Pages Navigation Menu

Everything Personal Finance

Starting a business as an independent contractor

Given the chance to ditch the nine-to-five in favor of planning your own working day and being your own boss, who wouldn’t want to start their own business? Being self-employed reaps its own rewards, but it is also incredibly demanding, as many independent contractors (and their spouses) can testify.

In principle, an independent contractor provides goods or services to another entity under terms specified in a contract or verbal agreement, working on an as-needed basis and is paid as a freelancer. Contractors often work through a limited company or franchise that they own themselves, or through an umbrella company – often a recruitment agency – that provides payroll services for fixed term contracts.

In many industries, from the media sector to construction and IT, employing contractors on a freelance basis is the norm. As workloads vary throughout the year, independent contractors work for a variety of employers, retaining control over their schedule, working hours, and job performance.

Before heading out on your own, it’s important to consider whether you’re cut out for the self-employed lifestyle. In contrast to working for an employer, freelancers don’t start their first day on the job with a fixed salary and the knowledge of what the coming months will bring them. Building up a new business, whatever service you are offering, takes time, patience, and huge amounts of determination, and many individuals just don’t have the stamina.

If you think you have what it takes, however, don’t give up on that dream. Take time to conduct a little due diligence to avoid the pitfalls common to start-up businesses and you could soon find yourself in charge of a lucrative firm.

First of all, get working on your business plan. Keep it short and concise, but put in the hours researching how much you should charge for your product or service, based on both variable and fixed costs (i.e. how much it will cost to produce and deliver your product), as well as how many customers you expect to have (the size of the market).

In addition, don’t forget to consider the competition: Are your services currently in demand, or is the market in question an overcrowded one? If the latter is the case, what gives you the edge over your competitors? You should be realistic as to what is needed to enter this market, and think seriously about any obstacles you might potentially face, including government regulations.

Next, consider the financial side. How much will it cost to start and run your own business? Some independent contractors manage to start up with hardly any capital, while others need to get on the good side of their bank manager for finance support. Working out a sound financial strategy, including how much you plan to pay yourself is an integral part of the business plan. While you’re doing this, learn a thing or two about the tax system in your country, and avoid hefty fines and penalties later down the line.

Advertize: Your first marketing plan doesn’t need to be a huge investment, and in fact word-of-mouth referrals are the building blocks of independent contractors.

The Internet is also invaluable to those starting up their own business. A good website is an inexpensive tool with vast marketing potential, and can even be expanded to include an online web shop.

Many small businesses fail because of mistakes made in their start-up phase. With some sensible, realistic planning, these costly pitfalls can be avoided and your business can thrive.