I'm tired of working for the man.
April 20, 2005 11:50 AM Subscribe
I'm thinking of going into business for myself and need practical experience-based advice.
I'm starting a small (one part-time employee) interior design/organizational service firm.
I think I have a good plan on getting started initially, but I'm interested to hear how folks' expectations of their small businesses were met, things that they hadn't thought of, and suggestions for avoiding pitfalls.
I'd also appreciate any insight into things like business licenses, tax ID numbers, contractor licensing, health insurance, etc.
I'm starting a small (one part-time employee) interior design/organizational service firm.
I think I have a good plan on getting started initially, but I'm interested to hear how folks' expectations of their small businesses were met, things that they hadn't thought of, and suggestions for avoiding pitfalls.
I'd also appreciate any insight into things like business licenses, tax ID numbers, contractor licensing, health insurance, etc.
Don't undercharge. You may think (for example) that charging $35 per hour means that you're paying yourself roughly $70,000 per year -- that is, you assume 40 hours billable per week, 50 weeks of billing. But (a) you should assume a certain percent of your time is non-billable - sick, legal paperwork, financial paperwork, other administrative work, marketing time, etc. - a conservative estimate would be at least 15% of your time, and it could easily be more, particularly if you don't work on holidays; (b) you have to pay social security (both sides) and other taxes (not counting income taxes) - add 15 to 20% for that; (c) you have to pay for health insurance and should have other insurance as well (dental, disability, life), probably - easily 30% more in costs; and (d) you have expenses not related to your labor (equipment, marketing, office supplies, etc.) - a minimum of 10%; could be much higher.
In short, if you want the equivalent of a $70,000 gross salary (before taxes), you should take the $35 per hour rate and multiply it by a minimum of 1.5, and perhaps as much as 2.0 (so you should essentially charge $50 to $75 per hour, if you were to bill by the hour).
Which is why, when a professional of any type bills you by the hour, it seems so high.
posted by WestCoaster at 1:08 PM on April 20, 2005
In short, if you want the equivalent of a $70,000 gross salary (before taxes), you should take the $35 per hour rate and multiply it by a minimum of 1.5, and perhaps as much as 2.0 (so you should essentially charge $50 to $75 per hour, if you were to bill by the hour).
Which is why, when a professional of any type bills you by the hour, it seems so high.
posted by WestCoaster at 1:08 PM on April 20, 2005
Never, ever comingle money. File expense reports if needed.
Worry about getting clients and earning income, and you can worry about the smaller details later. In other words, don't overthink everything before you start. Just start.
posted by bh at 1:09 PM on April 20, 2005
Worry about getting clients and earning income, and you can worry about the smaller details later. In other words, don't overthink everything before you start. Just start.
posted by bh at 1:09 PM on April 20, 2005
If at all possible, start parttime yourself, while you still have your day job. Build some referrals so that you have an income when you are ready to do this fulltime.
Do some free work for people with large networks / good networking skills who will drop your name or invite you to places where your target market are.
Start doing some advertising and networking now to figure out the best ways to reach your target market, so that you aren't wasting precious advertising dollars when you don't have any other income.
If you are weak in outside sales, consider contracting a good salesperson to help you, maybe even accompany you on calls the first few months.
Ditto the advice on not undercharging. People will value your work if you do. Don't feel guilty for asking for what you are worth.
Make sure you know your industry, then offer people your unsolicited opinion (this bit of advice I gleaned from Barbara Corcoran's book; she began issuing newletters on the state of New York real estate when her firm was still small, to get her name out there. It nearly backfired, but it worked.).
Good luck!
posted by vignettist at 1:46 PM on April 20, 2005
Do some free work for people with large networks / good networking skills who will drop your name or invite you to places where your target market are.
Start doing some advertising and networking now to figure out the best ways to reach your target market, so that you aren't wasting precious advertising dollars when you don't have any other income.
If you are weak in outside sales, consider contracting a good salesperson to help you, maybe even accompany you on calls the first few months.
Ditto the advice on not undercharging. People will value your work if you do. Don't feel guilty for asking for what you are worth.
Make sure you know your industry, then offer people your unsolicited opinion (this bit of advice I gleaned from Barbara Corcoran's book; she began issuing newletters on the state of New York real estate when her firm was still small, to get her name out there. It nearly backfired, but it worked.).
Good luck!
posted by vignettist at 1:46 PM on April 20, 2005
Response by poster: I should have mentioned that I've been doing small amounts of freelance for a couple years, so I understand about rates and networking and sales. I know my target market and how to get clients; I'm concerned with what comes after that.
posted by Specklet at 2:02 PM on April 20, 2005
posted by Specklet at 2:02 PM on April 20, 2005
always do one or more of the following - a credit check, better business bureau, hoovers and other background checks - on a new account before signing them on as a client. Discreetly check for references as well. Build a network and carefully begin listening for names of the good clients and the bad
posted by seawallrunner at 2:14 PM on April 20, 2005
posted by seawallrunner at 2:14 PM on April 20, 2005
Specklet - I started a small business in Portland last year. If you'd like to get together with me for a chat (or we can chat at the next Portland MeFi gathering, May 7th, 5:30, the Lucky Lab on Hawthorne).
