When you embark on your journey to become an independent contractor, you do a lot of planning. Initially, this planning will focus on choosing the services you will offer, how you will find clients, and where you will conduct your business. These are vital planning steps, but they are largely “front office” responsibilities. Lurking in the background are the “back office” responsibilities which are critical to the success of your business. What is a “back office” and why is it so important? Read on.
What is an Independent Contractor back office?
The “back office” of your business encompasses all of the administrative and support tasks that must be done to effectively run your business. Without an organized and well managed back office, your business may suffer. Back office tasks can be everything from managing records, keeping track of expenses to billing your customers.
While a large corporation has a team of employees who handle back office tasks, independent contractors have to rely on themselves to fulfill these roles. This means that in addition to running your business, you will have to invoice and collect payments from your customers, prepare contracts, manage and pay taxes, find benefits, insure your business, pay your workers (or subcontractors) and ensure that you are compliant with all federal, state and local laws that govern your business.
Managing your Back Office
As a contractor whose income depends on conducting billable work, you do not want to spend all of your time on IC back office tasks.
So what are your options? There are several, and your choice will depend on your business needs, personal preferences and work style.
Hire Help. You can hire administrative and support personnel. For example, you might hire an administrative assistant who can handle invoicing, recordkeeping, paying bills, and maintaining tax records. Depending on your needs, this could be a traditional W2 employee, a 1099 virtual assistant or a seasonal/temporary worker. While this may seem to be an easy solution, hiring help means additional oversight, training, and management on your part. And finding just the right person to take on all of these tasks on your behalf can be difficult.
Do It Yourself. You can always opt to manage the back office tasks on your own. You can employ billing and invoicing tools such as Freshbooks, Pay Simple or Sage One. Your business bank may also have tools for payroll and invoicing. Many invoice tools also allow you to track expenses or you can use tools such as Mint, Xpenditure or Harvest. However, if you are not familiar with these programs, you will have to learn to use them and spend valuable time on data entry instead of on billable work.
Call in the pros. Another option is to work with professionals, such as an attorney, an accountant, and a bookkeeper. An attorney can help you create standard contracts and forms and advise you of state, local and federal regulations that pertain to your business. An accountant can manage your tax filing and payment as well as client invoicing and expense tracking. A bookkeeping service can also manage your business finance needs. Farming out these tasks to professionals in their field can leave your business interests scattered in the hands of several entities and can be expensive. The best possible solution may be to work with one company who understands the needs of independent consultants and provides all of these expert services without breaking the bank.
And what about health insurance? No matter which option you choose, you may still need health insurance. You can find health insurance options on ehealthinsurance.com or healthcare.gov. An insurance broker can also help you find health and business insurances. Check with your homeowner or auto insurance carrier, as they may be able to offer you a discount for an additional policy type. Companies that specialize in providing back office support to independent consultants often offer you the opportunity to participate in their health insurance plans at a reasonable cost. Some even offer 401k plans, which helps in planning for the future.
If you are like many independent consultants, you started your own business to do the work you love, not to become an expert in accounting, human resource, or contractor compliance law. Ignoring the back office will not make it go away. Finding the best way to manage it is one of the smartest moves you will make as a business owner.
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