Being self-employed is like becoming a parent, you do not learn it you just become it. Also like parenting, the mistakes you make at the beginning will come back to haunt you in the future.
Finding a name, choosing a logo and setting up a business is only the beginning. When you are self-employed, you are responsible for yourself and the people who work for you. No matter how good you are at what you do there is more to self-employment than delivering the work.
Here are a few common pitfalls and tips on how to avoid them.
Taxes
“Nothing is certain except death and taxes”
Benjamin Franklin.
You should try to treat taxes as what they are, a debt you owe to the government. A common mistake young entrepreneurs make is underestimating the importance of keeping track of your taxes. Just because you do not see the numbers popping up in red on your account does not mean someone has forgotten them or that they are not due.
If you are not an accountant and are not big enough to afford one, the best solution is to start using a software solution early on.
Intuit is at the top of nearly all the “best of” lists on the internet. They have a special version that will show you how to file taxes when you are self-employed.
Know your value
There is nothing wrong in offering your services at a discounted rate, for a test period, to attract customers but it will backfire if you offer unsustainable low rates to be competitive.
Your rates should reflect your competence and experience: everyone is willing to pay more for quality. You should also consider your fixed expenses, the time you need to invest in acquisition and a healthy work-life balance.
A good practice is to track your time. Even if you do not charge by the hour, which I would not necessarily recommend, tracking the time you spend on each project will help you get a better overview of how long specific tasks actually take and offer better quotes to customers.
Toggl is a free, lightweight and easy-to-use time tracker that will help you get into the habit of tracking your time. If with time you need more functions, you can try the paid features or move to a time tracker compatible with other business software you might be using.
Invoicing
Sending invoices might sound obvious and not like a pitfall, but I have known many small business owners and freelancers losing money because they forget to send invoices or invoice extra work.
Most tax software have invoicing programs integrated, or can be added as a feature for a small surplus. Turbotax, for example, includes Quickbooks which is in my opinion one of the best accounting programs for small businesses around. If you get in the habit of tracking the time spent on different projects, you can compare the reports with your outgoing invoices to ensure you have not missed out on anything.
Insurance
“Anything that can go wrong will go wrong”
Murphy
Depending on your industry it never harms to insure yourself and your business. Things can go wrong and sometimes the consequences can be quite expensive.
Final Thoughts
Over 80% of new businesses survive the first year but the numbers drop drastically in the second and third year. Market conditions change with a faster pace than they used to a decade ago, nevertheless if you stay organized, keep an eye on your income compared to your expenses, and stick to a sustainable pace of work, you will be in a better situation to weather any changes.
