Business Practices of Self Employed (Freelance) Artists

A self-employed artist operates as an independent contractor and not as an employee of the client company. The client company is not obligated to pay benefits or employment taxes.

This complete article is available to AMI members as a PDF document in the Member Community Library.

Overview
In general, commissioned illustration involves a client contracting an illustrator to create an original work of art or series of works. The illustrator operates as an independent contractor and not an employee of the client company. The client company is not obligated to pay benefits or employment taxes for the illustrator and has no control over the methods the contractor uses to accomplish the work [1]. The IRS has specific guidelines and defines a person as an independent contractor "if (the person for whom the services are performed) has the right to control or direct only the result of the work, and not what will be done and how it will be done or method of accomplishing the result." [2]. The term "freelance" is often used to describe such an arrangement, although some consider "self-employed medical illustrator" to be a more appropriate title.

Success as a self-employed medical illustrator does not result solely from the ability to create beautiful art. Business savvy and ability in marketing and self-promotion, pricing and negotiation, and business management are fundamental. Self-employment requires self-discipline and a commitment to professionalism. There are pros and cons to consider before taking the plunge into self-employment:

Pros


  • being your own boss
  • ability to retain ownership and control of your art
  • ability to choose the projects you want to bid on
  • flexible schedule
  • opportunity to work from home
  • unlimited growth potential
  • self-determined rate of compensation
  • direct return on investment of time, energy, and skills
  • control of project and client type
  • avoidance of office politics
  • less time commuting leaves more time for family

Cons


  • potential for isolation
  • less financial security
  • less free-time
  • constant negotiation and marketing
  • many non-billable hours
  • self-motivation required
  • bookkeeping responsibilities
  • no paid vacation or sick time
  • self-financed health insurance and retirement plans
  • self-financed conference attendance and continuing education
  • investment in equipment and maintenance
  • volatility of workflow and income means less financial security

Careful consideration should be given before undertaking self-employment. In The Business Side of Creativity, Foote offers a test of freelance potential to help determine if self-employment is right for oneself [3].

Setting Up Your Business
How a business is set up will depend on the illustrator's personal situation and business plan, and the structure of the business established will determine the legal process to be followed. With the exception of the sole-proprietorship and partnership, these requirements vary by state [7], therefore it is best to consult a local lawyer and/or accountant knowledgeable about establishing small businesses. One with experience working with similar creative small business professionals is optimal. Much information on the subject is available online and in the business section of your library or bookstore.

Legal structure.


The basic business organizational structures are sole proprietorships, partnerships (general partnerships and limited liability partnerships), and corporations (S and C corporations). The Limited Liability Company is a relatively new type of company that offers some advantages of the corporation and of the partnership or sole-proprietorship [1]. Each type has associated benefits and tax regulations.

For additional descriptions of these organizational structures AMI members may download the Business of Self-Employed PDF.

Naming your company and creating an identity.


Choosing a name for the business requires the consideration of things such as ease of spelling and pronunciation, identification of services, identification of owner/artist, originality, and availability of corresponding URLs. A sole proprietorship may operate under the name of the owner or under a fictitious name. In order to give the business a name other than that of the owner, a "Doing business as (d/b/a) form" or "fictitious name statement" must be filed with state authorities to register and protect the company's unique name [1]. A d/b/a form is also needed to establish business bank accounts and credit cards. For other types of companies, the name will generally be determined in the process of establishing and registering the company with the state.

All companies require a Federal Tax ID Number (TIN) for identification and tax purposes. The number may be obtained from the IRS promptly online or by phone [4]. A sole-proprietorship with no employees may operate under the owner's personal Social Security Number. If the company hires employees or operates as a partnership or corporation, it must apply for an Employee Identification Number (EIN) from the IRS. The EIN will be used to identify the company for tax purposes. A LLC may be identified with an EIN or the owner's social security number depending on the set-up of the company and on state regulations.

Once the business has a name and legal structure, marketing and promotion are vital to bringing in work, and thought should be given to a consistent professional image. If desired, the creation of a logo, business cards, letterhead, and other stationary can be done in-house or by an outside design firm. Local printing houses and on-line businesses provide printing services for reasonable fees. Today, websites are invaluable is establishing a company identity and providing access to information and examples of the company's services. For more on websites and promotional materials, see Marketing and Selling (tab below).

