Calculating the Risk of Full-Time Self-Employment
You’ve decided to quit your day job and take the incredible, thrilling, and sometimes scary step of self-employment. Whether you want to build an empire, start a small business, or simply have more freedom in your day, you’re making a career on your own terms.
And you’re in good company. Self-employment rates were near 30% in early 2020, and those numbers have only continued to grow this year. With this influx of entrepreneurial spirit, many people are asking how to take this calculated risk.
While paying down debt and having 3+ months of expenses built up is certainly wise, no amount of savings can replace strategically planning for your new venture. You’ll want to prepare for the future before typing up that resignation letter. Here are five steps to take before quitting your day job.
Have a Plan
Taking the leap into self-employment is both exciting and thrilling. But with every leap of faith, it helps to have a safety net. This is where your financial plan comes into place. Before taking the plunge, it’s helpful to ask yourself some questions:
What are the costs of launching and running my business?
Does it make sense to work as an independent contractor or should I incorporate?
What personal expenses do I need to account for (ie: self-employment tax, health insurance, retirement)?
Clarity is key when moving from a fixed salary to a more variable income. Understanding how your finances will change beforehand, will prepare you for future challenges.
Connect with Your Network
The saying goes, your network is your net-worth. This doesn’t mean that you need to start mingling with CEOs of Fortune 500 companies — unless that makes sense for your business. Rather, take a look at your current community. How can your services support their professional growth? Perhaps you have a knack for social media management, and your local hardware store could benefit from adding instagram to their marketing plan. Use your current network to create mutually beneficial partnerships.
Not sure where to connect? LinkedIn is always a great place to start., but don’t be afraid to think outside-the-box. Social platforms – particularly Twitter and Clubhouse – can be wonderful for meeting new people across industries, as well as local workshops or young professionals’ networking events. And if there’s a small business you’re particularly interested in, introduce yourself to the manager directly. Remember, word-of-mouth goes a long way. As you begin to invest in your community, you may find that your business grows as a result.
When you’re first beginning the self-employed adventure, it may feel like you need to accept any work that comes your way. (Fair! Looking for new projects can be overwhelming.) However, you can create balance by getting very clear on your personal and professional goals. Do you want to build a seven-figure business, or are you drawn to the freedom of solopreneurship? Your answer will strongly influence the goals you set for your business.
Let’s say you’re in the process of launching a neighborhood coffee shop. You may want to set specific sales goals to measure your current marketing efforts. That way, if your long-term plan includes adding a second location in five years, you’ll have a clearer sense on how to advertise and align your brand strategy along the way.
Schedule Your Day
You may be choosing the path of self-employment to escape the traditional 9-5 workweek. Congrats! And while it’s true that you can create your own schedule, giving yourself a daily structure will pay off in the long-run. The good news is, you can tailor your schedule to fit your strengths. If you’re a morning person, there’s no reason you can’t start your day early and finish up by mid-afternoon – whereas night owls may begin after lunch when their brain kicks into high gear. Whatever system you land on, finding a structure that makes sense for you and your customers will ensure professional health as you continue to grow your new business.
Don’t think we forgot about the money! Figuring out how to structure your financial picture takes a bit of research. Ask some other people in your industry to determine standard rates and how you might structure payments. For example, if you’re a freelancer working on a retainer, it may make sense to have your client pay-in-full at the beginning of every month. Whereas if you’re an interior designer, larger, one-off projects may mean asking for down payments at the beginning. And of course, with commerce you’ll get paid for your product on the spot.
Once you’ve determined pricing, it’s time to discuss how you’ll get paid. The key is to stay organized throughout your transaction process, while offering an easy-to-use solution to your customers. If you’re invoicing directly for services, then working with a system to expedite that process will ensure your patrons have a seamless experience – and you get paid on time. And if you work with customers every day, then an affordable card reader to process payments is a must. Transparency and efficiency are key to any financial transaction. When you integrate these payment processes from the beginning, you’re creating a solid foundation to continue building your new business.