There are many of you out there to whom the promise of self-employment aka freelancing aka independent consulting (all of whom are ultimately small business owners) seems extremely appealing (particularly if have an extensive set of "leisure"wear). You might crave the feeling of accomplishment that is no longer possible at your current place of employment or you seek greater flexibility and love the idea of working from home. Perhaps you feel that you are not being compensated adequately for your skills or the incredible value that you add to your organization. Or you simply might find yourself bored mindless, scouring social media sites, for hours on end, and realize that you need a change of pace.
While being self-employed can accomplish all of these goals, the transition itself is not as simple as it might seem nor is it the right decision for everybody. There are many factors that need to be considered and a host of mental and financial preparations that should be made prior to taking this potentially life altering decision.
Additonal Reading: The many hats of self employment
Are you comfortable selling?
As a small business owner, you are the primary salesperson for your business. While you don’t necessarily have to adopt sleazy tactics, you do need to always be alert to opportunities for soliciting new clients. (There is a reason that businesses have entire marketing and sales departments). If you find marketing or sales distasteful, it may be best to continue to be an employee where you do not have to step outside of your comfort zone.
Do you have a strong network?
Knowing lots of people, that are relevant to your field of work and who can ideally attest to your mad skills, can prove to be very valuable when building a client base. There are a countless number of social media sites and tools that allow you to connect with people that you have met, old and current colleagues and bosses( a manager from your first job at Mcdonalds can be a valuable reference). Since you will most likely be googled (or binged or yahooed) after a business meeting, a Linkedin profile that has many connections and recommendations or a blog where you demonstrate your expertise is likely to have a positive impression.
Do you already have clients?
Prior to leaving your current employment, it is always advisable to have at least some (or at least one) clients to contribute to your diminished cash flow and to prevent you from being completely discouraged as you try and peddle your wares Keep in mind that many employment contracts contain non compete/non client stealing clauses, so it is important to ensure that you don't violate any of these to avoid being sued even before you have had a chance to establish your business.
Are you able to operate in an unstructured environment?
The one characteristic that often distinguishes a successful business owner is their ability to operate in a non routine environment. This means that, if you find yourself swamped with work, you have a keen sense of prioritization and managing expectations. In slower periods you are able to create systems and processes to deal with the busier times. You must be able to work weekends and all night if necessary as you are now directly accountable to clients who can easily replace you if you are not able to fulfill your obligations and maintain their expectations. You don’t get paid for being sick and vacations must be planned around work. Finally, you must allocate time, on a regular basis, to selling, marketing and other (wildly exciting) administrative functions.
Do you have a nest egg?
Ensuring that you have enough funds to support yourself for several months or longer (or perhaps generous parents or spouse) is absolutely essential before you quit your job. Not having enough cash flow is perhaps the most frequent reason that small businesses fail. You may think that your prospects look excellent, however unless you already have paying clients, these things often take longer than expected. And although it might go without saying, it is also important to be as frugal as possible during this time (ipads and vacations to the Caribbean are not necessities and will likely have to be deferred until you are somewhat established)
Do you have a good support network?
Generous parents , a spouse who supports you and business minded friends can be invaluable both financially and emotionally. The first few months of self-employment can be discouraging, particularly if acquiring new clients is more difficult than anticipated. You need to be able to vent and brainstorm and discuss with people who are sympathetic and reasonable.
Are you a risk taker?
Inherent in any small business, particularly a new one, is an element of risk. Leaving your job for potentially greener, but ultimately unknown, pastures is a risky endeavour. While some people thrive and are energized by this, others find not knowing the outcome of their decisions, terrifying.
Are you capable of hard work?
There are times, as an independent worker, when you will be required to work ridiculously long hours to ensure that you meet your clients expectations. This includes weekends, evenings, holidays and sometimes even cuts into planned vacations (researching wifi availability is generally a good idea). Of course, you somewhat forfeit your right to complain (although you do it anyway) since being busy is a desirable outcome as it probably means that business is going well. At a certain point, it is important to hire employees and delegate (a subject for another discussion.)
Do you have financial skills?
It is important to have a general understanding of your business finances, which, when you are directly responsible, is actually not as difficult as those with number phobias might think. The major problem is that many business owners overestimate their revenues and underestimate their costs or misapprehend timing of cash flow, all of which can have serious ramifications to a fledgling business. It is also vital that you understand your tax obligations to mitigate surprises. All of this can be managed by a good accountant, but as the business owner, it is ultimately your responsibility.
There are probably a million things to consider before you embark on your business venture, but there is such a thing as too much analysis. Ultimately, if your life obligations are minimal and you have marketable skills, it is much easier to just go for it and see what happens. Alternatively, if you have a spouse and children and a mortgage and minimal savings, it is important to consider the decision to transition a little more carefully.
Ronika Khanna is a Montreal tax and small business accountant who helps business owners with their accounting and tax filing needs. Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest. You can also follow her on Facebook or Twitter and Google Plus