By Peter Dowling, JD, CPRW, ARM, CPCU
Jan had lunch with Margo for the first time since Margo left the firm to work freelance. Now Jan is considering making the move to freelance. Before she does she wants to know what to expect and how to prepare.
What are the principle differences between working for yourself and for an employer?
Here is some of what you can expect 'on your own.'
- Potential for higher earning
- Make your own hours
- Make decisions about the direction of your company and your career
- More responsibility
- Potential for favorable tax benefits
- No unemployment insurance or worker's compensation, as an independent
- Income may be erratic or difficult to collect
- Cost of doing business may be more than you anticipate
- If you're working at home it may be a challenge to define your work hours and manage interruptions and distractions
Initial Steps -- Before You Decide to Quit Your Day Job
1. Create a business plan.
How will you do business? How will you attract clients? How much will you charge for your services or product? Who are your vendors? How long will it take to establish yourself? How long before you break even?
2. Construct a practical budget.
Do you have the necessary funds to get your business started and to keep it running through your break-even point? Are you prepared to seek outside funds in the form of a loan or investment? How long can you survive without an income?
3. Will you set up office in your home initially, or rent space?
Working at home can save money. You may qualify for tax deductions. However, will it harm your professional image, and is your home space appropriate for your business?
4. Select the legal form for your business. (Corporation, Limited Liability Company, etc.)
This decision is crucial as it may affect your tax liability and method, your Social Security tax responsibilities, your privacy, and your personal liability for debts.