How does one support themselves financially while starting to work as an independent consultant?

November 10, 2011 10:03 AM

How does one support themselves financially while starting to work as an independent consultant? How do I make ends meet at first?

I'm finally ready to leave my underpaying and less than satisfying job. For the last two years I have been planning to use my experience working abroad to consult on cross-cultural relations in business. In addition, I have almost a decade working in a dysfunctional family business. I would like to help families improve their businesses as well.

Regardless of whether I'm looking to play in highly specialized, niche markets; how do I support myself at first? I have little savings and my current job is paying me too little to put any real cash in the bank. The job has really burned me out emotionally as well. It's time to go.

I have been building connections for the last year in these areas and my connections, experienced connections, have been supportive and encouraging. Almost all of them have had spouses/partners to help keep them afloat in the beginning. I don't have this luxury.

I know I could find some part-time temporary work, but this will just become a distraction from my goal of self-employment.

Any advice?

posted by Che boludo! to Work & Money (15 answers total)

Having worked for several start-ups I assume people do one of the following, or more likely a combination:

> Live off savings
> Incorporate as a business and find some kind of outside capital (bank loan, angel/family investors, government grants)
> Go into some kind of personal debt (credit cards, bank loans, refinance properties, etc.)

I realize you don't have savings and finding outside investors may be impossible. Plenty of people go into major personal credit card debt, but that's a terrible choice. Starting a business is a major risk.
posted by 2bucksplus at 10:12 AM on November 10, 2011 [1 favorite]

My wife worked her old full-time job and her new full-time job for a year before quitting the old job. 80-hour weeks, exhausted every night, little contribution to household chores, no social life, sleeping all weekend, all in order to build up savings and her client base. It was really no fun for any of us.
posted by MrMoonPie at 10:15 AM on November 10, 2011 [2 favorites]

Your choices are basically:

have enough savings to live off
have someone to support you
work a full time job and do the consulting on the side until you have enough clients to quit your job
posted by missmagenta at 10:25 AM on November 10, 2011 [5 favorites]

missmagenta has it. You say you've been preparing, but if you don't have savings then you aren't prepared to quit.
posted by Tehhund at 10:32 AM on November 10, 2011

I left the (not) high-paying industry of television at the end of 2001 and started my own business. I had been saving money for a long time to ensure that I had all essential personal (food, shelter, insurance, utilities, etc.) and business expenses covered. Plus, I don't have a spouse or a trust fund, so, y'know, I've been there.

Realistically, if you do not line up some profitable clients and get some signed contracts before you depart your current job, and if you have no money in the bank to support yourself for about 18 months until you are profitable, it's likely that you will be far more upset and anxious about starving, paying unexpected medical bills or becoming homeless than you were at being burned out physically and emotionally at your current job. My colleagues and I have discussed this at length -- financial desperation leads to making very poor business decisions.

You absolutely have to secure funding for both your business and your life first, before you take leave of your job. If you think you can't take 20% or more of your current income to bank it, how will you take any percent of $0 income to pay your bills?

The others make good points about your options. It sounds like you have no savings, and outside capital (beyond friends/family) is going to be almost impossible to secure for a consulting business. As for personal debt, be sure you apply to take it on before you leave your current position -- it will be nigh on impossible to get if you are self-employed until you have a few tax returns to prove a viable income.

Before you do anything else, draw up two budgets; one for your personal life and one for the business. Figure out how much you'll need for each for the first year. Then add a 20% buffer. Be sure you research how much you'll be paying for independent health insurance -- you cannot go without it. I was perfectly healthy until 2009, and then was hospitalized 6 times that year. Illness or injury means a) not having income, b) still having regular expenses and c) having exorbitant unexpected expenses.

With your budgets in hand, go to your nearest small business development center for free counseling and get a reality check. Only once you know what you need, financially, can you figure out what you'll need to do to keep yourself afloat. You may need to take on a roommate, move to a less expensive home, or get two part-time jobs. You may realize that you need to revisit the idea of staying with your current situation and sock away money for the next few years to make your dream come true.

I wish you luck in your endeavors. If you are committed to doing everything possible (and learning HOW to do everything possible, including marketing and accounting, as well as the craft of your profession), you can succeed, but only if take all the precautions necessary to create a safety net. Plan, plan, plan...and then act.
posted by The Wrong Kind of Cheese at 10:34 AM on November 10, 2011 [2 favorites]

"Boot-strapping" is a common way many startups survive the first three months (or three years). For example, a software startup that's creating a new product may also do work-for-hire writing or maintaining code for clients to generate revenue.

In your case, keep your day job. Try to get at least one contract that you can easily manage in your off time, and knock it out of the park. Network and pick up the phone and call people.
posted by KokuRyu at 10:51 AM on November 10, 2011

Response by poster: I do own my house and the mortgage is being currently payed by renters. As I've been living abroad I have little in the way of stuff.

About being ready to leave my current job, for simplicities sake I neglected to mention that the choice to leave is not 100% mine. Due to circumstances I am stepping down and parting amicably with my current employer. The point of no return regarding current employment has been passed. I was on the road to dismissal already.
posted by Che boludo! at 10:54 AM on November 10, 2011

I set up on my own some years ago. You need enough savings to support you until your first clients have started paying your invoices. You don't want two jobs to distract and exhaust you.

I too had lots of industry connections, but market fluctuations meant it was two months before I got my first contracts and some cases up to five months before those started paying.

Starting your new job as a sideline is risky and a distraction: your first clients are vital and they are how you build your new reputation. Carrying on with your existing job will draw your attention and energy from them, will does the need to pay your bills.

