you can apply for the grant and get approval. Although the official estimate of the duration for approvals is two weeks, in reality the approval comes much faster, sometimes in 2-4 working days. Once you have received the approval, you can proceed with the signing of the contract.
- Since you have not yet started a company, you can sign the contract as an interim solution under your own name. In this case, the contract will be between a natural person (you) and a legal person (end customer or brokerage company).
- Sign a new contract after you start your company. In this case, the contract will be between a legal person (you) and a legal person (end customer or brokerage company).
Start-up grant supports new entrepreneurs. It is equal to the basic daily allowance (€33,66/day) and is paid for a maximum of five days per calendar week. Once you have been awarded the start-up grant, you will be paid ~€705 in earnings per month for a maximum of six months. If you apply for an extension on the start-up grant, you will be paid a maximum of another six months, i.e. a maximum of 12 months in total.
You need to provide TE services with an updated income-tax card for benefits so they can use your actual income tax rate. If your income-tax card is not delivered, 25% will be deducted from you.
Stages of the first application
- Start-up grant is not granted if you have already started a business and started working as a full-time entrepreneur.
- TE services looks at starting a business in a slightly different way than how we deal with it in the second part of this series.
- TE services define a company as established if the company has joined a register maintained by the Tax Administration.
- This means that if you only join the trade register to get a business ID, TE services will not consider your company established.
- You can join the trade register if you have processes requiring a business ID (e.g. opening a business account and tendering for insurance) and you do not have time to wait for approval on the start-up grant.
- You need a business plan and certain financial calculations attached to your application. Oma Yritys Suomi offers support for drawing up a business plan and making the necessary calculations.
- When your business plan is complete, you can email it to the business centre in your hometown and ask for a meeting with a business adviser. In Helsinki, this would be NewCo Helsinki. Business advisers have seen hundreds of business plans and this can help with the filings, improving your chances of getting a start-up grant.
- You will need an updated CV as an attachment to your application.
- You need a tax debt certificate as an attachment to your application.
- In your business plan, you have specified how much of your own funding you have available. This must be accompanied by evidence, that does not have to be official. For example, an account overview printed from an online bank may be enough.
- Regardless of the amount of own funding available, it does not negatively affect the verdict of TE services. In addition, once the start-up grant has been granted and you apply for payment, the salary you collect from your company does not negatively affect payment applications.
- Apply for start-up grant online. You will receive an electronic approval within two weeks (official estimate). The official approval letter will arrive soon via post (~1 week).
Stages of applying for a start-up grant extension
- Submit an application for an extension of the start-up grant during the current first start-up period, but no later than one month before the end of the first half-year period.
- For the application you need a brief explanation of how your business has taken off.
- You should also tell us why you are applying for a continuation of the startup grant.
- You will need a summary of the transactions for the first start-up period and a plan for the near future.
- You need to attach a profit and loss account for five months, either self-made or confirmed by your accountant.
- You need either a self-made balance sheet or a balance sheet certified by your accountant as an attachment to your application.
- In order to decide whether to grant a continuation of start-up grant
- TE services assesses whether the business has started more or less as it was thought out in the original business plan.
- TE services assesses whether the income already acquired is enough to support the entrepreneur.
- Apply for an extension of the start-up grant online. You will receive an electronic approval within 2-4 weeks. The official approval letter will arrive soon via post (~1 week).
- Start-up grant is not granted if you have already started a business and started working as a full-time entrepreneur.
A positive verdict for a start-up grant requires that you quit your paid employment and are about to start full-time entrepreneurship. Remember, however, that you must not start a company before receiving a positive start-up verdict.
- Submit a binding notice of termination in writing to your employer.
- You are a full-time entrepreneur from day one of the start-up grant approval.
From a legal point of view, you need to set up a limited liability company in order to provide your freelance services and protect your personal assets. A limited liability company is also a better option in terms of bigger business and profit.
Another important point is that a sole proprietor is personally responsible for all their debts and commitments. So you will answer with your personal property (home, car and savings) if the worst happens.
In a limited liability company, however, the entrepreneur’s liability is in principle limited to the capital invested in the company. Sole proprietorship is generally better suited to smaller businesses and is also a lighter option considering bureaucracy. If the goal is to grow the business and possibly also hire employees, a limited liability company is a more appropriate option.
How much does it cost to start a business?
Registration of the company online costs €275. This is a business expense that you can claim back once you have registered your business and acquired a business account. Why? Because you paid the corporate bill out of your personal bank account.
What is the role of the YTJ?
- YTJ is to your company the same as the Digital and Population Information Agency (DVV) is to you.
- This means that in the same way that you came to life figuratively by getting a social security number from the DVV, your company will come to life by getting a business ID from the YTJ.
- Similarly, when you update your personal information, such as a new address, to the DVV, you update your company’s changed data to the YTJ.
