How could You become Self-Employed?

Financial Autonomy - Blog
How could You become Self-Employed?

I became self-employed in 2005. It was one of the most important decisions of my life, coming behind only to teaming up with my wife and starting a family.

Are you ready to make the same move? Are you ready to become self-employed? If so, read on because I’ll be covering all the key considerations you need to plan for, to make your move a successful one.

I’ve identified 12 items that are essential for you to consider when planning your move to self-employment, and we’ll be diving into each. Those key 12 items are:

1. Clarity on your Why
2. Conduct a Personal Inventory
3. What Problem will your Solve?
4. Side Hustle approach
5. Contracting options
6. Legals/Business structure
7. Money Essentials
8. Protecting the Downside
9. Different Hats
10. Pricing
11. Key Traits for Success
12. Business Success hierarchy

By ensuring you have all 12 items covered you can successfully become self-employed.

I’ve got a tonne to share with you, accumulated through my experience over 15 years, and that of many others that I’ve worked with or known. I started at zero and today my business has revenue in the high six figures, I have 3 staff, and am able to spend my time doing work I love, such as writing articles like this to help more people enjoy the benefits available through self-employment.

Let’s dive into the detail and work towards bringing you the success you deserve.

1. Clarity on your Why

Having clarity as to what success looks like at the outset, is the key to success in almost any endeavour.

Why do you want to become self-employed?

Flexibility of working hours is a common driver. Perhaps you’ve got a family to juggle, or other calls on your time, and the standard 9-5 just isn’t working for you.

Your self-employment driver could be around earnings. Perhaps earning more, or earning the same in less hours. In his book Company of One, Paul Jarvis describes how a friend identifies how much income he needs to earn each year, and once he hits that goal, he takes the rest of the year off and surfs.

Your why could be job satisfaction or having control. You wouldn’t be the first to find yourself working under an inefficient or out-dated manager, where you can see quite clearly ways things could be done better.

Or maybe you’re just in a role that is sucking the life out of you, with every morning alarm requiring 7 slaps of the snooze button before you can finally face the reality of another day.

Being clear on why you want to become self-employed creates your personal north bearing. As you develop your strategy to make a successful transition to self-employment, it’s helpful to regularly refer back to your why, and ensure the decisions and plans that you are making propel you towards your desired destination.

2. Conduct a Personal Inventory

For you to succeed in becoming self-employed, you need to deliver something others are prepared to pay for. The next step in your journey is to undertake a frank and honest assessment of what skills you have that are in demand and marketable.

List down all the skills you have built up in your working life thus far. If you have a trusted work colleague, it might be helpful to ask them what they think your key skills are. Performance reviews might provide some ideas too.

Next do some research for what skills are in demand. Look at jobs sites like Seek, check out government resources like Job Outlook, and talk to recruiters in your chosen industry.

Don’t be limited by your existing skills though. Next consider your interests. Perhaps your existing skills are in the health care space, but what you’re really interested in graphic design.

The intersection of your existing skills and your current interests can be a great spot to find your self-employment opportunity.

In this example, a person with a healthcare background and an interest in graphic design might be in high demand to create educational diagrams for hospitals, promotional material for pharmaceutical companies, or web site graphics for a government health department.

The world is full of surprising niches where viable businesses thrive. I heard an example recently of someone who developed software to help stone kitchen bench top installers get their orders correct. Granite bench tops are expensive, and once they are cut, they can’t be resized. Errors in the measurement and ordering process are costly. But it took someone who had worked for a company installing bench-tops, and who also enjoyed software creation, to build a solution for this very specific niche that was invisible to almost everyone.

So what are your skills and interests?

3. What Problem will you Solve?

You can have all the clever marketing, celebrity endorsements on Instagram, and super cool logo you want. Unless you solve a real problem for people, you won’t have a successful business.

I’m often pitched new services. Recently a software provider we use in our financial planning business presented a new tool they had created. It was clever, and the visuals looked stunning. But I wasn’t a buyer because it wasn’t solving a problem that I had. I had no use for what they had built.

As you create your plan to transition to self-employment don’t become wrapped up in an idea you absolutely love, without establishing that it solves a problem people are actually willing to pay for.

Think of it like this Venn diagram:

Ensuring your planned self-employment route solves a problem people are willing to pay to solve feeds into our next item – the Side Hustle approach.

