Being your own boss certainly has its ups, but you also need to prepare for the downs. If you know what to expect, you’ll be better off once you go out on your own.
You’ve been freelancing on the side to supplement your income. And recently, you’ve really been giving some thought to making freelancing your full-time gig. You’ve got a nice collection of clients and a fairly solid idea of how the whole thing works. You’re ready to get out of the rat race and be your own boss.
You have a lot to think about before taking the leap. If you haven’t considered all the factors that go into breaking out on your own, take a look at what you can expect. Use this as a guide to see if you have what it takes to become your own full-time small business owner.
1. Budget for an inconsistent income every single month
One of the most obvious factors to consider is your budget. Do you have enough money to actually pull this off, or will you be starving after your first few months? If it’s the latter, you may want to wait a little bit longer. Save up before severing ties with your solid income source.
If you do have some money saved up, consider if it’s enough to really float you if you get stiffed. You may have encountered this unpleasant reality of freelancing before, but if a client decides they don’t want to pay for whatever reason, the consequences will be more serious. Before you had your steady W-2 income to fall back on; now every second you’re not paid means you don’t get to eat.
Even if everything goes right and everyone pays, you still need to consider taxes. Since you don’t have an employer, you have to pay your own taxes—including extra to cover the self-employment tax. Quarterly estimated taxes will become your life. Every few months, you will have to pay up to the government. These payments are higher than taxes you paid as a salaried or hourly worker when your employer threw in to help you.
Take the following budgetary actions before taking the leap:
- Make sure you have enough savings to pay your necessary expenses for at least six months.
- Cut back on unnecessary expenses and stick to your budget.
- Understand self-employment taxes and plan to set aside enough to pay your quarterly estimated taxes.
2. Set your business goals and stick to them
Why do you really want to get into full-time freelancing? There are a thousand reasons why you might be interested in making this leap, and everyone has a different motivation. It’s just important that your reasons are true to your vision. If you don’t have a solid reason and strong goals for your business, you may be in trouble.
Everybody needs an end point and something to aim for as they perform day-to-day tasks. It could be to retire early, to spend more time with family or just to stay out of the rat race. The important thing is to keep your ultimate goal in mind. If you forget, you may end up betraying your business.
For example, if the vision you have for your business is to stay independent, selling it off to a larger company probably won’t make you happy. Once that money gets waved underneath your nose, though, it’s a difficult thing to keep in mind.
Take the following business goal actions before taking the leap:
- While this decision is ultimately up to you, speak with key players in your life. Your spouse and kids may have totally different ideas about the future than you do.
- Get it down on paper. A business planning app like Enloop helps you write your exit strategy—and the rest of your business plan, too.
3. Prepare for the psychological challenges of going solo
Now for the real true test of the freelancer and independent business owner: loneliness and motivation. With a few exceptions, this isn’t a role for someone who craves constant attention and human interaction. Sure, you may talk to people online or on the phone occasionally, but those events are few and far between. Most of the time you’re at your desk, kitchen table or comfy chair staring at your computer.
All this alone time means you have to keep yourself motivated. There’s no “Bob in Accounts” to compete with and nobody to bump into at the water cooler. If you’re not constantly checking where you’re at on your assignments, you can easily get behind. If you get behind, you risk going over your time limit and making a client mad. When this happens, you risk losing money, which means…that’s right, you don’t pay your bills this month.
Other questions to ask yourself: Who do you turn to when you have a problem? What happens if a client suddenly says they don’t feel like paying you as much as you quoted them? (Free tip: make sure to get a contract!) Unfortunately, there’s nobody to turn to in these scenarios. You can seek advice from other business owners, but you’re the only one to make executive decisions. It’s your company, and you have to defend it!
Take the following actions to prepare yourself psychologically before taking the leap:
- Schedule play dates. Seriously. Schedule a time to work from a coffee shop or coworking space. Make several lunch dates with colleagues (or better yet, potential clients). Sign yourself up to a networking group or two. Many full-time freelancers report being surprised by their sense of isolation. Don’t let that happen to you.
- Trick yourself. Allot yourself 15 minutes to work nonstop on that task you’ve been putting off. An advanced version of this trick: don’t allow yourself to brush your teeth or shower until the task is done. For whatever reason, the motivation of getting to refresh yourself after finishing up an unpleasant tasks usually works. So does changing your socks when you’re feeling stressed! Little psychological tricks can go a long way to keeping you motivated and on track.
Think you can handle all this? If this all seems like a piece of cake and you’re not worried about a few hunger pangs when you start out, then you may have what it takes to be a successful small business owner. If you’re even a little unsure, do some more client-building and wealth-amassing before taking the plunge.
Jennifer Dunn is the blog editor for WePay, the easiest way to accept credit cards online.