Working for yourself as a contractor comes with a number of advantages. Anyone with an entrepreneurial itch finds running their own business, being in charge, and making the decisions to be incredibly enticing. It might also be one of the simplest ways to go from working a full-time job to beginning your own business if you have extensive knowledge and experience in your industry.
People may decide to work independently for others for a variety of reasons. The rise of the freelance sector, which is advantageous to even very large enterprises, is a result of the need for more adaptable “just-in-time” labour and the preference for hiring contractors over full-time employees. Working for oneself is no longer an option in many industries.
However, there are challenges that come with working for yourself, so in order to avoid unpleasant surprises in the future, you should be entirely aware of and prepared for all of them. The advice provided below will assist you in starting and expanding a prosperous business as a freelancer.
Are You a Good Fit for Working as a Contractor?
Running a business alone is not for everyone. Before you get in, ask yourself these essential questions.
Do Your Circumstances Align with Working for Yourself?
Even if you have a burning desire to launch your own company, it might not make sense if you already have (or can find) a fair level of benefits-enhanced, steady employment that pays well.
Planning vacations, major purchases, and retirement is significantly easier (and less stressful) when you have a stable income and work schedule, especially if you have dependents.
Talk to your family about your aspirations for your future retirement, your financial situation, and your way of life before making the decision to become self-employed.
Do You Have the Right Personality to be Self-Employed?
Although having your own business has many advantages, it also means that you are fully responsible for its survival. If addressing the uncertainties of self-employment causes you to feel a lot of tension and anxiety, entrepreneurship is probably not for you.
Do You Have the Necessary Funds to Support Yourself as a Contractor?
How much capital, if any, would you need for a workspace, supplies, and other essentials for your company? For example, starting an excavating firm might require hundreds of thousands of dollars worth of equipment. In contrast, a computer expert who can develop a home-based consulting business using only a laptop and a mobile phone may not have any trouble securing capital investment.
Up until your business starts making money, you’ll also need to cover personal expenses, business expenses, and contractor expenses. It could take a while before you are paid for your first project, even if you already have customers when you first start your business.
Before deciding to work as a contractor, think about all of your available financial possibilities, including those offered by family, friends, and financial institutions. Just in case you didn’t already know, it is extremely challenging to obtain financing for a new business from a bank unless you have sufficient collateral in the form of personal assets.
If you will be looking for external financing, loans, or capital investments from equity investors, you will need to include a thorough explanation of your financial requirements in your business plan.
Have You Written a Business Plan?
You may be wondering if you will actually need a business plan. Maybe not, if you’re lucky enough to start a business with clients already lined up and no need for financing, or if you can leave your full-time job and get employment as a contractor right away.
But having a business plan has several advantages, particularly if this is your first time starting a firm:
- You can determine the viability of your business idea by conducting market research.
- You can use it to lay out how you want to market your products and services to consumers.
- It can help you raise money or attract investors.
- Planning for future expansion requirements, such as acquiring new equipment, hiring more people, hiring outside contractors, etc., might be helpful
- A sound company plan that is periodically revised can serve as a success road map.
How Would You Set Up Your Company’s Structure and Register it?
As a contractor, before you start taking on any customers, you must perform the following tasks:
1) Determine the legal form of your business. Does forming a sole proprietorship suffice? Or do you need to incorporate it? For many professions, incorporation is required. Choose whether you wish to incorporate it before you sign any customer contracts.
2) Choose a name for your business and, if necessary, register it.
3) Get business insurance. Will you need general liability insurance, for example? A claim against your business that isn’t covered by insurance for contractors could be financially catastrophic, especially if it hasn’t been created yet. Please be aware that activities performed at home while working are not covered by home insurance.
4) Establish a distinct bank account for your business.
How are You Going to Get Clients?
Typically, getting the first few paying clients is the biggest challenge when starting a new consulting business. If you recently left full-time work in the same field, you may already have potential clients. If not, get in touch with relatives, family, and acquaintances from the workplace before opening your doors. Advance word-of-mouth can assist you in obtaining consumers much more quickly than waiting for marketing investment to kick in. It will also enable you to access feedback on the viability of your business idea.
If you have to start from scratch, come up with a marketing plan and implement it to draw in your first clients utilizing some simple, affordable marketing strategies (such as a social media strategy).
Can You Perform Your Own Accounting?
You can reduce your accounting costs by maintaining organized records, creating systems for handling client bills, and being familiar with the basics of accounting early on in the life of your company.
Accounting software can make your bookkeeping responsibilities considerably easier. Many of the new cloud-based accounting products, like Zoho, Xero, and FreshBooks, provide great entry-level packages for independent contractors that include billing, cost tracking, simple reporting, and mobile applications for approximately $10 per month.
If you do find yourself overwhelmed with client work, you have the option to advance to hiring an accountant or bookkeeper to do these chores on your behalf. If you dislike handling your own bookkeeping, this is typically a wise decision.
Can You Contract Out Some Work?
If your firm is growing and you’re finding that you don’t have enough hours in the day, think about outsourcing some of your non-core tasks. Are you really interested in managing your own web design business or updating your company’s social media accounts? Is there an alternative to sending out your own deliveries of items to customers? Are you sufficiently skilled to handle your own tax preparation and bookkeeping?
By outsourcing some of these ancillary tasks, you are able to devote more time to your primary business operations. If you can give family members any of these responsibilities, there can be tax benefits.
Do You Require a Lot of Clients to Avoid Tax Issues?
One of the key advantages of self-employment is the ability to write off expenses as a tax deduction. Regrettably, abuse of the technique can prompt tax authorities to investigate. If you only work for one employer, even if you are incorporated, you run the risk of being labelled by the IRS or CRA as a Personal Services Corporation and losing the ability to claim the small business deduction and other common business deductions. After converting your status from employee to contractor, you run a bigger risk if you continue to work full-time as a contractor for the same business.
The greatest way to make sure you stay an independent contractor is to have multiple clients. If you’re not sure whether you’re eligible to be an independent contractor, speak with your accountant.