Author Topic: Making the jump to self-employment  (Read 3196 times)

Sassy

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Making the jump to self-employment
« on: September 10, 2015, 12:58:53 PM »
Hello all,
I will start this by saying a hate my current job and would more than anything like to self-employed but I am also a planner and I just can't bring myself to give up the security that this regular permanent job provides, mostly out of fear.

So those who did start their own businesses, did you save up money to start, just go for it, was it a quality of life thing, how was the transition/build up period.


BlueHouse

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Re: Making the jump to self-employment
« Reply #1 on: September 10, 2015, 04:56:09 PM »
I had a client lined up.  I knew exactly how much money I would make during my first month of self-employment, but I didn't know how long it would last.  So I viewed it as an opportunity to make significantly more money for a few months.  After that, I figured I'd go out an find another job.  6 years later and I haven't needed to find another job yet.  To me, this was very low risk.  I had never considered going out on my own before the opportunity presented itself to me. 

ShortInSeattle

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Re: Making the jump to self-employment
« Reply #2 on: September 11, 2015, 09:36:54 AM »
I used my PTO payout from my job as startup capital. DH paid our household bills while I got established. It took 3.5 years to go from zero to exceeding my previous income. My first year I made very little. A lot depends on your industry, existing contacts, and barriers to entry.

For most people I'd advise dropping to a PT job and building your business on a half-time basis unless you have a lot of savings or a financially supporting SO.

Good luck.

SIS

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Re: Making the jump to self-employment
« Reply #3 on: September 11, 2015, 10:02:48 AM »
What kind of job do you have now, and what kind of business will you start? If you switch careers, I would take it one step at a time and just find another job in your desired field. Also, is it really "being employed" that you hate, or just your company. Think what exactly you want to get rid of in your current job. Especially if you're going to stick with the field. Being self employed, but still needing the money, just makes your customers your boss, so it's not like you get all this freedom all of a sudden. In fact, if you have no safety net, you're even more at your customer's mercy. At least your boss won't dare to cut or delay payment because he feels your work was not what he expected.


My experience is, it can be good money if you are in demand, but you can't plan anything like a vacation, at least in the beginning, as you probably won't dare to let go of any opportunity. And you need to be good at networking, financial planning and negotiating as you essentially become a manager.

joeh

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Re: Making the jump to self-employment
« Reply #4 on: September 11, 2015, 11:23:33 AM »
I am making this transition right now and am doing it in a low-risk way. As many others have done, I started by doing freelance work outside of my normal working hours (10-20hrs of freelance work some weekends). I saved all of this money for my eventual self-employment (on top of what I was already saving from work). This also helped me build a reputation and client base.

Are you in an industry where you can do freelance work or even a related industry? My freelance was building WordPress websites, which I hate doing. I am now transitioning to other types of development & consulting. But it helped me build up some of the self-employment skills I needed.

The next move I made was to switch my full-time w2 job to a 1099 job. This gave me more flexibility in pursuing other clients.

I am still in this transition phase. Ask me in 6 months how it worked out =). But I am loving it so far and have gained a lot of confidence in my work. 

Axecleaver

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Re: Making the jump to self-employment
« Reply #5 on: September 11, 2015, 12:50:46 PM »
Hi Sassy,

I quit a 180k a year job two years ago, with six months of expenses in the bank, to start a consulting company. I did it in order to improve my quality of life (travel less, see my family more) and because I wanted to try to build a successful company again. I had tried this in my 20s and didn't really know enough to do it successfully.

Now I've doubled my income, with minimal travel and a 40 hour work week (down from 60-80 as a FTE). So, it was a great move for me. But the first year was really tough, and if I was awake, I was working.

You say you're a planner - that's great, that will help you out tremendously. Here's the steps I recommend:
1. Know your budget and exactly how much you need per month. Cut it back as much as possible.
2. Save at least six months, ideally 12 months, of expenses. Tune this to your industry, how long will it take you to be self sufficient as an independent? Some businesses need more ramp-up time, some are profitable out of the gate.
3. Have at least one paying customer before you quit.
4. Set a minimum stash that you will allow yourself to get to, before you pull the plug and go back to work for the man. Some clients pay late or never. Net 30 terms are standard for my business, you may be able to get away with better or worse terms. More stash means more insulation from late payments.

In my case, #4 really made the difference between success and failure. At one point in year one, I spent two months without a contract, and I sold my ass off. Due to delays in payment, we were within less than a month of our "go back to work for the man" amount. I really didn't want that to happen, so I worked extra hard to make sure I could keep going. Ultimately, I got a new contract, the old client paid (six months late) and it all worked out.

I also recommend writing a business plan - the score.org website has some great business plan templates that will help you think through your customers, growth plan, marketing, rate setting (1/1000th of annual salary per hour is a good starting point) etc. Make sure to account for health insurance, life insurance or other benefits you want to retain, paying estimated taxes (and the higher self employment tax you'll pay as an independent), liability insurance, and setting up a solo 401k for your new retirement planning.

The other piece of advice I have for you, is that the security of a full time job is an illusion. I've found that independent work is much more secure, because I control whether I have a job or not, instead of some faceless executive I don't know. There is no job security in the modern world except for the marketability of your skills. I appreciate being paid for every hour that I work, instead of endless unpaid weekend work to make up for someone else's mistakes. Once you understand this, it will be tough for you to continue working for the Man.

