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What Does Being Your Own Boss or Self-Employment Mean?
Self-employment means working for yourself or a company you own or control. You may own your own business and even employ other people. Or, you may be self-employed as an individual without even establishing a formal business. It also means you have full responsibility for finding customers, getting the work done, collecting payment and doing all the record-keeping. It’s not for everyone but more than 15% of active retirees and workers over 50 indicate they want to be self-employed or start their own business.
What it DOESN’T mean is that someone else will write you a paycheck or provide benefits — in fact, paid vacations and holidays become a thing of the past. No work usually means no pay. It’s not for everyone but here is some information to help you evaluate if you are ready to be your own boss.
Working for Yourself - Simple Self-Employment
Let’s first review simply working for yourself — no office, no employees, and no big investments. Decide what service or activity you will perform. Here are several possibilities:
Convert Your Career or Hobby
How have you earned a living during your career? If you were a teacher, become a tutor. Parents pay tutors between $15 and $75 per hour to help their high school, middle school and sometimes, elementary school student. If you were a truck driver, become a courier. Law firms, retail stores and doctors often hire local couriers to transport urgent and valuable shipments. If you were an accountant, become a personal home finance assistant. Pay bills and keep personal financial records for people — young and very busy professionals or your retired neighbors who just can’t keep up with paying bills and filing receipts. What are your hobbies? Have you always enjoyed gardening? Provide light home landscaping services in your neighborhood. Do you have a flair with fabrics? Offer your services as an interior designer. Often, all you have to do is circulate a brochure and you can be up and running. Your home is your office and usually you do not even need to create a legal business. Congratulations, you’re self- employed!
If you were most any sort of professional, you can offer your expertise to organizations in need. And you’ll often earn more per hour than you used to. Start by approaching former employers, other businesses in your industry or non-profits and government agencies that might need your specialized skills. You will usually get paid for the “hours” you work — so keep track of your time! Or you may get paid a “retainer” — or lump sum - each month so that a company can have regular access to your expertise.
This is essentially being self-employed. Increasingly, employers do not want to hire employees so they contract with individuals to perform specific tasks for specific periods of time. You are basically self-employed but you commit the bulk of your time to one client. A good example is a cab driver. You are paid a percent of your fares and you are on your own for all expenses including leasing the cab from the cab company on a daily basis.
Work from Home
So you want a short commute? Stay home and have the work come to you. Some examples are child-care, pet sitting and telephone service agents. Yes, employers will set up a small home office for you where you work by phone and computer with their customers. You can do this as an independent contactor though this could also be a job with regular pay and benefits. Some companies will have you do sewing or light assembly of products in your home.
Working for yourself can be enjoyable and rewarding. You can work as many, or as few, hours as you like. You may not earn great deals of money, but it could fit well with your lifestyle. You may have more ambition, energy and time. If so, then consider starting a business.
Starting a Business
We are now talking about a real business with an office or building, equipment and possibly even employees. You have essentially three choices if you want to own and run a business:
Start It from “Scratch”
Think of a business you would do well at. Prepare a business plan, find people to invest in it and don’t make any vacation plans for a while. This could be a retail store, restaurant, travel agency, manufacturing company or a home painting business. The options are unlimited. This can be a difficult route to take. More than 75% of new businesses don’t last more than one year! Maybe not an ideal retirement job unless you have the experience.
Buy a Business
Similar to starting from scratch except you don’t have to give birth. Who hasn’t dreamed of owning a small, breakfast-only restaurant? Small businesses of any sort are available for sale. Look in the classifieds or talk to your local banker for suggestions. Again, this path is not without risk even if you have some experience and a lot of energy.
A donut shop, travel agency, or lawn care business of any interest? There are countless franchising opportunities. The good news is that they provide professional support and services. The bad news is there are a lot of questionable franchisers. Stick with a known name where you can meet individuals who have actually made a living from their franchise.
Owning your own business involves a serious investment of time, money and energy — it’s not for everyone and the risks may be too great if you are concerned about your finances.
Legal, Taxes, Insurance and Financial Reporting. Whether you are self-employed on your own or you have your own business, you are now responsible for all the things that employers do. Here are some of the bigger items to keep in mind:
It may be advisable, even necessary for you to register, license or incorporate yourself or your business. Talk to an attorney with experience in self-employment and small business. Legal concerns shouldn’t stop you but don’t ignore them.
If you are self-employed, you must pay federal self-employment tax on up to $106,800 (2010 maximum) of your net income (all revenue from your self-employment or small business, less all business expenses). This tax goes for Social Security benefits and is 15.3%. Employees working for others pay half this rate, or 7.65%, with their employer paying the other 7.65%. One-half of this self-employment tax is then used to reduce your federally taxable income. Still, the self-employment tax is a major outlay.
Self employed individuals must prepare additional tax forms declaring revenue and expenses related to their work. Since your employer is no longer withholding income taxes from your paycheck, you will probably have to make estimated quarterly payments to federal and state tax agencies. The good news is that many of your expenses and benefits, including health insurance and retirement savings, are considered self- employment expenses and reduce your taxable income. You may also declare some household expenses related to your self-employment, such as phone service and auto use, as business expenses.
Benefits and Insurance
Whether self-employed or the owner of a small business, you have to provide your own benefits unless you still have coverage from a previous employer or Medicare. If you have employees, you will have to pay their Social Security (FICA) tax as well as the cost of any benefits you provide them. Health insurance alone will cost at least $3,000 to $5,000 per employee.
You have to spend money to make money. Be prepared to invest in your self- employment or small business. You may be able to finance your needs from savings or you may require loans from a bank or government agency such as the Small Business Administration. The need to take on debt or risk your own savings may not appeal to you.
Become the Boss or Just Get a Job?
Being self-employed and running your own business allows a lot of independence and sense of achievement. It also carries a lot of responsibility and requires skills and experience many people have not developed working for someone else. Be your own boss or just get a job that you enjoy? You know best what you prefer — there are always trade offs.
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