Many people dream of saying good-bye to their bosses and becoming self-employed, but those who give it a go often make mistakes that undermine their success. Such mistakes are common because working for oneself—whether the job is freelance writer, consultant, decorator, child-care provider, personal trainer, tax preparer or something else—involves unique challenges…and because the conventional wisdom about self-employment often is wrong. Here are six common mistakes to avoid if you want to be your own boss…
Mistake 1: Thinking that a long client list is the secret to success. Self-employed people often are advised to gather as many clients as possible as quickly as possible. That way they won’t be devastated if they lose one or two clients. But in many professions, particularly those that sell to other businesses, not to individuals, a long client list is not as reliable a safety net as you might imagine. If all of your clients are in the same sector, which is likely, and there is a recession or sector-wide downturn, many of them might stop supplying work at the same time.
In addition, maintaining a long client list means that you must devote a lot of time to finding and wooing clients—and those are hours that you will not be able to spend doing work that actually pays. Besides, the more clients you have, the greater the odds that scheduling conflicts will cause you to disappoint some of them.
In many professions, a better goal is to cultivate one or two “anchor” clients that you can count on to give you work on a regular basis. These clients are likely to bring projects to you, saving you the time and trouble of pitching them. And you can build long-term personal relationships with key decision makers and prove your value, reducing the odds that you will be the first expense cut when budgets tighten.
Only after you have anchor clients in place should you focus on lengthening your client list. If possible, do so by finding clients and contacts who are in various sectors or do different types of work.
Example: A plumber who works for contractors on new buildings could develop contacts among commercial real estate owners who need plumbers to do repairs even when new construction is slow.
Mistake 2: Overlooking valuable networking opportunities. Most self-employed people understand the importance of networking with potential clients and customers—but many overlook the advantages of also networking with other self-employed people in related fields. Your fellow self-employed pros could send work your way when they are overbooked…when an assignment is not appropriate for them…or when they need to bring in a collaborator with your particular expertise.
Social-media interest groups can provide a great forum to do such networking. Search for appropriate groups on Facebook (type relevant words into Facebook’s search bar, then click “Groups” on the results page)…LinkedIn Groups…or Meetup.com.
Example: A San Francisco–area dog walker who enters “dog walker” into Meetup.com would discover SF Professional Dog Walkers, a group of fellow pros who meet monthly.
Mistake 3: Undercharging. Most people set their prices too low when they first become self-employed. If they charge by the hour, for example, they might come up with the hourly rate by taking the amount they earned per week when they worked for someone else and then dividing it by 40—the standard amount of work hours in a week. But that simple math fails to take into account that for the self-employed, many work hours are not billable hours—for example, no one will pay you for the time you spend pitching potential clients or sending out invoices. The formula also overlooks the fact that self-employed people must pay certain costs out of pocket that previously were covered (at least in part) by their employers, such as health insurance, retirement plan contributions, marketing expenses and office expenses.
Instead of using a formula, network with your contacts to determine how much self-employed people in your field with your level of experience typically charge. Or join social-media groups that attract pros in your field and ask for input about rates.
Mistake 4: Getting work but not getting paid. Sometimes getting a client to pay the bill is the most difficult part of a job. Some clients might be slow to pay or might refuse to pay at all.
Before you work with a new client for the first time, enter the client’s company name into a search engine along with words such as “unpaid,” “bills” or “warning.” Proceed with extreme caution if you find warnings from other professionals who struggled to get paid by this client.
If your first assignment from any new client will take more than a week of your time and/or require you to invest in thousands of dollars’ worth of supplies, ask to receive a portion of your payment either up front or when certain milestones are met along the way. Be very cautious about accepting major assignments from new clients who balk at this arrangement.
Mistake 5: Not knowing what’s next. Self-employed people sometimes become so focused on a particular project that they neglect to line up the next job, leading to a work gap. It’s perfectly reasonable to build in a few days of cushion between big assignments in case things take longer than expected, but always keep an eye on what’s next—even if that means taking a little time away from an important assignment to scout for future work.
Warning: It’s particularly important to have assignments lined up well in advance for the summer…and around the winter holidays. Once these arrive, the people who have the authority to give you work might be out of the office on vacation.
Mistake 6: Letting office chores slide. A self-employed person typically is his/her own sales department, billing department, benefits department, IT department, office manager and more. All too often, these secondary responsibilities are allowed to slide, and the result can be costly—fail to pay your bills on time, and you might face penalties…fail to focus on inventory, and you might run short of crucial supplies…neglect sales and marketing, and your work could dry up entirely. To avoid this, create a weekly or monthly schedule for recurring office responsibilities.
Alternative: If you do not like or are not good at certain aspects of running your small business, pay someone to handle those tasks for you. Hire a bookkeeper to tackle your invoicing…an accountant to do your taxes…or someone skilled with computers to serve as your on-demand IT department. Find these support professionals through recommendations from other self-employed professionals.