If you’ve worked in the cube farm for the better part of your career, or even if you’ve lucked out with the awesome office, making the move to self-employment can feel like the ultimate break for freedom.
FINALLY, you aren’t beholden to anyone but yourself. You’re your own boss, you make the rules, you’re responsible – for better or worse – for what happens now. How exhilarating, right?
Not so fast.
Making the move to being self-employed can actually be quite difficult if you don’t know what to expect. Suddenly you’ve gone from this consistent, rather structured routine to something that’s completely within your control. Which is sometimes exactly the problem.
The key to making the move from someone else’s shop to your own is to actually plan. I know, it sucks. And you certainly can’t anticipate everything, but here are a few lessons I’ve learned from doing the self-employed thing more than once, and maybe they’ll help you consider whether you’re ready and willing to make the leap.
The Workspace Vacuum
Working at home on your sofa sounds great, until it isn’t.
Some people will tell you that you need an organized, separate office (I don’t have one, so I don’t necessarily buy that). Some people work fine from the couch or the dining room table. Other people need to get out of the house and be around other people at a coffee shop or a co-working space.
One of the biggest transitions for people is going from working around lots of other people and ambient noise of a workplace to a much quieter place without the human interaction. For some, it’s the best transition ever. For others, it’s not.
You may have to test out lots of spaces and working arrangements for several months before you find one that works for you. But it’s no joke that it is a change, and one you’ll notice more than you think.
Schedule Guilt
We go to work for ourselves for one reason: freedom.
Freedom to make choices about our own schedules, career paths, job responsibilities, personal priorities. And yet once you have that freedom, something else often takes its place: guilt.
You get used to being on someone else’s schedule, so suddenly if you do make that doctor’s appointment for the middle of the day, or you decide to knock off early to see your kid’s school play, it feels foreign, as if you’re waiting for someone to “bust” you. I know. It sounds juvenile, but it happens.
There’s no cure except time, and reminding yourself of two important things: you’re working for the goal now, not the clock. Also, with your phone and your computer and every contact system on the planet at your disposal, those who need to get ahold of you, can.
I have to remind myself of this every day. You went into business for yourself so you could take back control of your own world. Don’t fall into the trap of thinking that rigid 16-hour days will do anything but burn you out.
The Dreaded Finances
Just how do you pay yourself when you work on your own? The absence of a regular, dependable paycheck is probably the most terrifying for most people. For good reason.
Realistically, if you’re picking up freelance work in a market that already exists, it will take you 90-120 days to get your first client (if you didn’t have them before you jumped ship, which is really something to consider trying to do).
Whether you’re doing freelance or a scalable business, you will need 12 to 24 months to regulate some of your revenue patterns, and another twelve after that to have a lot of room to maneuver in there without panicking about how the bills are going to get paid. Yes, you read that right. It could be more if you have a product with a long development time.
If you’re seeking funding and/or financing via loans, that’s a different picture that I can’t speak to, because all of my business ventures to date have been bootstrapped by me and my partners. But there are LOTS of resources out there about funding.
Always overestimate how much time it will take and underestimate how much money you’ll have coming in by at least 20%-40%, no matter what. A lack of contingency has killed many a business.
And if you can’t make these numbers work or aren’t willing in theory to take a side job at Target or Starbucks to supplement your income when things are lean, this might not be the path for you. Self employment is risky and while the upsides sound amazing, the finances have very (very) real consequences.
Benefits
Being uninsured is scary. Avoid it at all costs.
If you have a spouse or partner and you can join their insurance plan, great.
If not, seriously consider getting a personal insurance plan for you and any children that depend on you for their healthcare, and build it into your cost assumptions. Also, if at all possible, get working on that while you’re on your company’s insurance or COBRA policy so you can have proof of prior coverage before shopping and selecting a new plan.
See an independent insurance agent so you can explore all the plans open to you and your situation. It’s not cheap. My (excellent) personal insurance costs me several hundred dollars a month, and nearly as much to include my daughter on the plan. No question it’s an investment of significant proportions.
But it’s critically important to consider this as a cost of doing business. You know the stories of people bankrupted by unexpected medical bills. Don’t let it bury your business or your dreams of owning it.
Your Infrastructure Matters
I’m going to speak straight to consultants and service professionals here:
Take the time to set up a few things before you get started booking clients. If you’ve got clients lined up before you make the break that’s awesome, but at minimum you’ll need these things too.
Priority 1:
- Incorporation structure (sole proprietorship, LLC, S- Corp, etc. I strongly recommend having a lawyer help you out. More on that below.)
- Bank Account (you’ll need your EIN to set up a business checking account, which you get with the above.)
- Invoicing System (I like Freshbooks)
- Basic Proposal Template w/fundamental Terms and Conditions
- Summary sell-sheet of your services
- Domain and fundamental website, including email (build it on WordPress, makes life easier. We use the Genesis theme at SideraWorks, and Synthesis hosting. Both are great.)
Priority 2:
- Business mailing address. Try the UPS Store ($300/year) if you’re small, or a Regus virtual space if you’re planning to grow and may actually have need for meeting rooms, phone and mail handling, and that sort of thing.
- A “pitch deck” or more substantive overview of your services
- Business cards
You don’t need everything to be polished and perfect before you launch, but you want to have the basics in place so that you can worry more about building the business and less about running it.
Don’t Skimp On Professional Help
First, get a lawyer. Then, get an accountant.