4. Side Hustle approach

Making a snap decision to quit your current job and become self-employed is rarely wise. As a minimum you want to be doing all your planning whilst you still have a regular income dropping into your bank account. But you may be able to go further.

If your planned new endeavour doesn’t compete with or put you in conflict with your current role, then you may be able to apply a Side Hustle approach to your transition to self-employment.

Side Hustle’s are small scale entrepreneurial experiments. Perhaps you do work for a few friends to gain experience and some good testimonials. Maybe you try your hand at Facebook advertising to learn how that works. Or you set up a store on a platform like Etsy to learn what sells and what doesn’t.

A Side Hustle approach can be used in all sorts of ways to help you successfully make the transition to self-employment. This approach is a key way to de-risk your move. It could be that you try your self-employment idea as a Side Hustle and discover you actually don’t like doing the work, or that as much as you love your idea, nobody else does. Much better to learn these things early and with as little dollars as possible expended.

If you’ve been made redundant due to COVID, a Side Hustle approach could still be a prudent way to test your business idea without putting too much at risk financially.

Check out How to Start a Side Hustle in Australia. You might also find our 1 Page Side Hustle Business Plan template helpful, which can be downloaded for free here.

5. Contracting options

Many people make the move to becoming self-employed through being a one-person contractor. There are two ways this can unfold.

The most common is contracting back to your previous employer. Last week I was working with someone who writes technical material in the medical field. When she decided she wanted more flexibility in her life and to make a few changes, she approached her employer about the possibility of resigning as an employee, and instead contracting back to them on a project by project basis. They were agreeable and she was able to make her self-employment move with almost no financial down time.

It’s worth noting that from a tax point of view, to be classed as self-employed you need to do work for multiple customers. This also makes sense from a business perspective too as it spreads your risk by not being too reliant on a single customer for all of your work.

The other way you can apply a contracting approach to a move to self-employment, is through doing work for customers of your current employer. Now obviously this is fraught with conflict, so tread carefully here. But it can work.

A friend of mine is a fire engineer. He used to work for a global engineering firm that handled large and complex projects. When he shifted to working as a self-employed contractor, he was able to get the word out that he was available, and he picked up jobs from customers of his old employer where there need was too small for the large engineering firm.

I’ve also seen this playout where a business decides it no longer wants to operate in a particular market. For instance, a marketing firm that decides they no longer want to offer podcast marketing services. The key person in the business that was delivering that services decides to start their own business and offers their services to the previous customers, with the former employers blessing given they’ve chosen to exit the space.

6. Legals/Business structure

When becoming self-employed there are rules and regulations you need to conform with. These ensure you don’t become liable for any fines or penalties, enable you to make a contribution to the society in which you live, and importantly, protect you.

Here in Australia registering for GST is an important consideration. This is typically not required where your turnover is under $75,000 per year, though sometimes there can be advantages to registering anyway.

You will need to get an ABN. Any invoice you issue needs to show it, and you won’t be able to open a business bank account without one.

There may also be value in you operating through a company structure rather than in your personal name. This can help protect your personal assets, such as your home, from business failure.

Given these various issues, the services of a good accountant will be important for you in successfully becoming self-employed, as an accountant can guide you through the essentials, and the options you have available. Ask amongst your friends for a referral, and if you don’t gel with the first accountant you meet with, move onto another.

7. Money Essentials

When planning your move to self-employment, I suggest you break down your money elements into two key plans – your Capital Strategy and your Survival Strategy.

We explore these in detail in Entreprenuer You, but in a nut shell:

Capital Strategy – what funds do you need to open your doors? Equipment, fit outs, computers, website and so on.

This is very dependent on the type of business you are starting. A one person contracting business might only require a laptop. A retail shop will need stock, display units, and money for a lease. And a manufacturing business might need funds for raw materials, machinery and installation.

Survival Strategy – how will you maintain a roof over your head and food on the table whilst your business gets going? This is sometimes referred to as your runway.

In many businesses you complete the work – say designing a brochure – then issue your invoice. That invoice is paid 30 days later. This means that initially you have a period of no income.

There’s also the reality that in starting a new business, it takes time to gain customers. So even if you’re in a business where the income immediately follows the sale, it’s still likely you will need to map out a Survival Strategy to see you through until you build some momentum.

You will also need a book-keeping and invoicing system. XERO and MYOB are popular options. Speak to your accountant and see what they recommend. They will be able to help you with the set-up, and be a resource when you get a tricky problem with the software that you don’t know how to solve (something I seem to manage to do about once a month!).

