The American economy is experiencing a definite downturn, the likes of which haven’t been seen in decades. Many of those employed in today’s workforce were not around to experience the recession in the early ’80’s and are therefore ill prepared for the financial strain that has hit or is very likely to hit their families.
Those who are familiar with searching throught the “help wanted’ ads are recognizing the depressing truth: well-paying, full time jobs are growing scarcer each day. Many of the ads being posted come from third party recruiters, others are blatant scams, and the largest portion of help wanted ads are actually for independent contractor or self employed positions that pay neither a fixed salary nor an hourly wage and come without traditional employment benefits.
With all this in mind, many more individuals are recognizing that self employment is definitely the trend of the future income generator. Those who are self employed maintain a greater sense of control over their earning potential, and they do not have the fear of being laid off or fired hanging over their heads. Self employment also offers greater flexibility as far as working hours and locations are concerned. The majority of self employed individuals today are able to work from their own homes and set hours that are “family friendly” enabling them to spend more time with their spouse and children.
If you are seriously considering joining the ranks of the self employed, there are some basic steps that need should be taken initially to see if you are ready to venture out on your own.
First, choose a business that you already have an expertise in and/or passion for. It is not realistic to expect success as a self employed horse breeder if you have been a stock broker for most of your life. On the other hand, if you have a passion for music and entertainment but have spent your life working in retail stores, you may be able to channel your people skills and passion for music into creating your own entertainment business such as a mobile disc jockey company or an online music retail store operated from the comfort of your own home.
Second, choose how you would like to structure your business. Will you operate as a partnership or corporation? Will you be a sole-proprietor or a limited liability company? Do you know what an S-corp is? There are different tax advantages and limitations depending on how your company is structure. Consult a CPA or business tax professional to help you determine which business structure will best meet your company’s needs now and in the future. Be sure to explore all available options before making a firm decision.
Third, create a business plan. There are a variety of educational materials available online and in bookstores to assist you in writing your own business plan, or you may contract an expert to assist you in the preparation of your business plan. Your business plan is your road map for success and serves as your reference material for potential partners and investors. It outlines your talents and abilities, your company’s goals and structure, and includes financial projections which will be of key interest to lenders and investors alike. If you do choose to prepare your business plan on your own it is still advisable that you hire a technical writer to edit your final document.
Fourth, explore your financing options. Do you have personal savings tucked away that can be invested in your company? Do you have a friend or family member who might be willing to partner with you or act as an investor? Is your credit sufficient to secure a business loan? Are grants available for the type of work you have chosen? There are many funding options out there, but be sure to calculate the cost of various types of funding in your financial projections. The number one reason for business failure within the first three years is lack of capital. The old adage “it takes money to make money” is true, but there are many business opportunities that can begin with even a small investment.
Fifth, consult your tax professional. This is a key step in helping you prepare yourself for being self employed. It is important to be fully aware how being self employed will affect your personal and business taxes. You need to know what percentage of your revenue will need to be set for estimated tax payments. Also, the tax laws governing business deductions are numerous. Frequent communication with a qualified tax professional can help you assess what does and does not qualify as a business deduction, whether or not you can write off your recent trip, and how different depreciation methods will affect your bottom line.
The decision to become self employed should not be made lightly, but for the right individual it could very well be the best financial decision that you could make for your future.