I'd say your only choice is to hang on until you've got six months' living expenses at least saved up. Sorry if that's not the answer you'd prefer, but I've seen too many people try to bootstrap their way into consulting and burn out before they're free from their existing job.
posted by dowcrag at 11:07 AM on November 10, 2011 [1 favorite]

I've been doing something similar for the last 3 years and when I started I also had no outside resources to support me. I only had a few months of savings = living expenses for a few months and that's it along with crazy plans to tap into a CC if I had to although I'm glad that didn't happen. I also made plans to live very lean for the first year, although I refused to give up living in the city that I selected, which was a bit more expensive -- but other than that, the costs were low.

I'm going suggest a hybrid approach, but to be honest, I really think that you need a savings buffer first.

I reached out to a few people and had at least one-person at a company state that he planned to give me a lot of work (so first, line up a good client or 2, at least). So if you are starting now or soon, reach out to as many people/companies as you can. Get your client ducks in a row.

I strongly believe (well, for myself) that it was better to not work for an employer while launching my own business or work another part-time job. My rationale is as follows: if I worked for an employer, there would be no hunger to look for my own clients. So the hunger would drive me to look for clients, do a great job for clients, and land more clients. The quality of my work would have been compromised, too, if I worked beyond a given number of hours. Also, I agree that part-time side jobs just don't = $-wise what you can get working for your own clients. This is my bubble world but it may not be others (YMMV).

When I jumped my plan was to give it my all for 6 months and if I failed, return to a job fulltime.

Now it all worked out but let me say the first few months were scary. Even though I had a few months of savings, the first client (great $-wise) did not pay me for several months. I eventually learned how to get people to pay a bit faster and made sure to always have a several month savings buffer after going through that but it was a hard thing to go through in the first year. After that experience, I would highly recommend to my previous self (and you) to have a few months savings buffer to cover this.

I will say that I followed the bootstrapping philosophy, too, but within limits. So I didn't buy a printer until I had a few months of revenue. After getting the equivalent of a real salary in a year, then I bought a computer. This year I'll getting a lawyer and investing a lot more in my business...but I didn't do so until I knew that I could absolutely stay afloat.

I did look into whether banks would float me (just with a business credit card, nothing beyond that). Even with $ coming in and earning enough to give myself a full salary, banks wouldn't/won't touch me. YMMV but it is just the times. However, did you know most starting businesses fail? The stats are horrible. So to be honest, I probably wouldn't give $ to most people starting businesses. I also wouldn't give $ to many banks with their horrible business models, but no one asked me about that. So everything that I do (invest in something, buy something, pay my salary) is 100% through projects/clients that I get.

I also realize that most people would not do what I did, so if any of this speaks to you then it may be easier to memail me rather than elaborate in here.
posted by Wolfster at 11:22 AM on November 10, 2011

If it isn't obvious already -- cut your spending. Remove all frivolous expenses, change your diet (not to be unhealthy, but no more alcohol and steaks, no eating out), sell what you can.
posted by xtine at 11:26 AM on November 10, 2011

As someone who recently became a full-timer freelancer when I was in not yet in an ideal situation to do so, definitely the most prudent thing to do is to stay at you're job until you've developed a solid client base and a year's living expenses. However, sometimes when you can't stand your shitty job for another fucking minute, you can't stand your shitty job for another fucking minute.

Since that seems to be your situation, here's the best advice I have to give you. Go to the library and check out or order that old book The Complete Tightwad Gazette, then read it cover to cover, take notes and maybe even buy a copy. I swear to God, that's what I did, and it changed my life. If you can seriously commit to reducing your expenses as much as possible you have much better chance of squeaking by until you're on more steady financial footing. It's honestly not as austere as it seems. Once you're happy and working for yourself, you'll find you need a lot less because you no longer need to pursue other ways to fulfill yourself. I made less than $20K at my horrible day job and I still shock myself with the myriad wasteful ways I spent my pittance of a salary trying to make myself happy because I hated my life.

Also, sell anything you can bear to part with. And take a brainless part time job if you have to for the time being. You can always quit when your consulting workload gets too heavy.
posted by Jess the Mess at 12:21 PM on November 10, 2011 [2 favorites]

It is really really hard, and that is why most experienced freelancers (myself included) advise that you wait to quit until your freelance work is bringing in as much money as your day job.

Will this be really hard work for a while? Yes. But that will acclimate you to the experience of freelancing, in which you will work harder than you ever have in your entire life, usually for peanuts.

(But there are some benefits, of course. I mean, it's 1:45PM and I haven't showered yet and I'm answering Ask.Me questions instead of working, and no one cares!)
posted by ErikaB at 1:51 PM on November 10, 2011

Your going to have to have some savings to float you until income starts coming in, my husband went into the owner/operator business with a truck and the first few months are tough just paying expenses until income starts to due well.
posted by sandyp at 3:49 PM on November 10, 2011

um, spelled a word wrong, until income starts to DO well!
posted by sandyp at 3:50 PM on November 10, 2011

Since you don't appear to have a choice and are leaving the current job, I vote for getting a part-time job. Yes, it will distract from your business, but it will also help keep you from getting desperate. When you get desperate, you accept crappy, tightwad clients. You don't want to start your business off on that foot, because you could end up hating it before it even has a chance.

Don't underestimate the precariousness of your financial situation. You don't really "own" your house if it has a mortgage, and the renters could leave. When I went off on my own, I lived in a 1968 trailer with next to nothing, because it was almost free. The lower you can keep your expenses, the less worry you have and the faster your business can grow.
posted by ceiba at 4:05 PM on November 10, 2011