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.

Becoming an entrepreneur: How to avoid disaster

I read an inordinate amount of things from online. While I do frequent one or two social networking sites (Facebook and LinkedIn mostly), the vast majority of my reading is made up of blogs somewhat tied to personal finance. I frequent a number of high volume blogs, but I find the more interesting and quirky stuff comes from stay at home mom's and debt laden college students looking to share their stories and maybe get a couple of AdWords click throughs to line their pockets. These people typically have well below 100 readers.

The most common theme I seem to find is a strong desire to make money through unconventional means, like blogging or starting a small business. While I believe these people have their hearts and minds in the right place, you inevitably see a wide array of failed plans, plots and schemes.

This is a shame. These one person microbusinesses run from desktop computers and raw ideas are not necessarily bad. All too often people just make a couple of cardinal mistakes and let their potential fall to the wayside. While these microbusinesses may not exactly earn these folk a $100,000 a year income, they could make a poor situation a little more bearable and foster a sense of intellectual curiosity that could potentially lead to self improvement. I've convinced myself through research and positive feedback that my newest endeavours won't fail due to negligence.

Here are a couple of points I've seen made in the past and some I've made myself.

• Time: A lot of small time entrepreneurs have lots of ideas. Ideas can be thought of in a wide array of situations. On the bus, while in the shower or while doing a particularly mind numbing work related task. This is great, but if you feel you need to allow an idea to grow the primary ingredient is time.
  
  You need time to flesh out ideas without distraction. You need time to set up the framework of your microbusiness venture. And you need to sit down with pen and paper and work out a timeline.
  
  This is how microbusinesses fail the fastest and hardest. If you don't have enough time to maintain an endeavour such as a microbusiness, you wind up wasting the hours you initially invested in it to begin with. Not only that, but you find yourself disheartened against future experiments.
  
  So when you start a small money making project, make sure you start as tiny as possible so you don't become overwhelmed.
  
  
• Capital (money): This is the life blood of any business. And you'll need a lot of it if you intend on starting your own hole in the wall restaurant or retail space. But the good thing about being a small time entrepreneur is that you don't really need it. A lot of people don't realize this and wind up investing a fair bit of hard earned money into a venture that will ultimately fail.
  
  Try your best to invest as little money as possible in the beginning. Utilize tools already at your disposal, you'll find a surprising number of them. If you need business cards for your brand new apartment decorating business, don't have them professionally made. But instead use some card stock and your old laser jet printer that's been sitting in the closet for three years.
  
  If the venture ultimately fails and you invested little to no money, you'll wind up in a better position to try another idea out in the near future both mentally and fiscally.
  
  
• Motivation: This is a finite resource. You start with a lot of it but eventually your supply becomes depleted.
  
  It's easy to become disheartened when you don't see immediate success. Or your immediate success turns out to be a bust. If you're going to do anything, remain as motivated as humanly possible. If you plug away at something eventually it'll play off, no matter what is it.
  
  If you have a partner, meet with them frequently to discuss possibilities. If you don't, discuss the situation with a friend you know will support you. Set small and realistic goals you know you'll be able to meet with a little work and celebrate them.
  
  
• Research: All too often not enough of it is done. Do a lot of it and do it weekly. It's nice to have the time to build your newest eco-friendly creation, the intelligence not to spend $5,000 advertising it right away and the motivation to make a thousand of them, but if you don't do your homework you'll inevitably find yourself abandoning your venture. Whether your items or services are over priced, don't fill an immediate need or may not be as clever as you think you'll find all three of your most precious resources depleted.
  
  
• Promotion: You need to be seen. Humans are hardwired for networking and if you're working under the radar you're not going to find any success in any microbusiness. All the time, money, motivation and research in the world isn't going to do you a lick of good if you toil in the dark.
  
  Promote yourself and your project. It can be just to family and friends if you want, or you can take out a newspaper ad. But the important thing is to be seen.
  
  
• Failure: Sometimes it is inevitable. But that's okay. Failure is part of life and just because your microbusiness didn't take off now doesn't mean it can't take off six months from now. And it certainly doesn't mean you should forgo future experiments with earning an extra little income on your own.
  
  Sometimes the situation is beyond your control. But it's always a learning experience for next time.
  

If you have additional points to make, post them in the comments and I'll place a permanent link to your blog in my side bar.