Setting up your office.


Office location will be determined by the illustrator's needs, space availability at home, working style, and personality. Creating an in-home office and renting outside office space are both viable options for the medical illustrator. Some things to be considered when making this decision include access to privacy, space for equipment and supplies, appropriate environment for client meetings, the potential for isolation, professional image, commuting time, overhead costs and tax deductions, and the ability to balance proximity to work "on-" and "off-hours."

Whether a home studio or a separate office location, investment in some equipment and services are required. These may include:

  • reference texts, models
  • computer table/drawing table, lighting, bookcases, other furniture
  • good quality chair(s)
  • computer and software
  • digital peripherals (scanner, printer, drawing tablet, copy machine, backup equipment)
  • company stationery: letterhead, business cards
  • office consumables
  • art supplies
  • bookkeeper or accountant, accounting software
  • lawyer
  • technical assistance services
  • high-speed internet provider and email service
  • designated business phone/cell phone and fax line or efax
  • internet hosting service for web presence and file transfer
  • filing system

Insurance and benefits.


Benefits including social security and Medicare contributions, retirement plans or pensions, and health, life, and disability insurance are usually provided by a salaried illustrator's employer and have significant financial value above and beyond the employee's salary. A self-employed illustrator must set-up up his or her own insurance and savings plans and should consider these additional expenses when comparing self-employed income to that of a salaried position.

For more detailed discussion of the topic of insurance and benefits AMI members may download the Business of Self-Employed PDF.

Retirement planning is key for a self-employed individual. The self-employment tax (SE tax) is a mandatory social security and Medicare tax for the self-employed. The tax is figured using Schedule SE of Form 1040. Many self-employed illustrators choose to save privately for retirement as well. Standard IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and Keoghs are all retirement savings plan options that may be utilized by the self-employed [6]. Some states offer 401K plans for self-employed individuals.

Business Management
Self-employed illustrators (whether they hire help or not) will find themselves working long hours and multitasking. Non-billable time on tasks like marketing and promotion, negotiating and writing contracts, staying up-to-date on business practices, troubleshooting hardware and software problems, paying overhead bills, keeping the books, paying estimated taxes, and even cleaning the studio must be accounted for in estimates of weekly working hours.

Financing/budgets.


At start-up, consider what assets are already available and how much funding is necessary to acquire other necessary elements (hardware and software, office space and equipment, advertising, etc.). Loans or donations are possible sources of funding, but lenders may ask to see a business plan, so be prepared. Some freelance illustrators choose to establish their business slowly while still employed elsewhere to ease the financial transition. In any case, establishing yearly, quarterly, and monthly budgets is a financially prudent way to operate a business and stay afloat. Be sure to allow for unexpected costs and the slow- or downtimes that are common in self-employment.

Develop a pricing structure.


The establishment of a pricing structure for services is key, and while most medical illustrators provide a unique estimate for each particular job, some consistency in pricing structure is important. The illustrator's geographic location, overhead costs, level of skill, desirability to clients, and target market all influence his or her pricing structure.

Accounting and taxes.


Keeping a business afloat depends on managing cash flow successfully, and timely payment by clients for work completed should always be expected. This complete article is available to AMI members as a PDF document in the Member Community Library.

Projects are commonly billed in one of several ways: an advanced payment at or before initiation of the work with balance plus expenses due upon completion; periodic payments throughout the project based on time or project benchmarks (known as "progress payments"); or a single invoice submitted to the client upon completion and delivery of the final work. Partial advanced payment or progress payments are advisable for long-term projects in order to provide cash flow for operation of the business during production. A payment schedule should be agreed upon and included in the initial contract. Unless otherwise stated, the generally accepted practice is payment within 30 days of an invoice [7], but 15-, 45-, and 90-day collection times are also prevalent.

The collection of sales tax (state and sometimes local) is an issue that varies greatly from state to state and many laws are still unclear on the issue. It is prudent to consult a knowledgeable tax advisor in your state or contact your state department of revenue for a written decision on your sales tax obligations.

