I heard someone once say, “When you go into business for yourself, you sleep like a baby. You wake up and cry every three hours!” When you start your own business, it won’t take you long to understand what it is he meant.
This is the second time in my life that I’ve started and maintained my own business. The first time, I opened a property maintenance service providing painting and repair services on commercial and residential properties. I closed up shop after a few years, even though things were going well. I got to a point that I had to hire employees to keep up with the workload. I decided if I was going to put in that much effort, I wanted to create a business doing something I enjoyed doing.
This time around, I’ve launched a business creating custom online training courses for companies in my area. No employees yet; using independent contractors as much as possible when the workload gets unmanageable.
I’ve learned some important lessons that I want to share with those of you in business for yourself, or for those who are about to take that step.
1- Enjoy the work
You’ve got to have some passion, or at least an interest, in the work you do from day to day. If there’s not a natural interest or sense of challenge in what you charge other people for, the income alone won’t be enough to sustain your own business for very long.
2- You need to have enough cash for 60-90 days out
This goes for your own personal expenses, as well as for the operating costs of doing business. I thought I would be all right if I had 30 days worth of expenses (personal and business) covered with the funds in my savings account. I found out otherwise. Part of the problem is that the things I create have a slow sales and development cycle. Another issue is that even though “Net 30 Days” appears on all your invoices, some companies interpret that to mean, “We’ll pay him in the next 2-3 months…maybe!”
A close friend of mind wrote a great book about monitoring cash flow and maintaining a financial “dashboard” for your small business. It’s a great read for us non-financial types who want to run our own businesses.
3- The business needs money
This may seem to be obvious, and like it’s a restatement of the previous point. I will elaborate. You may have heard, “It takes money to make money.” I had heard it too–several times–but now I know it’s absolutely true. You’re going to have several expenses as the result of going into business for yourself that you don’t have on a personal basis. Phone(s), computers, software, licenses, lunches, print work, stamps, and don’t forget, self-employment tax!
So when you’re calculating how much income it would take to be in business for yourself, take your monthly personal budget, multiply it by ~125% (to cover what you will have to pay in self-employment and estimated taxes), add all the other costs required each month for business operations and voila! You will get a general idea of how much monthly income you will need (how much you will have to invoice) to stay afloat. Keep in mind that I am in a professional service business, so my overhead is relatively low. If you’re selling products and need to buy/maintain inventory, these cost are even higher.
As an example, in my previous corporate job, I made $67K (gross) each year. To maintain the standard of living we had before, I now have to gross about $85K per year to pay my business expenses, taxes, health insurance, and personal expenses.
4- It’s not good to work alone
Being self-employed can be very lonely. You may think it’s not lonely if you’re out talking to customers and clients most of the time. I would have thought the same thing, except the relationships you have with paying customers are…well, kind of weird. They’re not like the camaraderie you feel with co-workers. Sub-lease an office from someone, or find someone else who’s self-employed to office-up with. However, when you go into business for yourself, avoid a partnership at all costs.
5- You can’t work effectively from home
I thought I could, initially. And it wasn’t from a lack of self-discipline on my part. Some people may have a hard time working from home because they’d struggle motivating themselves. There’s kind of a psychological “shift” that happens when you leave for work. You change gears and get into a different mode. That shift is a good thing, when you’re in business for yourself. That reinforces the previous point about not working alone. Kids at home (though we love ‘em to bits) don’t understand that dad or mom need to make a “shift” and get into work mode.
6- 25-50% of your time will be uncompensated
There is so much “housekeeping” that has to happen if you’re a do-it-yourselfer. Recording and filing receipts, writing invoices (learning the software you need to do those tasks), returning phone calls, emails, filing taxes, licenses, other paperwork, checking the post office box, etc. etc. etc. The real problem is that you can’t (shouldn’t) bill people for all this time spent. That compresses your available, billable work hours throughout the remainder of the week.
7- No one returns calls or emails on Fridays
I worked in a few large corporations and knew that Fridays were laid back. While it was enjoyable when I was on someone else’s payroll, it’s very frustrating waiting for replies and project approvals as a self-employed person. Fridays have become the “housekeeping” and planning days.
8- No one returns calls or emails on Mondays
They’re recovering from their weekends and trying to reply to all the emails/calls they failed to respond to the previous Friday. Use Mondays to get work done. In addition, don’t even think of making sales calls or visits on Mondays. People will throw things at you. Really.
9- A product model is better than a services model
When you offer some type of service-based business, where you charge for your time, your income is immediately capped. That means you’re limited because of the workable hours in a day only add up to so much. If you can create products, like a great informational course on Learning Higher Paying Skills for example, production can be scaled or automated to produce increasing margins of return for your initial investment. Some people like to call this “passive income,” but that does not mean it’s easy to develop and scale or automate the selling of that product. It’s hard work to get out of work!
10- Being self-employed is having at least three jobs
In my simple, low-overhead services business, I am the project manager, the marketer, the designer & developer, the accountant, and the janitor. If you think that going into business for yourself, is less work than a full time job. You’re wrong. Be prepared for that. When people ask me how it is being in business for myself, I like to say, “Well, not so good. My boss is a jerk and my only employee is a slacker!
To be continued…