By maintaining your book-keeping up to date, you can monitor your profitability on at least a monthly basis. That’s important because it ensures you make good business decisions on things like pricing and capital expenditure.

8. Protecting the Downside

Life is uncertain. To some extent, that uncertainty is magnified once you are self-employed. No longer will you receive a fixed amount into your bank account every two weeks. Work volumes ebb and flow. And at least whilst you are a solo-preneur, there’s not much of a safety net if you suffered a serious illness or injury.

In planning your move to self-employment then, you need to consider how you can mitigate these risks. The starting point is insurance.

Income Protection, Business Expense, Trauma, and even Life insurance can provide you with a financial safety-net to protect you and your family from the potential downsides of ill health or injury.

Public liability cover protects you in the event someone trips and hurts themselves on your business premises. And Professional Indemnity provides protection in the event of a professional oversight.

With the insurances ticked off, next it’s about holding a cash buffer. Revenue from your business goes into an account where you hold a cash float. The amount depends on the needs of your business, but it’s likely to range from $10,000 to $50,000. From this account you can draw yourself a regular income, thereby reducing one source of worry and variability.

You cash buffer acts as a cushion to get you through the quiet times, and ensure you have cash available when taxes and other costs need to be paid.

You may in addition want to have an overdraft facility in place to provide some extra cash resources. The cost of borrowing money through an overdraft can be high, so you want to ensure you are not constantly drawing into this. Rather it’s just there to get you through a particular cash flow issue, often associated with seasonality within your business.

9. Different Hats

Michael Gerber, in his great book on business systems E-Myth – why most small business don’t work and what to do about it, observed that the key to success as a business owner wasn’t being good at the key thing your business provides – that was a given. The key to success was being good at all the other things that go into a business succeeding.

For instance, if you are an electrical engineer and decide to leave your employer of 10 years and become a consultant, it’s a given that you are good, probably even above average, at doing electrical engineering stuff. But being a great electrical engineer won’t guarantee you success. What you need in addition is a solution for marketing, financial controls, book-keeping, IT, insurances, compliance, on-going education, debt collecting, strategic planning, etc. etc.

Thus the importance of recognising the need to wear different hats, and consideration for which hats you will wear, and which you will outsource.

Wearing different hats can provide a great new strand to your working life. When I made the move to self-employment, I knew I had the skills necessary to provide high quality financial planning advice. The financial controller and budget pieces of running a business came pretty easy. But what I found really engaging and challenging was the marketing. You could be the best in the world at a particular thing, but unless people know you exist, your business will not survive. (That’s why in the Entrepreneur You program one entire module is devoted to Marketing, it’s so important to your success).

So I read books, listened to podcast, spoke to people, did online courses, and engaged a coach to try and get better and better at marketing. The podcast, blog, Gaining Choice email, and Financial Autonomy book are all the output of this work. But as the cliché goes, the more you learn the more you realise you don’t know. I’ve tried my hand at Facebook and Google advertising with virtually no success, so I’ve engaged a specialist in that area who’s currently working hard on a strategy to get the Financial Autonomy book in front of more people.

I’ve also found that a little help on the book-keeping is money well spent. The accounting software tools makes things pretty easy these days. But there are always a few manual adjustments needed, and I’d rather just hand that over to someone else to attend to.

So when thinking through how you can become self-employed, think about all the things that need doing outside the core service or product you will deliver. Then decide which of those tasks you will take on, and which you’ll pay others to do.

10. Pricing

One of the main reasons people fail when staring their own business is under-charging. It normally stems from a little self-doubt, which is not at all unreasonable when starting out. But here’s how it unfolds.

The first sale you get is a bit of a favour, so you charge perhaps a quarter of what it’s really worth. That’s okay though because you get some good experience, gain confidence, and maybe get a testimonial or review.

Then you go around you others in your network searching for business, and to secure that business, you feel you need to offer your services at a bargain rate. You want everybody to like you after all and you don’t want to feel like you’re ripping anybody off.

That works, you get some work in the door and before long you get busy. In fact really busy, and one day, when your bank balance is looking a bit lean you calculate your hourly rate and realise you’ve been working for $10 an hour!

But putting prices up is tough. Difficult conversations ensue. You get some increased pricing, but it’s a struggle. 6 months in, you’re questioning why you ever left you’re regular fortnightly pay packet. You’re constrained through lack of funds from engaging in any effective marketing for new clients, investing in equipment, or building your team. There’s a good chance that you business never reaches its first birthday.

