Thursday, October 05, 2006

From Employee To Self Employed

First of all, when you become self employed you need to look at debt with a completely different lense. If you run your business in debt during the slow part of your business season, it's not really time to panic. At least that is what I try to tell myself ;-)

The interest you pay on your line of credit, or operating line, can be written off at different percentages, depending on the tax laws in your, state, province, or country. If you are used to being an employee, you will likely squirm at the thought of having a red balance on your line of credit, but you need to get over it and start thinking in terms of running a company.

Many companies, large and small, service a large debt and they service that debt sometimes until they sell off the company. Yep, sometimes they run in the hole during their entire existence. That is why we refer to some folks as being rich on paper, but can't really afford to be summering in France. Of course when a healthy company is sold, the owners are often green with wealth.

The main thing is that your company has a cash flow that is healthy over the year. Try not to get too wrapped up if your cash flow does not cover your expenses for one particular month. As long as the busy months make up for it, you are doing just fine.

What ever you do, don't look at your business based on one day. When I first became self employed I would sometimes judge my business based on ONE HOUR! Now if that's a not a recipe for self-induced stress, especially when you are on your own and you've been used to getting a check from an employer every two weeks. Personally, I'm starting to understand how the self-employment gig goes, but it's been an adjustment for sure.

Make Sure You Hire Professionals For Your Accounting

One thing you can do to reduce your concerns, is hire professional accountants and bookkeepers. I know that many people become self-employed try and do their own accountanting and bookkeeping, as well as their own tax return preparations. I'd advise against that choice.

In the long run, these professionals can save you much more than what you save doing all the bean counting yourself. Besides, the time you spend pulling your hair out with a calculator and a mountain of paper, you could be creating more revenue streams. Do what you do best and hire someone to do what you despise doing. Of course, if you enjoy doing books and tax returns, that's a different stroy - fill your boots. Personally, I would rather pay experts for that work, and spend my time increasing revenue.

When you are done at year end you can see all of your expenses and all of your income meticulously prepared for the taxman. You can see how a large percentage of your costs are legitimate tax write-offs, and how the interest you paid on your line of credit can be part of those tax write-offs.

It Takes Time To Really Judge Your New Company

Once you become fully self-employed, you'll need to be operating for some time before you see where you are at. Until you've had a year end, you won't really have an accurate picture of where your business's financial health is at. Sometimes you just have to put your head down and work hard, when you feel uncertain of your business future. Sometimes is just luck, so we have to bear down on the tasks of the day, and go for it!

If you find that in the first couple of years you don't make any profit, but barely keep the lights on and food in the fridge, try not to panic. This is normal - actually it better than normal - some businesses run deep in the red for many years, before they see a cent of actual profit. If in the first year of running your business, you are paying down all your costs and you have enough to live off, and don't run any personal debt, YOU ARE WINNING BIG TIME!

Don't burn yourself out with over-work and over-worry. Just work smarter and not harder as you go along. Focus on what avenues really make the money, and maintain a consistent level of growth.

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