Good luck and let me know if I can answer any independent startup questions for you.

protostache

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Re: Making the jump to self-employment
« Reply #6 on: September 11, 2015, 03:08:10 PM »
Hi Sassy,

I quit a 180k a year job two years ago, with six months of expenses in the bank, to start a consulting company. I did it in order to improve my quality of life (travel less, see my family more) and because I wanted to try to build a successful company again. I had tried this in my 20s and didn't really know enough to do it successfully.

Now I've doubled my income, with minimal travel and a 40 hour work week (down from 60-80 as a FTE). So, it was a great move for me. But the first year was really tough, and if I was awake, I was working.

You say you're a planner - that's great, that will help you out tremendously. Here's the steps I recommend:
1. Know your budget and exactly how much you need per month. Cut it back as much as possible.
2. Save at least six months, ideally 12 months, of expenses. Tune this to your industry, how long will it take you to be self sufficient as an independent? Some businesses need more ramp-up time, some are profitable out of the gate.
3. Have at least one paying customer before you quit.
4. Set a minimum stash that you will allow yourself to get to, before you pull the plug and go back to work for the man. Some clients pay late or never. Net 30 terms are standard for my business, you may be able to get away with better or worse terms. More stash means more insulation from late payments.

In my case, #4 really made the difference between success and failure. At one point in year one, I spent two months without a contract, and I sold my ass off. Due to delays in payment, we were within less than a month of our "go back to work for the man" amount. I really didn't want that to happen, so I worked extra hard to make sure I could keep going. Ultimately, I got a new contract, the old client paid (six months late) and it all worked out.

I also recommend writing a business plan - the score.org website has some great business plan templates that will help you think through your customers, growth plan, marketing, rate setting (1/1000th of annual salary per hour is a good starting point) etc. Make sure to account for health insurance, life insurance or other benefits you want to retain, paying estimated taxes (and the higher self employment tax you'll pay as an independent), liability insurance, and setting up a solo 401k for your new retirement planning.

The other piece of advice I have for you, is that the security of a full time job is an illusion. I've found that independent work is much more secure, because I control whether I have a job or not, instead of some faceless executive I don't know. There is no job security in the modern world except for the marketability of your skills. I appreciate being paid for every hour that I work, instead of endless unpaid weekend work to make up for someone else's mistakes. Once you understand this, it will be tough for you to continue working for the Man.

Good luck and let me know if I can answer any independent startup questions for you.

I second everything Axecleaver said, with slightly modified numbers. I left my $90k/year software developer job a year ago and am currently on track to book $200k for the year, working about 20-30 hours per week. We had a 5 month personal stash when I started and so far haven't had to dip into it. There were a couple of points where I had to tap the business stash due to poor timing, but things have worked out well otherwise.

I want to emphasize that you should have your personal "job loss" stash as well building a business-level "late payment" stash. Just having those two levels of emergency fund has brought quite a lot of tranquility to our household.

Also, retainer clients are awesome for peace of mind. My main source of income is a pair of retainer clients that pay me on time every month without even needing to be invoiced. I would like to spread that out between more than two because having 80% of my revenue from one client makes it feel more like a job than a consulting gig, but I'm not going to complain too much.

Sassy

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Re: Making the jump to self-employment
« Reply #7 on: September 14, 2015, 02:41:17 PM »
Hello All,
Thanks for taking the time to respond, to answer a few questions, I would be making the jump to something not in my current field, it's more buy and sell (not MLM though).

DH and I talked on the weekend about the possibility of me going down to part time here(if possible, I'm not sure yet I have to talk to my boss) and then using the rest of the time that dd is in daycare to build the business, start up costs are low so no worries there, and then just quitting once the growth is enough.
Right now I am just working on it when dd is in bed at night, as that is the only time I have to do it.

dh did clear and organize a nice work space for me on his last day off though, so I think we are moving forward, however slowly.

Fishindude

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Re: Making the jump to self-employment
« Reply #8 on: September 14, 2015, 03:01:34 PM »
Myself and a couple partners went on the hook with the owner of an existing business and bought it on contract.   Learned a lot in the last 30+ years and am thankful I made that decision every day.  If you really want to build some serious wealth, running your own show is about the only way to go.

Go for it !

Axecleaver

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Re: Making the jump to self-employment
« Reply #9 on: September 15, 2015, 07:54:12 AM »
Sassy, think about managing risk carefully as you build your business. My experience has all been on the services side, so I don't have the risk of holding product that doesn't sell. If you do some research on supply chain management, you can learn a lot about where the risk is in your business model. I didn't learn how to mitigate risks until I was in my 30's; it's not something the 20-year old brain does well. You can get there, but it doesn't feel natural in any way.

Highest risks in product and arbitrage businesses have to do with interruptions in the supply chain and the length of time you hold your finished products. Plan for interruptions in the supply chain and build redundancy to minimize risk. Reduce the time between production and sale to minimize your holding risk.

Let us know how it progresses, I'm interested to hear how it goes for you.

Sassy

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Re: Making the jump to self-employment
« Reply #10 on: September 23, 2015, 10:35:33 AM »
Ok, quick update, I was able to arrange this week to go 80% on my job, so I can use the other day worth of time to be building up business while dd is still in daycare and not clinging on to my ankles, so the first steps of many underway

protostache

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Re: Making the jump to self-employment
« Reply #11 on: September 23, 2015, 01:36:51 PM »
Ok, quick update, I was able to arrange this week to go 80% on my job, so I can use the other day worth of time to be building up business while dd is still in daycare and not clinging on to my ankles, so the first steps of many underway

Yay! Go go go!