Congratulations on your decision to enter the world of the free. To make your independent life a bit easier, we have compiled the essential aspects that all people who decide to become independent consultants face. For this reason, we share the basics you need to get started and the ones you need to implement for a long-term sustainable setup. Disclaimer: several of the tips we offer apply in a Dutch context.
STEP ONE: The basics to get started
To be able to start your first project as an independent consultant, you must have three things: A legal entity, a bank account, and professional liability insurance.
To be able to sign work contracts and send invoices, it is necessary to have a legal entity with a KVK (Chamber of Commerce) and a VAT number. The most accessible legal entity to create is a sole proprietorship which costs €50 and can be set up through the KVK website. After filling in the form with the data on the website, you must go to one of the KVK offices to confirm your identity.
Another option is to create a limited liability company (LLC) with many advantages. However, its incorporation requires more time and is more expensive. Therefore, if you want to start your new project quickly, we recommend forming a sole proprietorship. Then, later on, if you prefer, you can migrate to a Limited Liability Company and transfer all your income for up to 15 months.
The next step is to open a bank account. We recommend you to choose a neo-bank, such as Bunq or Knab, to be able to do it quickly, as traditional banks require more time.
Some clients may ask for professional liability insurance (BAV). Such insurance protects against any financial liability claims arising from the practice of your profession. For example, it covers cases of misguided advice or infringement of intellectual property rights. Professional liability insurance costs approximately €30 per month. We recommend choosing Zekur for its ease, cost, and coverage.
STEP TWO: Laying the foundation for your career as a freelance consultant or entrepreneur.
If you plan to remain a freelancer for an extended period, say about six months, or have entrepreneurial aspirations then, ideally, you should strive to get things a little more organized.
Should you keep a Sole Proprietorship (SP) or migrate to a Limited Liability Company (LLC)?
The correct answer is that it depends. For example, suppose you expect to make more than €100.000 in profits. Then, you should ideally opt for an LLC for two reasons: the tax burden is lower, and it has better protection against insolvency. However, other factors should be considered, such as additional administrative costs.
We recommend that you seek the advice of a professional (certified) accountant before making your decision. For setting up an LLC, an excellent choice is Ligo for its ease of use and affordable price. For advice from professional accountants, see below.
Accounting: if you decide to do it yourself
In general, we recommend to outsource your finances to a bookkeeper or a certified accountant (see more on this below). You could consider DIY accounting if your legal entity is an SP. For an LLC, it gets complex quickly. It this requires solid technical expertise, and mistakes can be made quite fast and can be costly.
In case you want to DIY, we recommend the use of accounting software to facilitate your financial management. SaaS solutions can automate invoice generation, bookkeeping, expense management, and reporting. Most plans start at zero cost, but those that offer more features usually cost between €10 and €20 per month. The best options are Moneybird and Tellow for their functionalities (e.g. bank account integrations, automatic VAT reporting). Next to that, they have great user experience and are reasonably priced.
Accounting: if you decide to outsource
We are in favor of outsourcing your finances, for the following three main reasons:
• It requires a lot of time, focus and specific knowledge of the Dutch tax system.
• The expert accountant knows tax tricks that can considerably reduce your tax burden, up to a saving amount of more than the price he charges for his service.
• Banks generally favor financial statement signed by a professional accountant when applying for a mortgage.
The costs of outsourcing can vary depending on the complexity of your finances, and whether you choose a bookkeeper or a chartered accountant. On average, the annual price for a bookkeeper ranges from €700 to €1.300 for a sole proprietorship and €1.200 to €1.800 approximately for a LLC. For a chartered (certified) accountant, the price is about 50% higher. But with that higher price, also comes higher credibility.
There are many types of insurance available for independent consultants (see a summary here). Whether or not to take out additional insurance is a personal decision: some people are more risk-loving or risk-averse than others.
However, we recommend taking out at least one additional insurance: disability insurance. Although the probability of becoming disabled is very low, the possibility of ending up on welfare for the rest of your life deserves hedging in our opinion.
Acquiring disability insurance is a lengthy process, requiring the help of a broker/intermediary and a review of medical records. It is also expensive; the price can vary between €125 and €400 per month. This amount depends on three factors:
• The level of income you want to insure: for example, €60.000 or €150.000
• Your age (the older you are, the more expensive it gets)
• The number of months you can go without income
We recommend ASR, which can be taken out through Harper Insurance.
Now you can take a deep breath. Do you think it's a lot of work to arrange all of the above? Not really! But, it is undoubtedly essential to do so. So please make sure you follow the basic guidelines correctly.
Are you interested in learning more about the life of an independent consultant? Please fill out the form below and contact us to request information.