Thursday, October 30, 2008

Independently Employed: Straight talk

I'm starting a business venture with a friend of mine. I have a significant amount of marketing and writing experience and he probably is coding a web enabled version of HAL. It's a small web design operation by the name of Cail Design. We know were starting in a pretty terrible market, but we're confident we can get the project running on all cylinders in a respectable amount of time. Why? Because we've both been independently employed in the recent past.

We know what to consider when it comes to plans and contingencies. And we're also used to working in self starting environments. But all too often people see the tag of "self employed" and imagine a wholly different picture. One filled with a conspicuous lack of alarm clocks, noon breakfasts and leisurely trips to the bank to cash in inordinate sums of money. I elaborated on a number of myths and misconceptions a couple of months ago here. But then I elaborated on social misconceptions and practicalities. I didn't really touch upon the pros and cons of working independently outside the realm of promised corporate paychecks.

While there are a number of pros and cons to consider before you begin your solo adventure, there are a number of cold, hard facts that are neither negative or position that should be examined nonetheless.

  • Taxes: You cannot avoid taxes. If you try you're going to wind up burned. So throughout your first year of being self employed keep a lot of records. More so than you think you need. Track how many hours you work, how much you make, how much you drive for your business, everything.

    Not only will this help you figure out how much profit you're pulling in but it'll also allow you to contribute some of your income to a bank account reserved just for Uncle Sam.

    I lucked out. My first year of being self employed started in the middle of fall. By the time tax season rolled around I only needed to contribute under $1,000 in my tax return. While I hadn't been saving especially for it, I was able to afford the drain on my bank account.

    If you're married it might be a good idea to file jointly. Especially if your missus or mister has a conventional occupation that they typically receive a tax return for. You'll be able to either reduce or eliminate the amount you need to shell out at the end of the year.

    If your self employed nature involves a lot of billing, either inbound or outbound it might be a good idea to hire an CPA to assist you in your venture.

  • Hats: Being self employed in any industry means you're going to have to wear a couple of hats. This can be a good thing because you may find a wide array of things you weren't aware you were good at. It can also be a bad thing because you will inevitably wind up doing something you're not too keen on.

    Regardless you have to be prepared for it. Simply neglecting things that lie outside of your realm of expertise isn't going to get you anywhere. You have to be your own boss, but also your own secretary, tech support and peon.

  • Motivation: Your motivation switches gears when you become self employed. Neither positive or negative, regardless of your industry you're going to notice a significant change in your outlook and behavior. Most people find themselves a lot more motivated because they notice a direct correlation between work put in and money earned.

    But a select few individuals learn quite quickly that the unmotivated, slack off time checking personal email on company payroll is going to be sorely missed.
That being said there are a number of distinctly negative things about being your own boss. I touched upon this a bit in my previous article, but somethings bear repeating and elaboration.
  • Your credit score hurts: This one blind sided me completely when I first abanadoned my 9 - 5 job in favor of a more liberal atmosphere. If you are responsible for your own income banks are less likely to lend to you because they consider you a higher risk than someone who has been employed by a Fortune 100 company for 15 years.

    So you may wind up paying slightly higher interest rates than you did before. A good way around this is to keep a healthy savings account and just practice sound personal finance. If married, one of you may want to keep a conventional job just so you can apply for loans jointly and keep those interest rates low.

  • You lose "bennies": Say goodbye to the company insurance plan, paid holidays, over time, sick days and pensions. Living the American Dream means you have to become the essence of America, capitalist. If you're self employed you're going to have to pay for your own health insurance, contribute to your own retirement fund and generally take good care of yourself on your own dime.

    While this is liberating and allows for a great deal of personal choice, occasionally that 401k matching your old company offered is missed.

  • Slacking off is not an option: If you slack you're only hurting yourself and your employees. Period. Your revenue is directly tied to your productivity. In some jobs it's possible to stare at your monitor all day or check Twitter, get paid and no one will be the wiser.

    While you're self employed you're able to choose whether or not you want a long lunch, but most often than not you wind up working through it and then some.

  • Industry collapse: If you're working full time for a bank and it suddenly goes out of business and kicks you out on your rear, the federal government is there for you. They'll help you get back on your feet with unemployment funds.

    There is no bailout for Joe Smith, Realtor. If the real estate market tanks (like it is) Mr. Smith is caught in the cold with only himself to rely on and the hope that he'll be able to recover. Self employed people are very vulnerable to fluxuations in the economy, so a heavy duty emergency fund is not only important but required.

  • Not being able to self start equals fail: There's more to being your own boss than not having a manager shout at you. You literally have to be your own boss and some people find themselves unable to do this.

    Most people need occasional guidance, motivation and support an authority figure provides. If you're on your own time clock you need to be able to motivate your self, start projects and direct others. Because no one is going to tell the boss what he needs to do, when to do it and how to do it.
But of course the benefits occasionally have to out weigh the negatives. Otherwise no one would run micro to small businesses at all. It'd simply be impractical. I've found that the benefits far out weigh every other consideration. And even though I've had to take the bad with the good I've found it to be more than worth it.
  • Freedom: This is the flipside of my negative point about self starting. If you are the type of person who can work on their own without any direction, you'll almost always succeed at what you set out to do. Granted, the business may come before you most often than not. But you can influence the business to cater to your own personality, making an all nighter at the office seem like a breeze.

  • Income: Sure, industry collapse can spell disaster. But industry expansion means profit. If you're working hard in an environment that is favorable to your industry, you're going to be the first to notice a bigger paycheck.

    If you were employed under someone else you'd find yourself getting a raise, but nothing as substantial as they're making in a good market.

    And since you're in direct control over your earning power you know that every hour you invest is an hour closer to a great vacation, a new home, or a bigger retirement fund.

  • Flexibility: Being independently employed gives you a tremendous amount of flexibility. The smaller the business the better. This means that if your partner is away on business you are able to arrange your schedule to accomodate child care, errands or house chores.

    And if required it allows you to be a stay at home mom or dad. Even if you can only do it in a part time capacity you'll save a bundle on child care costs and spend more time with your family.

    ....and of course if you're not into that you can arrange your schedule so that you're always "very busy."
Being self employed is by no means easy. But it can have fantastic benefits if you're well informed on your industry of choice as well as the pros and cons of being your own boss. While I would not suggest it for everyone I meet, I do believe that everyone is capable of at least making a go at it. Any specialty can be adapted, just some more than others.

2 comments:

joan said...

great post ed!

life insurance uk said...

The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side.

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