Incorporating is easy and not all that expensive (read: a few hundred bucks in most states). Your attorney and your accountant can advise you on the business structure that’s best for you, but for goodness sakes don’t just start taking client money on your own social security number. Get an EIN (that’s fancy IRS speak for a Employer/Tax ID number which delineates you as a business, even if you’re the only employee).
If you don’t know anything about finances, business law and taxes, THAT’S OK. Neither did most of us when we started out (And I still know just about enough to be dangerous). The IRS is surprisingly helpful if you give them a call. A small business attorney will likely consult with you for free and may charge you anywhere from $200-$1000 to help you set things up. An accountant, likewise.
Don’t let ignorance let you think you can skip these essential business steps. Ask and understand the legal and tax implications of going into business for yourself.
Getting surprised by Uncle Sam with things like self-employment tax is really really really sucky. Ask me how I know.
Sleep.
I can’t emphasize this enough.
I’ve made the mistake – both in self employment and in the employ of others – of thinking that I’m some kind of hero because I work around the clock, or because I short myself on sleep (SEE HOW DEDICATED I AM?) or because I don’t eat until 3 and drink nothing but coffee all day and because my inbox is just so full I can’t even tell you.
This is stupid.
You need sleep and rest in order to function. The average knowledge worker is, according to some information, only functional about 6 hours out of the work day. So, the only person that’s losing by your slogging through hours and hours of half-brained, fogged-out work is you. You aren’t giving your business your best, and you’re going to lose.
Get rest. You are not a hero if you work yourself into the ground. This is about more freedom, not less.
More Reality Checks…
A really good reality check for anyone considering the entrepreneurial path is my friend Carol Roth’s The Entrepreneur Equation (not an affiliate link, she just rocks). It will both scare the crap out of you and give you a shot in the arm when you need it, and no matter what you’ll be better prepared for being in business for yourself.
Also, it’s highly likely that you know someone who owns their own business. Ask them for some input about specific questions you have, and do be specific. You can find all the fluffy stuff in a book somewhere. Ask the tough questions about money, getting clients, or managing operations. Offer to pay them for their time and expertise, in cash or in trade. Take notes.
Working for yourself is one of the most liberating, exciting and rewarding things you’ll ever do.
But if you want to beat the statistics and be one of the businesses that doesn’t just survive your first year but thrive through many more, educate yourself on the realities of self-employment and ask lots of questions. Be prepared for the realities of costs and operations, but don’t forget why you’re doing it.
Passion is important, sure, but you can’t run a business or pay your mortgage on passion alone. Be smart, and you’ll earn yourself the freedom to let passion fuel the well-built business you’ve worked so hard to create.
What have I forgotten? What are your hard-won lessons in the journey of self-employment? Add your perspective in the comments.
You’ve hit all of the critical ones here Amber.
I’d add “look into your city’s requirements for operating your business and any associated miscellaneous taxes etc…” because I’ve heard stories of weird little “I didn’t know that!” kind of stuff.
Amber — thanks for writing this. This is my life.
Wow. You hit on so many important topics for a new small business. I laughed out loud about the working around the clock… and then calling it out as stupid. Hilarious, and so true. I’ve been through many of the same issues myself in starting my business and it was refreshing to think back on all the things that I made harder for myself because I didn’t plan better. Maybe your follow up article could be about how challenging it is to go from 1 person in the business to 2! We are past that at our company finally, but it took a lot of discussion, trial & effort, hard work and a little luck. I love your articles Amber… thanks again.
Great post and your timing is perfect. In fact, my husband and I had a lengthy conversation yesterday about guilt and not having someone else driving my schedule. I’ve been an executive for years but it was always in someone else’s business – now at 30 days into my start-up, I know I’m doing the right things but feel a bit at loose ends.
And you are exactly on point about working from home – some people are successful and love it (including me, I’ve been doing it as an employee for 20 years). Others have a hard time with lack of structure.
Always enjoy your posts Amber. To the point on accountants I would add the following – be sure you hire the right type of accountant at the right time. To most people ‘accountant’ means someone who can do your taxes. I understand that because that is when most people need an accountant. It is important to understand that there are several skill sets within accounting (many of us never do tax).
I have seen small businesses fail because they did not understand what was driving profitability. In other words they did not understand their cost structure. I heard one business owner say “I know I should be making more money than this” about two months before his business of 10 years failed. He had multiple products that he was producing at two production plants and his business seemed successful until a crisis hit. And that crisis brought to light the fact that he did not understand his cost structure, nor did anyone else in the organization. The ability to break down a business into actual costs and understand the relationships between product lines, etc. is not a skill that every accountant possesses.
Make sure you hire the right professional at the right time.
Hire a good assistant or helper as soon as you can. Whether that means someone to manage your calendar or pick up the dry cleaning, the more you free yourself up to spend time on the stuff that matters – the better.
A metric ton of useful info there Amber – thanks. I’m approaching year 4 for bWEST and year 3 for Social Media Camp, both of which I have been running from my dining room table.
Funny thing is I don’t tell many that as I’m somewhat embarrassed that I don’t have an office. I have had plenty of offers to share office space and have seriously considered it, but I actually like my current situation as it allows me to spend lots of time with my kids. The toughest time is when they’re off school for an extended period as they don’t understand why I can’t play hockey with them cause I’m ‘working’.
However, that may have to change soon as I now have 2 full time employees. The more people the harder it is to work virtually. I’ll check back with you in a few months on that one…
Excellent post, Amber. Dunno how I missed this one. Hope to see you next week in Austin.