Being self-employed comes with a lot of flexibility. Essentially, you’re your own boss which gives you the liberty to work on projects that you’re passionate about, at your own pace.
However, the freedom that comes with being an independent worker is not without challenges. Now that you’re running your own business, access to the different benefits of being an employee cease to exist.
Below are some common concerns that most self-employed individuals overlook.
1. Losing Track of Your Sources of Income
Being an employee enables you to predict your income based on the fixed salary that you receive every month. This doesn’t typically apply to someone who is self-employed, especially if you don’t have client retainers or if you’re constantly working on different projects with varying professional fees.
A good starting point in tracking your revenues is by recording every work-related expense in a worksheet - down to treating a new client for coffee or buying office supplies. You may start to realize that even small purchases can result in large amounts of money when lumped together, so tracking your spending will greatly help in managing your finances.
Better yet, invest in an online accounting software that can help you properly track your spending and account for your revenues.
2. Failing to File and Pay Your Taxes Correctly
When you’re employed by someone else, you never have to understand the complicated tax filing process or compute your monthly income to set aside payment for personal tax - your finance and HR departments do all the work for you.
Being self-employed is different, and filing your annual tax return when you’re on your own can be quite confusing and complicated. At this stage, you are solely responsible for keeping track of your revenues and declaring them accordingly.
Familiarizing yourself with the tax filing process is key to knowing your corresponding tax rates and deductions. Start by learning about the tax rates for different income brackets, forms to fill out, deadlines on when to file and even tax deductions to avoid paying more than what is due.
3. Mismanaging Your Time or Not Following a Schedule
One of the most appealing aspects of being self-employed is having more freedom when it comes to managing your time. You are not locked to a 9-5 schedule, and no one is taking notes whether you come in late for work or not. You can work anytime and from anywhere.
However, an important factor that contributes to the success of a self-employed individual is disciplining oneself, and this starts with efficient time management practices. It is advisable to establish a clear work plan and follow a regular schedule, albeit more flexible, so that you are on track with all your work and not missing deadlines.
4. Working Without a Contract or Clear Scope of Work
Dealing with clients when you’re self-employed can sometimes be tricky especially when it comes to defining the exact scope of work for a particular project. Unfortunately, a lot of self-employed individuals have to go above and beyond their agreed scope of work, and this results in time inefficiency and loss of other potential businesses as you’re working more than what you’re paid to do for a particular client.
You can avoid this by coming up with a project contract and clearly laying out the scope of deliverables prior to commencing with work. Make sure to define the timelines and deliverables, and sit down with the client to discuss this.
An important clause to include in your contract is the termination clause. Being an independent worker can be volatile, and some clients may have the tendency to pull the plug unexpectedly when a significant amount of work has been delivered already. Put a clause in your contract specific to project cancellation, and stipulate conditions that both you and your client should follow if this happens.
5. Not Marketing Your Business Properly
When you are employed, most of the work that you need to accomplish is given to you by management or your superiors. However, when you’re self-employed, finding a sufficient number of clients to give you enough revenue every month becomes a regular concern.
Contrary to common perception, marketing your business doesn’t need to be expensive and time-consuming - you just have to be a little creative and innovative. Marketing your business can be as simple as setting up a good online footprint for your company, looking for possible speaking engagements to gain visibility among potential clients or asking people to review your business or services!
6. Thinking You Don’t Need Health Insurance
Getting health insurance coverage is probably one of the least prioritized aspects of being self-employed due to the added and hefty costs attached to it. However, being unprepared in an emergency situation could be more expensive than allocating a monthly budget to good insurance coverage. Additionally, there are quite a few health insurance companies that provide affordable but extensive coverage. Do some research, and compare which ones provide the best coverage with the most affordable premium.
While being self-employed comes with a lot of rewards, it also comes with a lot of responsibilities. You are solely responsible for running your business and the technicalities and administrative functions that go with it. While there is a lot to think about, the things mentioned above should put you in a good place to avoid committing common mistakes.