Deciding to go independent and start your own business is an exciting transition. It’s a chance to be your own boss, pursue projects you’re passionate about, and control when and where you work. At the same time, there’s bound to be mistakes involved when starting a new business venture. Avoid the growing pains of self-employment by learning about common mistakes and what you can do to avoid them.
Kenneth Schlechter, Founder of Kenneth Michael Consulting gives advice on what was helpful for him to know before going independent:
1. Charging Too Much or Too Little
As an employee, the market more or less puts a price on what you and your time are worth; even if you’ve negotiated, your employer determined your salary. Now that you work for yourself, it’s your responsibility to place a value on your services.
There are a number of factors that go into finding the right bill rate including project scope, competitor’s rates, and desired profit. If you set your bill rate too high, you may price yourself out of competitiveness. If your rate is too low, it will be hard to bring in revenue. Check out MBO’s Bill Rate Calculator to find the rate that’s best for you.
2. Bypassing a Business Plan
It’s important to remember that as an independent professional, you are also a small business owner. Don’t make the mistake of trying to embark on this venture without a roadmap. Running a successful business requires careful planning.
Take the time to create an in-depth business plan that details how you will manage your business and the steps you will to take to achieve your goals. As you launch and establish your business, it can be a good idea to revisit and revise your plan each year—or even quarterly.
3. Not Setting Boundaries
As an independent professional, you have to be willing to dedicate a large amount of time and energy to your clients and to your business. However, setting boundaries and limits is also important, both for yourself and for your clients. While it may be tempting to say yes to whatever clients ask of you, it’s critical to learn to stick to the agreed-upon project contract. Seemingly small requests or additions can quickly add up and lead to scope creep, which can cause missed deadlines, financial losses, and increased timelines and budgets.
Your clients aren’t the only ones who will need firm boundaries; when it comes to your work, you need to set limits with yourself, friends, family, and clients. Maintaining a work-life balance is essential to staying healthy and productive, and to continue to love what you do.
4. Overlooking What Taxes You Owe and When
One of the most common mistakes new independent contractors make is forgetting to consider taxes. Because you no longer receive paychecks from an employer with taxes already deducted, it can be easy to overlook the fact that you are responsible for putting aside enough money to pay taxes on what you have earned.
Independent contractors must pay quarterly estimated tax payments, self-employment tax (SE tax)—both the employer and employee halves of Social Security and Medicare taxes, and income tax. On top of that, there are a number of self-employed tax deductions that you can take advantage of. If you’re unsure where to start when it comes to taxes, check out the IRS websites’ Self-Employed Tax Center, or consult an accountant.
5. Setting Networking Efforts Aside
Many new independent contractors pour a great deal of energy into networking and marketing in order to secure their first clients. However, once that client is secured, their networking efforts come to a halt. While it’s important to give your current clients the focus and attention they deserve, abandoning your networking efforts may mean having to start from square one once your current contract ends. Creating and nurturing contacts, as well as continuing marketing efforts should be an ongoing process in order to keep projects coming in at a steady pace.
There’s a lot to organize, plan, and prepare for when starting out as an independent consultant. While it can be challenging at times to work through the learning curve of running your own business, if you stay confident in your ability to deliver great services to your clients, motivated in knowing that you call the shots, and actively avoid potential pitfalls, you’ll set yourself up for success.
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