All business income must be reported to federal, state, and sometimes local tax authorities. Almost all self-employed illustrators will be required to make quarterly estimated tax payments throughout the year. Forms for estimating the amount of federal tax due and for filing the quarterly payments can be found at the IRS website (www.irs.gov).

An illustrator may decide that his or her time is better spent creating artwork rather than marketing or keeping track of finances. A bookkeeper, tax accountant, managerial accountant, or business manager can be hired to help run the business and the expertise may be worth the investment. It is prudent to always keep personal expenses separate and to record business income, expenses, professional fees, etc. Establishment of a unique bank account for business funds and a unique credit card for business expenses helps make a clean paper trail.

Equipment and software.


A capital budget is a plan to finance long-term outlays for fixed assets like facilities and equipment. There are established amortization schedules for such long-term investments, and tax issues relevant to the structure of the company should be considered when purchasing such items (see Lasser's Small Business Taxes). A self-employed artist working digitally should always figure the cost of keeping up to date with hardware and software into his or her business plan and should consider the expandability of equipment before purchasing.

Purchase versus lease.


If you qualify as a small business, there are several options to consider when obtaining capital equipment:
Purchasing. Section 179 of the tax code allows a small business to write off up to a predetermined value of equipment/hardware purchased per year providing that the business is not putting into service more than the IRS's maximum allowable value of equipment in that year.

Leasing. If the business chooses to lease equipment, leasing options include an operating lease and a capital lease. Keep in mind that there may be leasing fees and interest added into the cost of a lease.
As always, speak with a tax advisor concerning capital equipment acquisitions. For more information, see the IRS publication "How to Depreciate Property".

Hiring employees.


The need to hire employees is a sure sign that a business is growing beyond a one-person show. It also requires careful consideration. Can a working environment be provided for these employees? Is workflow steady enough to sustain the owner and employee(s) full- or part-time? Who will handle the added paperwork and fulfill the stringent requirements for payroll taxes? Can benefits be provided to the employee? Does the role of "boss" sound appealing?

Hiring subcontractors.


This complete article is available to AMI members as a PDF document in the Member Community Library. An alternate way to handle excess workflow or to accept a job that calls for skills not available in-house is to subcontract other professionals and colleagues. Creation of skilled teams is especially common in interactive or web-based projects. Again, consult IRS guidelines to determine whether a worker is an employee or an independent contractor (or subcontractor) in the eyes of the IRS and file paperwork appropriately.

Marketing yourself to other medical illustrators or agencies to serve as a subcontractor is also a consideration. When pursuing a subcontract, a subcontractor may be required to prepare a proposal. A prime contractor may have specific rules about how subcontractors should present and write their proposals. These requirements should be explained to subcontractors in a document such as an RFQ (request for quotation) or an RFP (request for proposal).

As a precaution, the prime contractor should be sure to hire artists as subcontractors who are registered as separate legal entities so as to avoid falling into a tax situation where a subcontractor is mistaken as full, or even part-time, employee. If a company hires an employee, it is responsible for federal, state, and local taxes and must withhold certain taxes from the employee's pay checks including federal income tax withholding, Social Security and Medicare taxes, federal unemployment tax act (FUTA), and payroll taxes. For more information, see www.irs.gov/businesses/small/article/0,,id=98858,00.html.

Project Management

Tracking projects.


The creation of a series of business forms for reuse will save time and promote consistent practice within the business. A standard Estimate, Proposal, Purchase Agreement (or Contract, Illustrator Agreement, Confirmation of Assignment) and Invoice can be created once and then customized for each individual project. Samples of these forms are available in the Member Community Library and in the publications Graphic Artists Guild Pricing and Ethical Guidelines, and in Business and Legal Forms for Graphic Designers.

An organized method of filing projects (digital files and paperwork) is also a time saver. Whether projects are organized by client name, date, subject matter, or style is a personal choice, but over the course of a career it is often helpful to be able to refer back to research, sketches, and/or legal agreements rather than reinventing the wheel with each project. In the unlikely event of a lawsuit, it will also be important to have records of legal agreements and reference sources or sketches. Documentation of the signed contract, invoices, record of payment, and copyright registration is invaluable. Don't forget about backing up files as well. For tracking progress and hours spent on an individual project, a Job Sheet may be useful. A sample is available in Business and Legal Forms for Graphic Designers.

