Linda has a B.S. in Accounting and Business and has always been interested in budgeting and personal finance and entrepreneurship.
Many people would like to be self-employed but are not sure what is involved and if they are capable. As a business owner, you will have to put on many hats and possibly hire employees or subcontractors to help. Are you ready for this endeavor? Do you have money set aside to get the business started? This article contains some of the things you must consider if you want to work for yourself.
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 on getting off the ground? Research how competitive the market is in your business line and how you will bring your business out ahead of the competition. How hard will it be to gain customers? How do you plan on marketing? What kind of equipment will you need to run your business? Will you have to take out a loan? If so, you will need a formal business plan written up to present the loan officers. Also, think about how you will structure your business. The choices 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. Much goes into starting a business and getting it off the ground initially. Do you have the motivation and courage to pull it off?
Look Into the Taxes Involved When you are Self-Employed
Payroll taxes differ as a self-employed person. You will no longer have your employer paying half the Social Security tax. You will be the employer and employee and must pay it all. You will have to do the filing regularly. Federal and state taxes need filing too. Some localities have a local tax. Do you have any bookkeeping or accounting experience? If not, you will have to hire someone, which is an extra expense. Tax rates can frequently change, so you will need to keep abreast of these changes. You may have to collect and pay sales taxes too. Research the taxes that need to 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 individual, you may want to start working from your home. The costs will be significantly lower, and you may get a tax break if you set aside a specific room just for business. Do you have a place or area that would work for your needs? Will it be quiet and free of distractions? Make sure the area will hold everything you will need to run your business. You could need computer equipment, desk, filing cabinets, bookcases, printer, and more. If you plan on selling goods and keeping an inventory, you may need more than one room. Think about 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 out Your own Health Insurance Plan
When you are no longer working for another company, you will have to provide health insurance for yourself and your family. These plans can be particularly pricey, depending on your age and number of dependents. You can investigate 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 subsidy from the government. However, if you tell them a lesser amount of income than you earn, you could owe considerably more come tax time. You can join a self-employment organization, and you might be able to get a group rate through them. Look into the NASE (National Association for the Self-Employed) for further info on that. Health insurance is essential. Can you afford it on your own?
Consider Business Insurance Depending on the Type of Business
Even if you are running your business out of your home, you should consider business insurance. Homeowner's insurance will not cover equipment and merchandise that you use solely for your business. You should look at liability insurance as you are liable if a client injures himself on your property. You should also get insurance to protect your company from data breaches if you have an online business. Customers could sue you for a variety of reasons depending on your business. Without this insurance, you will be liable for damages. Your insurance agent could help you decide the best insurance policies for your type of business. Proper insurance is another cost to consider.
Saving for Retirement
Retirement may be a long way off or not so far in the distance. You should still consider it. Your funds may be tight when beginning a new business, but you should still think about how you will save for retirement. Several options are available for the self-employed individual. Conventional IRAs and Roth IRAs, as well as solo 401Ks or simplified employee pension accounts, are available for 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 be a business owner, they aren't exactly sure if being self-employed is right for them. Owning your own business is not easy. Risks are involved, and getting started can take time and money. After looking over the information above, you will be able to decide if self-employment is the right choice for you.
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Christina on April 20, 2020:
Thank you for that valuable information. I appreciate it a lot
Linda Courtney (author) from Bloomsburg, PA on March 09, 2020:
Wow Denise! I never would have thought a pastor would be considered self-employed either. That 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:
Many 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 was considered self-employed even though he was working for a church. He had to provide his own insurance and pay social security taxes himself. That didn't seem right.
Linda Courtney (author) from Bloomsburg, PA on February 29, 2020:
Raymond Philippe, I have only dabbled part-time too with self-employment. I agree though that if I were younger these days I might take the leap to 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 views on self-employment. There sure is a lot to consider. I never took the step to full self-employment myself. Did some things on the side though. I do think that if I was young in this day and age I might have tale the leap.