There are numerous benefits to becoming a self-employed contractor. Starting your own company, being your own boss, and making the decisions are all appealing to anyone with an entrepreneurial spirit. If you have good abilities and expertise in your field, it can also be one of the simplest methods to transition from a full-time job to owning your own business.
Other factors influence people’s decision to work for themselves. Many firms (even huge ones) today want a more flexible “just-in-time” workforce and prefer to hire contractors rather than full-time employees; hence, the freelance market is rising. In many occupations, working for others is simply no longer an option.
Self-employment, on the other hand, comes with its own set of problems, and you should be completely aware of and prepared for all areas of entrepreneurship to prevent unpleasant shocks down the road. Here’s everything you need to know about starting and running a successful self-employed contractor business.
Be certain you want to be self-employed
Being your own boss is not for everyone. Ask yourself two critical questions before taking this step:
1. Is self-employment a good fit for your situation?
Even if you have (or can get) well-paid, stable work with benefits and reasonable job satisfaction, becoming self-employed may not make sense, regardless of how strong your desire to be an entrepreneur is.
When you have a constant wage and regular working hours, it’s a lot easier (and less stressful) to plan vacations, large purchases, and retirement, especially if you have dependents.
Before making the leap to self-employment, carefully consider your lifestyle, financial condition, and future retirement goals—and share them with your family.
2. Is your personality suited to working for yourself?
Being your own boss has numerous benefits, but it also means that you are solely responsible for the success of your company (including money). Being an entrepreneur is probably not for you if dealing with the uncertainties of self-employment causes you a lot of worry and anxiety.
So, if you’re sure working for yourself is the right choice, here are the steps you can take to get off to the best possible start.
3. Put the right financing in place
How much (if any) capital would you require for business premises, machinery, equipment, and other expenses? If you’re a computer consultant who has the ability to launch a home-based consulting operation with just a laptop and a cell phone, capital finance may not be an issue, but launching an excavating business, for example, may require hundreds of thousands of dollars in equipment.
You will need to fund company and personal expenses in addition to capital finance until your business generates revenue. Even if you have the advantage of an existing client portfolio when you start your business, it could take months before you are paid for your first project.
Before you decide to become a contractor, go over your finances thoroughly and estimate your needs as accurately as possible. Then, if necessary, look into possible sources of financing, such as family, friends, or business loans from financial institutions.
If you need funding and plan to seek loans or cash from equity investors, you’ll need to provide a detailed overview of your financial needs in your business plan.
4. Develop your business plan
Is a business strategy required? Perhaps not if, for example, you are able to leave your current full-time work and be promptly rehired as a contractor, or if you are launching a business with clients already in place and no need for finance.
However, there are numerous reasons for most starting enterprises to have a business plan:
- To conduct market research to see if your business idea is viable.
- To explain how you intend to sell your products and services to clients.
- To obtain funding or attract investors
- To plan for future expansion, such as the purchase of additional equipment, the hiring of staff or subcontractors, and so on.
A great business strategy, which you should update on a regular basis, is a blueprint for success.
5. Register your business and get insurance
Decide on the legal structure of your company—do you need to incorporate your business? Or can you function as a sole proprietorship? Being incorporated is a prerequisite in several professions. If you want to incorporate, do so before you sign any customer contracts.
Choose a business name and, if necessary, register it.
Ascertain that your company is properly insured. Will you, for example, require liability insurance? Is there a risk of professional liability? Are there any mistakes or omissions? A claim against your company that isn’t covered by insurance could be financially disastrous, especially if it isn’t incorporated. Home insurance does not cover business activities conducted from the home.
6. Start marketing your business
Getting the first few paying clients is frequently the most difficult part of beginning a new consulting business. You may already have potential clients if you have switched from a full-time employment in the same field. If you don’t have any friends, family, or business relations, you should reach out to them before opening your doors. Advance word-of-mouth can help you get clients much more quickly, as well as provide feedback on the viability of your business concept.
If you’re starting from the ground up, create a marketing plan and apply some easy, low-cost marketing methods (such as a social media strategy) to attract your initial customers.
7. Get your accounts straight
Using free time to arrange your books, build processes for invoicing your clients, and learn basic accounting will help you save money on accounting expenses during the starting phase of your business.
Accounting software may make your bookkeeping tasks much easier. For around $10 per month, several of the new cloud-based accounting software products, such as FreshBooks and Zoho, offer ideal beginner packages for self-employed freelancers that include invoicing, expense tracking, easy reporting, and mobile apps.
If you don’t want to conduct your own bookkeeping, you can always employ a bookkeeper or accountant once you’re busy with clients to do it for you.
8. Always act professionally
Always dress and play the part, no matter what your occupation is. Inappropriate clothing or behaviour on your part will turn off potential clients who don’t know you.
Being professional also entails correctly answering the phone, using voicemail, and swiftly responding to messages or emails. Developing a reputation for poor customer service in today’s era of online reviews and social media may soon spell the end of your organisation.
Make sure you have a separate, well-equipped and furnished home office space if you plan to meet with your clients on your premises.
9. Over-deliver and under-promise
Treat each client with respect and find ways to express gratitude on a regular basis. Over-extending yourself and making unreasonable promises is a surefire way to lose consumers in the long run.
10. Manage your taxes carefully
The opportunity to deduct expenses from taxes is one of the most significant benefits of self-employment. Abuse of the practice, unfortunately, can result in tax officials scrutinising you. If you work solely for one company (even if you’re incorporated), you risk being classified as a Personal Services Corporation by the CRA or an employee by the IRS, preventing you from claiming the small business deduction and other regular business deductions. You’re especially vulnerable if you’ve switched from employee to contractor and continue to work full-time for the same organisation.
Having several clients is the easiest approach to ensure that you keep your status as an independent contractor. If you’re not sure whether you’re an independent contractor or not, talk to your accountant.
11. Don’t try to be all things to all people.
Consider subcontracting some of your non-core activities if your business is growing and you’re finding that there aren’t enough hours in the day. Do you truly want to be your own web designer or run your company’s social media accounts? Or do you want to deliver the merchandise to the clients yourself? Or do you want to plan your own trip? Alternatively, keep your own books and file your own taxes.
Some of these ancillary chores can be outsourced to free up time for you to focus on your primary business activities. If some members of your family can help with some of these responsibilities, you may be eligible for tax incentives.
12. Don’t expand until the time is right
Many successful contracting businesses reach a point when they need to hire more personnel to meet the increasing workload. A self-employed IT contractor, for example, may have to choose between bidding on a contract that requires a multi-person team to execute or passing on the chance.
Hiring (or contracting) extra staff is a challenging decision, and many independent contractors prefer to work alone for a variety of reasons:
It may be more challenging to locate qualified personnel as your business becomes more specialised.
It takes a long time to advertise, review resumes, and conduct interviews. Once you’ve made your hiring, you’ll have to devote more time to training, supervision, and related paperwork. Hiring workers rather than contractors creates more paperwork because payroll involves tax (and other) deductions, which raises your accounting overhead.
Your earnings will not increase unless extra personnel generates more revenue than the expense of their employment.
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If someone you recruit does not perform to expectations, your company’s reputation may suffer.
By reducing business expenditures, many contractors find it easier (and less stressful) to stay small, keep their workload within realistic boundaries, and maintain a positive cash flow.
If, on the other hand, your objective is to grow a larger company and you have the time and energy to devote to expansion, then go for it.