There are various ways to determine your prices, but what not to do is have as your central strategy that you will win business through being the cheapest. Find a point of difference other than price, and set your prices at the highest point you possibly can whilst still getting sales. Red Bull, one of the most successful businesses to rise up in recent years, sells cans of flavoured water for $4 per can – considerably more than the established Coke and friends. It didn’t win sales by being cheap. It set a high price, then used the revenue to invest in marketing. (A can of Red Bull costs about 9 cents to produce).

As you plan your self-employment move, think like Red Bull.

11. Key Traits for Success

Not everyone is suited to being self-employed. So let’s talk about the key traits needed for you to succeed in your entrepreneurial pursuit.

I think the most important trait is being self-motivated.

No one will berate you if you sleep-in.

No one will raise an eyebrow when you watch Dude Perfect videos on Youtube all afternoon.

But you won’t make any money.

Maybe you feel that you’re not very self-motivated right now. But is that just because you’re not particularly engaged in the work you are doing? Reflect on whether you possess self-motivation when doing something you’ve chosen to do. Perhaps a sporting challenge for instance. Were you able to maintain that self-motivation over a sustained period? Or maybe when you had a project at work that you found interesting and challenging. Could you sustain your drive and get the job done?
Running parallel to self-motivation is time management. Now this is a skill you can work on and improve, so if you’re not currently a ninja in time management don’t stress too much, but do think about how you can improve.

Decisiveness is another essential trait to succeeding in self-employment. You need to be able to make decisions. And whilst not all decisions need to be made instantly, plenty do. Analysis paralysis is a legitimate potential failure point.

In almost all self-employment endeavours, you need to be comfortable talking to people. You need to win business. This is perhaps obvious in a retail store, but if you’re a plumber or a graphic designer looking to go out on your own, maybe your comfort zone is head down, bum up, get the work done.

Recognise that your interpersonal skills will decide whether you get one job from a customer, or orders every week. For the plumber it will determine whether your fridge magnet stays on the fridge and is the first number called next time there’s a problem, or whether you’re forgotten, and therefore forever chasing new work, always having to quote low to try and beat out the competition.

Your personal contact and care can also lead to referrals and recommendations, enormously valuable to the success of your business.

Handling uncertainty is the final trait I’d like to flag. As an employee, you have the benefit of knowing a set amount will land in your bank account on a regular basis. But when you make the move to self-employment, that certainty evaporates. Now most successful self-employed people do in fact still pay themselves a regular wage out of their business. But to do that your business needs a bank account with a sufficient buffer to weather the ups and downs. Some people find these ups and downs stressful and worrying. If you think that would be you, plan strategies to alleviate it. You could offer your services on a subscription or retainer basis so you have greater predictability of your cash flow. Or you could hold a significant cash buffer in your business account to give you plenty of comfort. Maybe both.

12. Business Success hierarchy

In my Financial Autonomy book I share a business success hierarchy diagram (see below). At the base is Cash Flow. Your self-employment adventure will come crashing down very quickly if you don’t have regular and sufficient cash coming in.

With that foundation piece ticked off, we move up to having cash reserves. These are what enable you to survive the normal challenges that get thrown at all business owners – the current COVID experience being an extreme example. Cash reserves are about resiliency, and they apply to your personal finances just as much as your business’s.

With cash reserves nailed down, we move up to your support network. Being self-employed can be lonely. You need a network of people who can help you succeed. From accountants and book-keepers, to others in your field, to mentors, a robust support network is an important ingredient to success.

Next comes reliable profitability. Can you wake up on January 1 and lie comfortably in bed knowing that barring some especially extreme event, your business will be profitable in the year ahead? Reaching this point is important because it enables you to grow. You can hire staff, lease premises, or invest in equipment.

And at the top of the business success hierarchy is scalability. How can the business build and grow beyond you. Many books and podcasts focus a lot on scalability. My observation is that often businesses focus on this too early. Scalability is at the top of pyramid for a reason – it should only be pursued once the other steps have been achieved.

Self-employment isn’t right for everyone. And it isn’t the only way to achieve Financial Autonomy either. But it is one of the proven pathways to gaining choice in life, and one that is attainable for many with good planning and execution.

 

If making the move to self-employment is something you are serious about, it’s likely my Entrepreneur You – transition to self-employment without going broke program would be of immense value to you. Learn more here.

 

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