Right now, you’re toying with the idea of consulting or starting your own business. You have visions of working in your pajamas, slipping out to run mid-day errands, spending more time with your kids. The thing that’s holding you back is the fear that the business won’t come, or that you’ll miss collaborating with a team.
What’s the difference between being self-employed and unemployed? How is it that some consultants are making money hand over fist, seemingly without having to hunt for assignments, while others are constantly searching for their next project, working long hours and under-billing for their time?
As a colleague recently said, “There are very few accidental entrepreneurs.” Being successful requires self-direction, determination and the ability to convert ideas to action. Business doesn’t come find you sitting on the couch watching CSI reruns.
So how do you adopt and practice the self-employed mindset? Here are a few things I learned from launching my own business and being around successful consultants in our industry:
1. Know how much runway you have. What are your start-up costs? How long will it take to get paid? What are your monthly living expenses? How long can you afford to live without any income and if you deplete your savings, what will that mean a year from now? Plan for different scenarios: If business doesn’t come in as quickly as anticipated, if your earnings are 20 or 40% less than forecasted.
Replacing your full-time salary right out of the gate may not be realistic. The ability to fall back on savings can empower you to make smarter, long-term business decisions rather than going after everything in sight.
2. Know where the money is coming from. This is your pipeline. Who’s going to employ you or be your most reliable customer? It may be your current employer, who’s willing to retain you for project work at an hourly rate. It’s worth making a list of all the people that know your reputation and will give you business. Vet this list before you quit your day job. Talk to your network about the availability of work and how urgent the need is, e.g. Are they willing to sign off on a SOW or contract agreement today? I’m regularly approached with new recruiting requests, but typically only half of them are “real.”
3. Know what your time is worth and how to charge for it. Do your homework and figure out what’s realistic and competitive. You can use a formula like your annual salary divided by 2000 work hours/year + 10-20% cushion to cover benefits like healthcare and PTO. For example, if your last full-time salary was $120K, a reasonable day rate might be $560. Especially in the beginning, you may be tempted to discount your rate to get your foot in the door or because you’re working with a friend. But consider how you’ll feel honoring that rate over the long haul, or if you’re forced to turn away more lucrative projects because you’re already committed.
4. Be prepared for rejection and the unknown. One day you’ll have the luxury of turning away work, but in the beginning you need to knock on a lot of doors to build up your business. People you thought for sure would say yes may not have anything to give you. Or work may come in fast and furious one month, then slow the next. Being in business for yourself is no different than any other sales job. It’s risky and unpredictable, feast or famine. The best thing you can do to create enough volume so that the rejections aren’t so debilitating.
5. Beware of spreading yourself too thin. You’re going to laugh, but I had this monster list of things to do for my first maternity leave. I figured I’d be able to get all this stuff accomplished because I wasn’t working. Oh yeah, I’d repaint the house, shop farmer’s markets and cook elaborate meals, get my personal training certification, start a blog, etc. etc. Then there was this baby that drained all my attention and turned my brain to mush. The things on my list didn’t get done. Nor did basic stuff like laundry and showering. Your freelance gig is like a baby. It can easily consume ALL your time, but you won’t know it before you’re in it. Give yourself time to master one task before signing up for ten.
6. Prepare to be busy. If you’re not busy, you should be spending your time finding business. As should as you lose your appetite for that, you’re no longer self-employed. (You’re unemployed.)
Have an awesome tip to add? Please post a comment. Have a question or personal story that’s too embarrassing to share? Email me. I’m positive I can top you.