Linda has a BA in Accounting and Business and has always been interested in budgeting, personal finance, and entrepreneurship.
Many people would like to be self-employed, but are not sure what it entails and if they are capable. As a business owner, you will have to put on a lot of hats and possibly hire employees or subcontractors to help you. Are you ready for this endeavor? Do you have money set aside to start the business? This article contains some of the things to consider if you want to work on your own.
Create a plan for your business
Write down what you want your business to do. Are you providing a service or product? How do you plan to take off? Find out how competitive the market is in your line of business and how you will get your business out of the competition. How difficult will it be to win customers? How do you plan the marketing? What type of equipment will you need to run your business? Will you have to ask for a loan? If so, you will need to write a formal business plan to present to loan officers. Also, think about how you will structure your business. The options for this are sole proprietorship, partnership, LLC, Corporation, or S-Corporation. All of these structures have pros and cons, so you should do your research. It takes a lot to start a business and get it off the ground initially. Do you have the motivation and courage to do it?
Consider the taxes involved when you are self-employed
Payroll taxes differ as a self-employed person. You will no longer make your employer pay half of your Social Security taxes. You will be the employer and the employee and must pay for everything. You will need to present regularly. Federal and state taxes must also be submitted. Some towns have a local tax. Do you have any experience in bookkeeping or accounting? Otherwise, you will have to hire someone, which is an additional expense. Tax rates can change frequently, so you will need to keep abreast of these changes. You may also have to collect and pay sales tax. Research the taxes that must be paid in your area and for your type of business.
Do you have an area or room for your business?
As a self-employed person, you may want to start working from home. The costs will be significantly lower and you may get a tax break if you book a specific room for business only. Do you have a place or area that suits your needs? Will it be quiet and without distractions? Make sure the area contains everything you need to run your business. You may need computer equipment, a desk, filing cabinets, bookcases, a printer, and more. If you plan to sell products and maintain inventory, you may need more than one room. Think of the whole business. Do you have the space you need in your home, or will you have to rent or lease a separate space? Can you afford the costs involved?
Price your own health insurance plan
When you are no longer working for another company, you will need to provide health insurance for yourself and your family. These plans can be particularly expensive, depending on your age and the number of dependents. You can research the Healthcare Marketplace. You will need to have an estimate of your earnings for the year. Your first-year earnings may be low enough to get a government subsidy. However, if you tell them a lower amount of income than you earn, you could owe considerably more when tax time arrives. You can join a self-employment organization and you may be able to get a group rate through them. Search NASE (National Association of Independent Workers) for more information on this. Health insurance is essential. Can you afford it on your own?
Consider business insurance based on the type of business
Even if you are running your business from home, you should consider business insurance. Homeowners insurance will not cover equipment and merchandise that you use solely for your business. You should consider liability insurance as you are liable if a customer is injured on your property. You should also obtain insurance to protect your business from data breaches if you run an online business. Clients can sue you for a variety of reasons depending on your business. Without this insurance, you will be responsible for the damages. Your insurance agent can help you decide the best insurance policies for your type of business. Proper insurance is another cost to consider.
Savings for retirement
Retirement may or may not be too far away. You should still consider it. Your funds may be tight when you start a new business, but you still need to think about how you are going to save for retirement. There are several options available to freelancers. Conventional and Roth IRAs, as well as individual 401K accounts or simplified employee pension accounts, are available to you. Risks are involved with these, but over time they will increase more than a traditional savings account. When the time comes, you may want to hire a financial planner to help you with your choices.
While some people want to own a business, they are not exactly sure whether self-employment is right for them. Having your own business is not easy. There are risks involved and getting started can take time and money. After reviewing the information above, you will be able to decide if self-employment is the right option for you.
Christina on April 20, 2020:
Thanks for that valuable information. I appreciate it
Linda Courtney (author) from Bloomsburg, PA on March 9, 2020:
Wow, Denise! I never would have thought that a pastor would not consider himself a self-employed person either. It would be a rude awakening. Especially since he was working for a church. Thanks for sharing!
Denise mcgill from Fresno CA on March 08, 2020:
A lot of things became a rude awakening for me when I became self-employed, including taxes. What I didn’t expect was that when my husband became a pastor, he would be considered a self-employed person even though he worked for a church. He had to provide his own insurance and pay the social security taxes himself. That didn’t seem right.
Linda Courtney (author) from Bloomsburg, PA on February 29, 2020:
Raymond Philippe, I have also dabbled in part-time self-employment. However, I do agree that if I were younger these days I could make the leap full time too, as with the internet, there is so much access to the world and everything.
Raymond Philippe from the Netherlands on February 28, 2020:
I enjoyed reading your thoughts on self-employment. There is sure to be a lot to consider. I never took the step towards self-employment. However, I did a few things on the sidelines. I think if I was young at this time, I could have made the leap.