Increasingly, people are choosing a life beyond traditional employment. There is flexibility and freedom for the self-employed, but also a very different set of needs than when working a 9-to-5 job.
What do you need to be successful as a self-employed professional? Here are 8 business tips for the self-employed.
1. Plan for a different lifestyle
No matter how you work as a self-employed professional, life will be different. You will be your boss. However, you’ll also need to closely manage your time, work-life balance, schedule, payroll taxes, and other essential factors.
You may need to adjust your financials to account for lack of reliable, steady income. You still want to pay bills and account for your priorities, and you need to recognize that life will be different.
Self-employed business people need to factor in their income, vacation time, work priorities, and equipment required for success. They also need to consider retirement planning and whether alternative investments are a good option.
2. Plan for your future
If you’re working for a company or nonprofit organization, you typically can invest in a 401(k) or 403(b) retirement plan.
As a self-employed professional, you still have options, such as alternative investments, to help with your retirement planning.
The solo 401(k) helps self-employed people with investment options. If you qualify for a solo 401(k) you can contribute up to $61,000 annually, and if you’re over 50, you can contribute even more.
A solo 401(k) allows you to borrow money from yourself, leverage tax advantages, and enjoy greater savings. With a solo 401(k), you can invest in all the traditional investment options, including equities and certificates of deposit.
You can also invest in alternative investments not available through other retirement plans. Investors can opt to diversify their portfolios with options not commonly available elsewhere. These options include real estate, cryptocurrency, commodities, hedge funds, private debt, and private equity.
3. Budget and consider cash flow
Keeping your finances in order is critical for self-employed success. Create a budget that tracks your business expenses and projected revenue. Those measures can help you determine if your cash flow is adequate to support yourself.
Using apps to manage your budget and invoicing can assist in tracking your finances. Also, consider using a separate business account for your banking not to commingle personal and professional assets.
Be sure to vary your client base so all of your income is not reliant on one customer. Also, make sure to bill your services in installments so that cash flow is more predictable. Consider asking for a deposit up-front, especially for long-term jobs.
4. Understand tax obligations
As a freelancer, you are solely responsible for taxes typically withheld from your paychecks. You do not want to be surprised in April with a massively large tax bill you have not planned for.
If you earn more than $400, either self-employed or side hustle, you will need to file a return.
As a rule, reserve 25 percent to 30 percent of your earnings for taxes. You will need to pay a self-employment tax, which substitutes Social Security and Medicare taxes withheld. Employers usually cover half of this amount. As a self-employed person, you will need to cover the total amount.
You will also need to pay income taxes on your net income, and that calculation takes your gross revenue and deducts business expenses.
You will also need to pay your taxes in quarterly installments. At first, this can be a difficult concept and process, and producing quarterly helps you avoid penalties for late payments if you choose to pay annually.
5. Build a business plan
Building a business plan helps you articulate your business, what it hopes to achieve and what it does.
Creating a business plan is a rigorous process that gives you clarity about what you do and why. The components of a business plan include market research, marketing strategy, revenue projections, financial modeling, and projections. In addition, a sound business plan provides growth projections and metrics to use to measure success.
6. Act like you’re at the office
You wouldn’t show up to the office, not showered, wearing pajamas. You would not try to send emails while making lunch and walking the dog.
When you’re self-employed, you want to keep your approach and workspace as close to the office as possible. To produce good work, consider setting a routine and a professional standard for yourself. Get adequately dressed, start work on time, keep your space organized and keep work separate from life.
That said, be kind to yourself, too. Be sure you don’t fall into a panic that you need to work all the time. Instead, be sure you finish work at a decent time, take holidays and vacation, and recharge.
7. Continue to network
Without a built-in office network to draw on, it can be challenging to find professional connections. Look to join professional organizations in your industry or become a part of local business groups. Your local Chamber of Commerce or Rotary Club can provide valued connections and business prospects to enhance your work.
It’s essential to maintain your network, on LinkedIn, in person, and through new business. Your network can be invaluable in finding new work, new clients, and new opportunities.
8. Prioritize marketing
Whether you are a freelancer or have your own business, marketing matters; creating a marketing plan helps you expand your reach and attract new business. At first, you may only need a few clients or gigs to be successful. However, as your business grows, a solid marketing plan helps expand and reach new customers.
Consider how to best market your business. If it’s local, that means TV and radio ads. You may need an email marketing strategy, ads in industry publications, and conference sponsorships if your business is national.
No matter what path you choose as a self-employed professional, having well-thought-out plans can help you thrive.
