Being self-employed has distinct advantages that aren’t too hard for most of us to imagine. So if setting your own hours and being your own boss sounds good to you, you might be considering self-employment.
The ability to earn more money and experience more creative freedom can be alluring, to say the least. And there are a lot of successfully self-employed people. A 2015 Bureau of Labor Statistics study on self-employment showed that 10% of all workers in the US were self-employed.
However, you should know a lot before you venture out on your own. So ask yourself these seven questions before you leap.
Should You Start a Business or Freelance?
There is a difference between starting a business and subcontracting out some work as a freelancer. Which method is right for you will probably depend on several factors, such as what skills you have and what your long-term goals are.
Freelancing is a great way to start out because you will learn some necessary skills that can assist you if you decide to take your career further and start your own business.
In order to be a successful freelancer, you have to learn how to find clients, manage your finances and set your rates. These are all things that a business owner needs to know.
Do I Have the Right Skills?
One way to find out if you have the right skills is to try your hand at freelancing while you are still employed. You will need a variety of skills to stay self-employed, and not just trade skills. You will need soft skills, too, such as interpersonal and networking skills.
Other basic skills that will help you succeed are time management and technology skills.
What Kind of Insurance Do You Need?
How do you know what kind of insurance you will need to be self-employed? It seems confusing at first, but with a little help from the right insurance broker, you can get all your questions answered and set your mind at ease.
It’s a good idea to sit down and do some research to find out what you need. Don’t feel like you have to do this alone, though. Several online insurance brokers can help you develop a self-employed insurance plan.
Your plan should protect you when things go wrong and cover you in the event of business disputes, property damages, and accidents. That’s why the best policies for self-employed workers include a general liability policy.
You’ll also want to get a professional liability policy that protects you from errors and omissions, as well as a policy to protect your commercial assets. Worker’s compensation policies also provide protection for you if you are hurt while you are working.
If this seems like more than you can handle, rest assured. You can easily get all of these policies bundled. It will cost you less, save you time and provide maximum protection. And once your policy goes into effect, it’s easy to get certificates, make policy updates, and file claims online.
How Do You Set Your Rates?
You should charge whatever people are willing to pay.
Since you might not know what that is when you first start out, you can calculate a weekly rate of pay based on how much you realistically want to earn per year, divided by 52 weeks per year. Then, take your weekly rate and divide that by 40 hours per week. That gives you a base hourly rate to work with.
Something to consider is that it is much easier to raise your rates when you have too much work than it is to lower your rates if they are too high. You should also factor in your business expenses.
What’s the Best Way to Organize your Finances?
A good rule of thumb when you are organizing your business finances is always to overestimate when it comes to expenses. Everything always costs more than you think it will.
You should use some kind of ledger system, whether that is software for tracking your income and expenses or an Excel spreadsheet. It is also much easier to track your self-employed business income if you have a separate bank account. This will make it easier to do your taxes, balance your books and make sure you are charging the correct rates.
What’s the Best Way to Pay Taxes?
If you have organized your finances as suggested, paying your taxes won’t be nearly as difficult. Most freelancers and self-employed workers set aside 20-30% of their income in a separate savings account so that they can pay their taxes when they are due.
Whether you are comfortable filing your own taxes or need an accountant’s help, it is important that you file your taxes on time. Just remember, you need to pay estimated quarterly taxes on your earnings. For more information, visit the IRS’s self-employed tax center.
Where Do You Find Clients?
How you get clients depends largely on what business you are in. But there are several things you can do that will help no matter what industry you have chosen.
Having a website is important, even if you don’t think you need one. As you build your website, consider adding some blog posts that showcase your best work. In addition, advertising, online searches, and using your social media are all ways to utilize your networking skills to get your skills noticed.