Two years ago we wrote a post titled 5 Things To Know About Self Employment. It covered some pretty good ground, but there’s so many more things that we can share which will help you if you’re not already working on your own and are thinking about exploring it. As with everything else in life, some of it’s good, some of it’s scary. Let’s take a look at 5 more things regarding self employment.
1. You need to plan for the possibility of making a lot of money. One client of ours spent the first few years basically floundering; he wasn’t a client at that time. Then he struck virtual gold and over the next two years he made more than $350,000 total; sounds great, right?
He thought so. Even though he paid taxes, he went on a major spending spree, buying things he needed but not thinking about the possibility that maybe he wasn’t paying enough in taxes. When he got hit with a $30,000 bill two years later, after he’d spent a lot of the money, because of miscalculation, that’s when he decided it was time to hire an accountant to handle that part of his finances. We couldn’t help much with what had already happened, but we worked on a plan for future income that included his incorporating his business.
2. You won’t get paid vacation time. This seems like a given, but it’s something most newly self employed people never think about. If you’re someone who likes getting away at least once a year, you’re going to have to not only plan your time away but your money as well.
Something to think about is if there’s a way to do a little bit of business while you’re out of town. Maybe you can schedule a meeting with someone or take your vacation during a time when there’s a conference in the town that you’re visiting. As long as there’s something you can relate to business, you can write off some of your expenses to make your trip less costly.
3. You also won’t get paid for sick time. The best part of self employment is that you can take days off when you’re feeling bad. The worst part is that you not only won’t get paid, but there’s nothing you can write off if you need to spend a few days in bed.
It’s because of these last two that it makes sense to put money away for special and extra-special occasions. It’s scary working contract to contract and having your money be wrapped tightly into living expenses and nothing else. When you can, you should try to put a few dollars into a container inside your home instead of putting everything in the bank. You never know when money will come in handy.
4. If you incorporate, pay your corporation taxes on time. Once again, this seems to make a lot of sense, but problems occur more often than you’d believe. The problem with skipping on paying your corporate taxes is that the penalties aren’t small, and they compound monthly. For every month you miss, the fee can be steep depending on how much you make; even if you don’t make anything, the fees can be exorbitant.
By the way, don’t even think about blaming everything on your accountant if you’re not addressing your taxes on time. They can file an extension for you… if you let them know that you’re going to be late in getting them what they need to get your taxes completed. If you don’t, it’s all on you, even if you didn’t owe any other taxes (strangely enough, the IRS has been known to send you a refund from your personal taxes even if you miss filing, but they’ll still penalize your corporation).
5. Your 2nd biggest problem (after figuring out marketing) is figuring out price points. The reason this one isn’t easy is because it can be hard to figure out what the market will bear if you’re not in a common industry. For instance, it’s easy figuring out what to charge if you’re a plumber. It’s not so easy to figure out if you’re a management consultant.
You have to figure out a lot of things in deciding what you’re going to charge, especially if what you offer changes somewhat with each client. What do you want your hourly rate to be? How much effort will you need to put into completing the contract? Will your clients be recurring? Will you have to travel? What kind of expenses will you have, both related to your business and in your personal life? Will you price yourself out of business by charging too much or charging too little?
Self employment can be enriching; it’s also scary. Now you have 10 things to help you consider whether it might be for you.