- The YTJ is a place where you can contact the Finnish Tax Administration and the National Board of Patents and Registration (PRH) and join or resign from the registers maintained by them.
- The Tax Administration maintains
- Prepayment register, through which the company can take care of its own taxes.
- A register of persons liable for VAT, where your company can report matters related to VAT.
- An employer register where your company can report matters related to employees.
- PRH maintains
- A trade register where your company’s data is stored.
- The Tax Administration maintains
Stages of starting a business
- If there is still time left in your notice period
- Ask your employer for written permission to start your business.
- This is because starting a similar business may violate the non-compete agreement you signed with your employer.
- Choose your company name
- Enter your chosen name in PRH’s Company Name Service.
- If no companies with full or near the same name are found, your chosen name is likely to be accepted.
- Consider two alternate names if the primary name cannot be registered. Fill in alternate names for the application.
- Select your company’s main area of business
- Source: Statistics Finland
- The Tax Administration requires this.
- Freelancer entrepreneurs can choose the most suitable of the following: [Information and communication > Software, consulting and related activities]
- 62010 Software design and manufacturing is a common choice, and Futurice and Reaktor have also chosen it.
- Select the end date for the fiscal year
- A fiscal year is the period during which financial statements are made on the accounting material of a company. According to the Finnish Accounting Act, the company’s fiscal year is 12 months.
- The first fiscal year is always an exception and can be either less than or more than 12 months, however a maximum of 18 months.
- Fiscal year may be defined as the calendar year in which case it ends at the end of December.
- However, the fiscal year may also end at other times, such as March or September.
- For many companies, the fiscal year is a calendar year, which keeps accounting firms busy at the turn of the year. To avoid this busy time, you can choose a date other than the last day of December for the fiscal year.
- Get one alternate member to the board of your company
- The Finnish Companies Act, Chapter 6, Section 8: One to five members must be elected to the Board of Directors, unless the articles of association provide otherwise. If the board has fewer than three members, the board must have at least one alternate member.
- This means that in order for your company to be legally compliant, it must have an alternate member of the board of directors, as you as CEO will be the only actual member of the board of directors.
- Being a mere deputy member of the board of directors does not result in responsibilities. An alternate member’s responsibility arises in situations where he or she serves as a member of the board of directors and is involved in decision-making. In practice, this means that an alternate member has to decide on the company’s affairs, for example, when the actual member dies or is prevented from acting permanently or temporarily on the board of directors. This is worth telling the person you are courting as an alternate, as the information can help in their decision making.
- Once you have received the person’s consent, ask them for thei social security number, as you will need it to start a business.
- Decide which registers you want to include your company
- Business register✅, the company cannot ”become real” without it.
- Prepayment register✅, without it, other companies will have to withhold taxes on the amounts they pay you.
- VAT register ✅, so that you can deduct VAT on the things and services you buy for your company.
- Employer register ❌. You don’t (yet) employ others besides yourself, so you don’t need this register.
- Start your business online by submitting a start-up notification on the YTJ website.
- Do not add your email address, phone number or other contact details to the establishment notice. This way you avoid calls from sellers and contacts from fraudsters.
- You can also authorize a YTJ accountant to start a business on your behalf.
- Once your company has been established, you must file a commercial register notification of the so-called actual owners.
- The sole beneficiary is you (natural person), as you are the sole owner of the company.
- You can make a notification by logging into the YTJ customer service and clicking on ”actual owners” and following the instructions.
- Remember that the purpose of your business is to make a profit.
- Limited Liability Companies Act, Chapter 1, Section 5: The purpose of a company’s operations is to generate profits for shareholders, unless the articles of association provide otherwise.
- As a result, your company cannot, for example, lend at 0% Interest to a natural or legal person as this would not generate a profit for your company.
Witted Partners makes becoming a software freelancer easy
Setting up a company – We’ll plan the start together with you so that there is no break in the billed work. We can start looking for projects for you even if you haven’t established a company yet or are still employed. Setting up a company is fast and easy nowadays, and there’s no rush with it; we can do it together when you’ve found your first project.
Customer acquisition – Don’t waste billable hours on the lookout for projects, our agents will handle customer acquisition for you! You set your own terms, such as hourly rate and the specs of your ideal project (industry, technologies, duration). Our agents will search for suitable projects for you accordingly.
Running the company – There are over 2500 Nordic software freelancers in our community, and they have recommended several accountants, insurances and tools for fellow independent contractors. We will gladly pass on the tips so that your journey as an entrepreneur would start smoothly.
Becoming an entrepreneur
- How much could you make as a software freelancer?
- Why become a software freelancer?
- Five steps to becoming a software freelancer
- FAQ: Becoming a software freelancer in Finland
After starting a business
Running a business