Preparing for Self-Employment: What to Do Before Striking Out on Your Own
Working for yourself takes vision, guts, and passion. Freelance work has both advantages and challenges. That’s why it’s so important to “look before you leap.” Proper planning will make your transition from full-time employee to sole proprietor easier and less stressful.
Tips for Laying the Groundwork for Your Own Small Business
- Start saving. The rule of thumb is to have between 3 and 6 months of savings at minimum to tap into as you’re building your business. The more savings you have, the more secure you’ll feel.
- Don’t quit your day job. Keep your plans for flying solo to yourself. Your current job pays the bills and adds to your savings. And having to work nights and weekends is great way to test your resolve.
- Build your business plan. Describe the goals for your business. What is your vision and strategy to achieve those goals?
- Make connections with other freelancers. Depending on the type of work you plan to do, you’ll want to make contact with others like you. LinkedIn is a great place to start either by joining or starting your own group.
- Find a mentor. Perhaps you know someone who’s already self employed — ask if they’d be willing to mentor you. A good mentor can help you avoid many of the pitfalls you’re bound to experience.
- Make business connections. Again, depending on the type of work you do, you’ll want to start building some business relationships. These could be potential clients, future referral partners, and outside vendors, should you need them.
- Legal aspects of freelancing. States have different rules when it comes to registering a new business. Find an attorney or better yet, contact Legalzoom for assistance in setting up a sole proprietorship and registering your company name.
- Taxes and expenses. Work with an accountant or tax planner. Get a clear understanding of what quarterly taxes you’ll need to pay and what business expenses you can deduct. Knowing this information upfront will save you time and money going forward.
- Prepare your work space. Working at home can be a big challenge. Having your own office allows you to separate yourself from work as needed. It’s also a one of your best deductions. Get the office supplies that you’ll need and keep your receipts for tax time.
- Build your brand. Your brand is you. Logo, business cards, marketing collateral, website, and social media accounts all need to reflect your identity and the quality your customers can expect.
- Research pricing and terms. Pricing your services can be difficult. Go online and see what others charge. Remember to factor in any overhead costs such as health insurance and social security payments. Will you bill by the hour or by the project? What payment terms will you allow — 15, 30 days? You may consider getting half upfront and billing the balance once the work is completed. How will you invoice clients? What forms of payment will you take? You may want to use an online billing service such as Freshbooks or Intuit Quickbooks.
- Work on the side. The best way to get your feet wet is to take on a project or two to start. Doing so enables you to make sure all your processes fall into place, particularly if you’re providing clients with work estimates. Estimating projects is tricky, so do some research. Working for free can be a good way to get some initial projects, but it can also be a slippery slope. Be clear about how much work you’re willing to do for free and at what point the client would start to pay.
Starting your own business can be exhilarating. It can also be stressful. Taking the time to research and plan properly is the best way to start.
Financing Your Business — and Beyond
If your new business requires an outlay of cash upfront or further investment is part of your business plan, the equity in your home can be a good source of funding. It’s not uncommon for individuals working for themselves to fear they won’t qualify for a refinance or be able to purchase a new home. Beyond by Embrace is a mortgage program specifically designed for unconventional borrowers like small business owners. Whether you’re looking to take cash out through a refinance or purchase a new home, Beyond uses your bank statements to measure your business cash flow instead of what’s reported on your tax returns.