But briefly, for thread purposes ...
- Incorporate and get an EIN and an Oregon BIN even if you don't plan on employing people. You're not going to want to jump through paperwork hoops later, and you don't want to have to give out your personal SSN to other corporations for them to do credit checks and tax paperwork.
- I would suggest an S-Corp or an LLC as your incorporation method; do not forget that you must pay yourself a salary. Always make sure you sign things as "Specklet, President, Specklet Interior Design".
- You need to file a few bits of paperwork, but there's a great Oregon Business Guide available via the Secretary of State's website. It's very simple. There's a few technicalities and things you need to keep up with, though, such as Board of Director's Meetings, having multiple shareholders and board of directors members to avoid piercing the corporate veil, and a few other things. The "Rich Dad's Guide to Owning your Own Business" is a very decent book that goes into some detail on the technicalities, but a good laywer will also be able to advise you.
- You will need to keep double-entry books. I personally loathe quickbooks; the only thing it actually makes easy is payroll, and it's not like that's hard to calculate.
- Get a lawyer and a CPA. You might wince at the cost, but it's minor in comparison.
- Don't forget about insurance. You're going to need liability insurance at the very least. It's cheap, talk to your current insurance agent (but don't be afraid to shop around.)
As far as managing your business, you didn't say anything about your plans ... but do keep track of everything on paper or in the computer and not just in your head. If you're going to have contractors or employees, make sure you have written contracts for each of them. (I'm not a personal fan of job descriptions, but they might be helpful.) There are some specific withholding taxes for multnomah county that you'll need to pay attention to (and don't forget about tri-met tax), and you need to report all new non-contractor (Report employees that would get a W-2, don't report contractors that would get a 1099) employees to the Oregon Department of Justice.
Good luck! Again, my email's in the profile if you'd like to get together.
posted by SpecialK at 4:05 PM on April 20, 2005
But briefly, for thread purposes ...
- Incorporate and get an EIN and an Oregon BIN even if you don't plan on employing people. You're not going to want to jump through paperwork hoops later, and you don't want to have to give out your personal SSN to other corporations for them to do credit checks and tax paperwork.
- I would suggest an S-Corp or an LLC as your incorporation method; do not forget that you must pay yourself a salary. Always make sure you sign things as "Specklet, President, Specklet Interior Design".
- You need to file a few bits of paperwork, but there's a great Oregon Business Guide available via the Secretary of State's website. It's very simple. There's a few technicalities and things you need to keep up with, though, such as Board of Director's Meetings, having multiple shareholders and board of directors members to avoid piercing the corporate veil, and a few other things. The "Rich Dad's Guide to Owning your Own Business" is a very decent book that goes into some detail on the technicalities, but a good laywer will also be able to advise you.
- You will need to keep double-entry books. I personally loathe quickbooks; the only thing it actually makes easy is payroll, and it's not like that's hard to calculate.
- Get a lawyer and a CPA. You might wince at the cost, but it's minor in comparison.
- Don't forget about insurance. You're going to need liability insurance at the very least. It's cheap, talk to your current insurance agent (but don't be afraid to shop around.)
As far as managing your business, you didn't say anything about your plans ... but do keep track of everything on paper or in the computer and not just in your head. If you're going to have contractors or employees, make sure you have written contracts for each of them. (I'm not a personal fan of job descriptions, but they might be helpful.) There are some specific withholding taxes for multnomah county that you'll need to pay attention to (and don't forget about tri-met tax), and you need to report all new non-contractor (Report employees that would get a W-2, don't report contractors that would get a 1099) employees to the Oregon Department of Justice.
Good luck! Again, my email's in the profile if you'd like to get together.
posted by SpecialK at 4:05 PM on April 20, 2005
Get used to times with no money coming in and no work to do. You may still make more money per year than before, but it may be up and down. Think differently about money if it comes in big chunks and rarely, rather than every two weeks.
Pay taxes in quarterly payments. You will have to do some work to start figuring out what you should be doing now; tax software calculates your estimated payments based on this year as a starting point (well, they show you this year and ask what you'll do next year); you'll get penalties if you don't prepay.
And even though it is the same tax rate (perhaps) as what you paid before, putting it out in 5 big chunks a year - and it can be BIG chunks - is a totally different way to think about money.
posted by stevil at 4:08 PM on April 20, 2005
Pay taxes in quarterly payments. You will have to do some work to start figuring out what you should be doing now; tax software calculates your estimated payments based on this year as a starting point (well, they show you this year and ask what you'll do next year); you'll get penalties if you don't prepay.
And even though it is the same tax rate (perhaps) as what you paid before, putting it out in 5 big chunks a year - and it can be BIG chunks - is a totally different way to think about money.
posted by stevil at 4:08 PM on April 20, 2005
This thread is closed to new comments.
posted by MattD at 12:25 PM on April 20, 2005