Software packages are available (such as Clients & Profits, Microsoft Project, TimeFox, etc.) to help track projects from proposal to billing.

Tracking hours.


Time management is key to a successful business. Keeping track of hours spent creating art (research, sketching, revising, rendering), managing the administrative aspects of the business (billing and bookkeeping, purchasing supplies, troubleshooting technical problems, managing overhead), and marketing (creating sourcebook/ad designs and mailers, researching clients, managing mailing lists, contacting potential buyers) will help the illustrator optimize efficiency. A realistic understanding of time-spent on billable and non-billable activities will also help determine a reasonable fee structure or decide if hiring administrative or artistic help is beneficial.

Creating an archive of artwork.


Archiving past projects allows the illustrator easy access to past work for licensing, revisions, and re-use of portions of previously completed work. A database of previous work allows for cross-referencing and categorizing based on keywords and other organizational methods. When notes of usages granted are incorporated, the illustrator has easy access to track expirations of rights to see which work may be available to license to new clients. In general, you can purchase off-the-shelf digital asset management (DAM) software (e.g., Extensis Portfolio, Cerious ThumbsPlus, Canto Cumulus) or build your own with database with software such as Microsoft Access or FileMaker Pro. If one has an advanced website, selection of DAM software that integrates with their online web shopping cart and search functions is important.

Digital backups of current work and archives are invaluable. Various options exist: A safe deposit box offers off-site storage but may overflow quickly and be inconvenient to access. Online storage drives are another choice that allows off-site security for files. Keeping files on an external hard drive that can be detached from the computer and carried away in the case of fire, flood, or storm is another option. Media safes and DVD backups stored off-site are viable methods as well.

Tracking usage rights granted and registering copyrights.


Whether a digital database is kept or not, it is important to monitor usage rights granted to be sure that clients abide by the agreed terms and to be aware when a particular image is available again for license to a new client. Similarly, for protection of the illustrator's artistic rights, copyright registrations should be made and recorded in an organized fashion.

Marketing & Selling

Creating a marketing plan.


Marketing services is an ongoing task that should be continued during slow and busy times. A well-written marketing plan will describe how the business will attract and retain clients. Take time to think about the services offered and find a way to describe it succinctly in a marketing message or umbrella statement that defines what the company does. Identify potential clients based on the marketing message, and then make the most of available resources by determining the best way to target desired clients directly. Develop a promotional strategy including the optimal methods for reaching the chosen audience and a marketing budget that reflects that strategy, and create a timeline for carrying out the plan [10,11]. A pricing strategy will also be part of the plan.

Creating a marketing niche.


With the continuous advancement of medical knowledge and the ever-growing range of artistic techniques at an illustrator's disposal, it is becoming increasingly difficult to be all things to all clients with proficiency. Many medical illustrators choose to specialize either by market area (advertising, publishing, e-learning, etc.), medical discipline (orthopedics, neurology, surgery, etc.), or technique (Flash animation, 3D animation, pen and ink, etc.). Specialization allows the illustrator to market to clients more precisely with a consistent portfolio that shows clients exactly what they are looking for and instills confidence in the predictability of the final outcome. It allows the illustrator to be an "expert" in his or her sub-specialty. On the other hand, it is important to keep an eye open as markets change over time. Putting all eggs in one basket opens the door to risk if rates or demand drop in the illustrator's field of sub-specialty. Specialization also eliminates the variety in project type that some illustrators find alluring about self-employment.

Self promotion.


As a self-employed medical illustrator, self-promotion becomes a non-billable priority. After deciding the type of projects to pursue, the illustrator must develop a marketing message and invest time in researching new clients in an effort to secure an interview and/or commission. Personal marketing via phone calls, non-personal marketing by mail or email, advertising, and public relations through teaching, community involvement, networking, giving interviews, and writing press releases are important ways to expand clientele.

