There are other forces compelling people toward self-employment. The freelance market is booming as many businesses today (even very large ones) require a more flexible “just-in-time” workforce and prefer to employ contractors rather than full-time employees. In many professions becoming self-employed is no longer a matter of choice. However, self-employment has its challenges, and you should fully understand and prepare for all aspects of entrepreneurship in order to avoid unpleasant surprises down the road. Here’s what you need to know to start and build a successful business as a self-employed contractor. Does self-employment suit your life circumstances? If you are fortunate enough to have (or be able to get) well-paid, secure employment with benefits and reasonable job satisfaction, it may not make sense to become self-employed, no matter how great your desire to become an entrepreneur. Organizing vacations, making major purchases, and planning retirement are much easier (and less stressful) when you have a steady paycheck and regular working hours, particularly if you have dependents. Thoroughly examine your lifestyle, financial situation, and future retirement goals—and discuss them with your family—before making the jump to self-employment. Is your personality suited to self-employment? Being your own boss has many advantages, but it also means all the responsibility for the success of your business (including income) rests on your shoulders. If your personality is such that dealing with the uncertainties of self-employment is likely to cause you a great deal of stress and anxiety, then being an entrepreneur is probably not for you. In addition to capital financing, you will need to cover business and personal expenses until your business generates income, Even if you already have clients when you start the business, it may be months before you get paid for the completion of your first project. Before you make the move to become a contractor, perform a complete review of your finances and estimate your needs as closely as possible, then (if needed) consider possible sources of financing, such as family, friends, or business loans from financial institutions (spoiler alert — it is virtually impossible to get financing for a new business from a bank unless you have sufficient collateral in the form of personal assets). If financing is required and you intend to seek loans or capital investment from equity investors, then you will need to have a comprehensive outline of your financial requirements as part of your business plan. For most startup businesses, however, there are many reasons to have a business plan:
To test the feasibility of your business idea by performing market researchTo describe how you will market your products and services to customersTo obtain financing or attract investorsTo forecast future expansion such as acquiring new equipment, hiring employees or subcontractors, etc.
Having a solid business plan and updating it on a regular basis gives you a blueprint for success.
Decide how your business will be legally structured—do you need to incorporate or can you operate as a sole-proprietorship? In many professions, being incorporated is a requirement. If you intend to incorporate, do so before signing any contracts with clients. Decide on a business name and register it if required. Insure your business as required. For example, will you need general liability insurance? Professional liability? Errors and omissions? A claim against your business that is not covered by insurance could be financially catastrophic, especially if your business is not incorporated. Be aware that home insurance will not cover business activities from home. Get a business bank account.
If you have to start from scratch, put together a marketing plan and implement some simple, inexpensive marketing strategies (such as a social media plan) to get your first clients. Accounting software can greatly simplify your bookkeeping chores. Many of the new cloud-based accounting software packages such as FreshBooks and Zoho offer ideal starter packages for self-employed contractors that include invoicing, expense tracking, simple reporting, and mobile applications for around $10 per month. If you are loath to do your own bookkeeping, you can always hire a bookkeeper or accountant to perform these duties once you become busy with clients. Being professional also means answering the phone properly, using voicemail, and responding promptly to messages or emails. In today’s world of online reviews and social media, developing a reputation for poor customer service can quickly become disastrous for your business. If you intend to conduct business from home and need to meet with clients, make sure you have a separate, properly equipped and furnished home office space.
Developing a reputation for honesty and integrityUnder-promising and over-deliveringMaking good on all mistakesTreating every client as special and finding ways to thank them regularly
Over-extending yourself and making impossible promises is a sure way to lose customers in the long term. The easiest way to ensure that you retain your status as an independent contractor is to have multiple clients. If you are unsure about your status as an independent contractor, discuss the issue with your accountant. Outsourcing some of these ancillary tasks can free up more time to focus on your core business activities. If you have family members that can perform some of these duties, that may come with some tax benefits. Hiring (or contracting) additional personnel is a difficult decision, and many self-employed contractors prefer to remain solo for a number of reasons:
The more specialized your business, the more difficult it may be to find qualified people. Advertising, vetting resumes, and interviewing is very time-consuming. Once you make your hires, training, supervision, and related paperwork will require more of your time on an ongoing basis. Paperwork is particularly problematic with hiring employees rather than contractors, as payroll requires tax (and other) deductions and increases your accounting overhead. Unless additional personnel generates more income than the cost of their employment, your profits will not increase. The reputation of your business may suffer if whoever you hire does not perform at the expected level.
Many contractors find it easier (and less stressful) to stay small, keep their workload within manageable limits, and maintain a positive cash flow by controlling business costs. On the other hand, if your ambition is to build a larger business and you have the time and energy to put into expansion then, by all means, take the plunge. Be a great entrepreneur—but be an even better person.
