The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
There are outstanding reasons why people are hesitant to start their own businesses. There are obstacles and activities involved in self-employment that you simply don’t have when you have a traditional job.
And yet every year many thousands of people strike out on their own and start their own businesses. It is possible – and you know it is just by the number of people who do it.
The secret is to know exactly what you’re getting into, and more importantly, to have strategies to overcome the obstacles.
Here are the biggest challenges to being your own boss, along with strategies to overcome them.
Creating a Reliable Income
This is probably the single biggest reason why more people don’t attempt self-employment. The regular paycheck that you can take for granted on the job just isn’t there when you start a business. That can not only make life difficult, but it can also lead to a lot of worry, and that won’t help your business either.
If you decide to start your own business, make sure that you have enough money saved up not only to start the business, but also to pay your living expenses for the first few months. You’ll need that at least until you get a regular cash flow going.
It will also help if you have income sources – like clients and customers – lined up before you start your business. One of the best ways to do this is by starting your business as a part-time venture while you still have your full time job.
You can then stair-step your way from full-time employment to full-time self-employment. As the income from your business grows, you can convert your full-time job to a part-time job, and keep that arrangement going until the business justifies being in it on a full-time basis.
A lack of reliable income is probably the single biggest reason why businesses fail. But if you prepare for it, with savings and employment income, you should be able to get over that hurdle.
Being responsible for everything
When you first start a business, there isn’t much income, and you will find yourself in a position of having to do every job that needs to be done. There’s no getting around this, and no easy way to overcome it.
But what you can do is focus your primary energy and time working on the jobs that are most important to the growth of your business. For example, the primary job is almost certainly to generate income. That means you should spend most of your time concentrating on marketing, sales, and filling orders.
That brings up the next challenge…
Unlimited Hours
If it seems that your new business venture requires something that looks like unlimited hours, you’re on the right track. Upstart businesses can easily require 60, 80, even 100 hours per week on your part.
It will be that way until your business has enough income that you can begin hiring others to handle some of the responsibilities. But until that day arrives, you’re going to have to be prepared to put in the time necessary to make your business successful.
Mental preparedness is probably the only strategy, other than having family members help you along the way.
A Lack of Benefits – Especially Health Insurance
This is a serious issue, and not one that is easily overcome. When you work for someone else, important benefits are often provided by the employer. But when you are self-employed you are the employer, and the only benefits you will have will be the ones that you pay for yourself.
One way to handle that is to be on your spouse’s benefits, if he or she has a job that provides them. Another is to hold on to your current job until you are in a position to pay for benefits on your own.
Failing either of those efforts, you will have to choose which benefits are most important to you. For example, you may focus your attention on getting health insurance, and temporarily letting go of setting up a retirement plan.
Paying Your Own Income Taxes
When you work for someone else, they withhold payroll taxes for you. That not only spares you the job of having to do it for yourself, but it often sets you up to receive a tax refund when you file your return.
When you’re self-employed, there is no payroll withholding, and you must pay your own income taxes. You can do this by being prepared to file IRS Form 1040-ES, Estimated Tax for Individuals. This is a form that you file and pay your taxes with on a quarterly basis. It only pays your taxes at the federal level, so you will have to investigate the process if your own state also has an income tax.
Paying income tax estimates requires discipline. Most likely, you will have to allocate a certain percentage of your income to the pay for your estimates. The good news is that you can deduct business expenses from the income before determining your tax liability. This is a fairly complicated process, and one well worth the investment of time and some money consulting with a CPA.
There are all sorts of challenges involved in being your own boss, but if you know what you’re up against and you have a strategy for dealing with each, you can dramatically increase the likelihood of your business being a success.
How about you all? Are you your own boss? What sorts of difficulties have you encountered and how have you handled them?
Share your experiences by commenting below!
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