The portfolio is often the primary tool in self-promotion. Printed portfolios are sometimes still used and can take the form of a unique show portfolio, travel portfolio, drop-off book, or mini portfolio (ie. a promotional piece) [11]. Portfolio images should be tailored for the particular client and particular project as closely as possible, and the number of pieces shown should be limited. Portfolios on CD or DVD are acceptable to most clients.

Websites are popular methods of self-promotion and can deliver a broad marketing message or be organized to show a specific targeted portfolio. A site may be used as a place to send potential clients for viewing the portfolio, and/or it may be used as a marketing tool to attract the attention of new buyers. Advanced websites may offer online shopping for purchase of stock art, medical legal exhibits, and animations or models. The site's URL should be considered carefully and can be registered through one of many online companies. Web hosting services are also available through companies online for a nominal monthly or yearly fee. Some provide design services as well. If using the site to attract potential buyers, search engine optimization is crucial. Click ads and sponsored links are methods of drawing potential clients to the site.

Tear sheets of previously printed artwork and sample prints or CD/DVD portfolios for static or animated art are also useful to have on hand to send by mail to potential clients. The illustrator's imagination is the only limit on other potential promotional materials such as postcards, pens, magnets, and cards.

Directories.


Participating in relevant illustration or animation directories (either printed or online) can be an efficient way to be seen by a large number of potential clients. The illustrator pays a fee for space in the directory (or on the directory website) and the publisher manages the distribution and marketing of their product to relevant markets. Collective directories of interest include the printed AMI Source Book (online version at www.medillsb.com), and the online websites Indexed Visuals (www.indexedvisuals.com), Folioplanet (www.folioplanet.com), www.science-art.com, and the European Association of Medical and Scientific Illustrators (www.aeims.com) which all allow the potential client to contact the illustrator directly with no middleman or commissions. For more on collective marketing and directories, see also Business of Stock Art as there is often crossover between marketing to clients for sale of stock images and for commissioned projects.

Artist Representatives/Agents.


For illustrators with several years of professional experience and a strong portfolio and consistent style, working with an artist's representative or agent may be a consideration. An artist's representative's primary objective is to sell the illustrator's work, and he or she receives a percentage of the fees (excluding billable expenses), usually 25-30%, for this service [7]. This complete article is available to AMI members in the member community library.

Competitions.


Submitting artwork to juried or non-juried competitions or is another way to establish a reputation, gain notoriety, and achieve visibility. Competitions of interest include the Rx Club, National Science Foundation Scientific and Engineering Visualization Challenge, HeSCA Media Festival, and Society of Illustrators, to name a few. The annual AMI Salon is judged as well and offers awards in each of its categories. Numerous web design and animation competitions exist including the Telly Awards, Webby Awards, Favorite Website Awards, Interactive Media Awards, SIGGRAPH, International Health & Medical Media Awards (FREDDIE awards), and CINE Golden Eagle Film and Video Competitions, to name a few. For deadlines and entry forms, see their websites:
www.nsf.gov/news/special_reports/scivis
www.therxclub.com
www.hesca.org/medfest
www.thefreddies.com
www.cine.org

Client Relationships
Compiling and regularly maintaining a client list or directory requires a serious investment of time but is a valuable asset of the business.

Medical illustrators may work either directly and indirectly with the clients that ultimately use the final artwork. Direct clients might include a physician, scientist, lawyer, art director, entrepreneur, institution, publisher, or museum. A direct client is the final end-user of the artwork. Indirect clients might be an advertising agency, design house, broker, artist representative/agent, independent art director, or employment agency. In these instances, the medical illustrator works through this third party. The illustrator may have no direct contact with the end-user of the artwork (the illustrator's client's client) and may only communicate through the intermediary party. In either case, the medical illustrator and his or her client discuss the nature of the work, design considerations, key concepts to be communicated, illustration style, and usage of the final work before beginning any project. With all clients, maintaining professional relationships is paramount to establishing continual work through referrals and long-term repeat clients.

Ethics


A medical illustrator must be an ethical professional at all times. The Association of Medical Illustrators fosters ethical standards for medical illustrators. AMI Code of Ethics