INCREASING THE CHANCE OF SUCCESS IN SELF-EMPLOYMENT
Self-employment refers to the status of an individual who, rather than accepting a position as an employee of another person or organization, chooses to go into business for him or herself. Self-employment offers individuals a number of advantages, from the freedom to work without supervision to the ability to deduct the costs of doing business for tax purposes. But it also has some potential drawbacks, including uncertain levels of income, long working hours, isolation, and the need to fund one’s own health insurance and retirement plans.
People choose self-employment for a wide variety of reasons. Some desire a change in lifestyle, some are unable to find other employment, some want to work at home in order to care for small children, and some are retirees seeking additional income. Regardless of the underlying motivation, however, there are ways for self-employed persons to overcome the potential drawbacks and increase their chances for success.
Individuals who choose self-employment must be aware of the rules governing the treatment of freelance employees (also known as independent contractors). Classification of someone as an employee or a self-employee is somewhat ambiguous and depends on several factors, including the degree of independence, the freedom to hire others to do the work taken on, the freedom to work for others, and the assumption of risks.
Independent contractors typically accept no fringe benefits. Employees have more statutory rights, benefits, and protections than subcontractors, who must generally provide these for themselves. But independent contractors have advantages in terms of freedom, flexibility, and tax deductions. A 2- part test applies in order to determine whether a certain worker should be classified as an employee or an independent contractor. The main issue underpinning the test is who sets the work rules: employee must follow rules set by their boss, while independent contractors set their on rules.
For example, an individual who sets his own hours, receives payment by the job, and divides his time between work for different employers would probably be classified as an independent contractor. Other criteria involve who provides the tools and materials needed to complete the work. For example, an individual who works at an employer’s facility and use the employer’s equipment would be considered an employee, while one who works at a separate location and provides her own equipment would be classified as an independent contractor.
Finally, an independent contractor usually pays his own expenses of doing business and takes the risk of not receiving payment when the work is not completed in accordance with a contract, while an employee is usually reimbursed for business related expenses by the employer and receives a paycheck whether his work is completed or not.
An individual’s status as a self-employed, independent contractor can be reinforced by having multiple clients, being paid by the amount of work done rather than per hour. Working under a business name also helps reinforce this status. Printing invoices, business cards, and stationery can also help identify someone as a self-employed person. In general, the person must demonstrate that he or she is in business for the purpose for of making a profit.
Increasing the chance of success in self-employment
Self-employment, whether by choice or necessity, does not include any guarantee of success. In fact, nearly two out of every three new businesses fail within five years, but the chances of success can be greatly improved with careful planning, prior savings, and a sound marketing strategy. It may also be helpful to make the transition to fulltime self-employment gradually.
One option is to “moonlight,” or work part-time as a freelancer while maintaining at least part-time employment on the side. Although some employers frown on this arrangement, it can provide an individual with time and money to develop a client base and business plan. Those planning home-based businesses should also take time to prepare family members for the changes that will take place.
Some prospective new business owners also try to establish one stable client relationship that will provide steady income during the search for additional clients. A particularly attractive option may be an individual’s former employer, which will already be familiar with the would-be entrepreneur’s reputation and abilities. For this relationship to succeed, however it is important that the individual use an honest and professional approach when severing ties with their employer. Of course, your employer may not react warmly to such an arrangement if your new business is a potential threat to his own financial fortunes.
Although one stable client relationship can help establish a new business, it is also important that the self-employed person develop a marketing strategy to find new clients and grow. Many new business owners become so busy serving their existing clients that they do not devote sufficient time to marketing. Sending out brochures, networking, and joining professional organizations are a few possible marketing strategies.
Finally, self-employed individuals should take an organized approach to all business activities in order to increase their chances of success. It may be helpful to draw up a business plan when starting and growing a new business. This plan can help a self-employed person evaluate strategies, plan expenditures, and motivate him or herself. It is also important to keep careful records of income and expenses, set aside money for taxes, and insist upon contracts for all works performed.
