Need advice on self-employment

[The_Veg]

I may be self-employed sometime in the next few weeks. I'll be doing the same work I'm currently doing with the same people, but we're severing our relationship with our corporate parent and setting ourselves up as a small employee-owned company. Anybody got any good general advice?

[RebeccaV]

I've been self-employed for two years now. There are many advantages and disadvantages and it is not for the faint of heart.

My advice would be to plan ahead for the potential irregularity of paychecks and think about the year as a whole. Try not to freak out if there doesn't seem to be any work on the horizon. Use down times to network and find new customers.

Find a good accountant who has experience with taxes for the self-employed and ask him/her this same question. If you are losing your health care, do lots of research (PM me and I can tell you who I use). Get a new credit card that will just be for business related expenses.

Other than that, I'd like to remind you that you will be your own boss and that you deserve more time off to ride and attend rallies!

Oh, and you need a new GS. :)

[dancogan]

And don't forget, now you really need to plan for your own retirement. I don't think that should be viewed as something you'll get to a couple of years down the road. Time really is money for retirement accounts. Oh, and good luck!

[GeoffMiller]

Get yourself an accountant right now. The way that you pay taxes is going to change dramatically! Seek out SCORE. It is an organization of retired businessmen who councel new business owners. Check newspapers, better business burea (brain dead, cant spel) local colleges/votec for courses on starting your own business. The key is to be prepared because once you start up you will be too busy to figure out these details. Look into a disability policy for yourself. Illness or injury means no food or shelter. There are cheap policies which cover loan payments etc if you cant work. Medical savings plans should be looked at. Learn to be flexible. Personally, I have never met a businessman who had MORE spare time on his hands. If you aren't putting in at least 50 hours during the week and catch up time on the weekends, you probably are not going to survive. I've owned three small business' over the years. Sold out at a profit last year after 10 sucessful years. The devil is in the details. geoff

[The_Veg]

Thanks y'all, and keep the suggestions coming!

It will be three of us, set up as an S-corporation due to the requirements of liability in the healthcare industry and then inside that we'll each be our own individual consultants. We will be dealing with hospitals and other medical facilities, working with medical gas systems and indoor air quality. The team has been working together doing exactly this for about a year and a half already under our corporate parent. Hopefully our existing clients will choose to keep using our services, and hopefully we'll chip away at the market inroads our competitors made while our corporate parent tied our hands behind our backs for a year.

It should prove to be a great adventure, and with so many hospitals in the region needing repairs due to hurricanes we may be able to hit the ground running.

[The_Veg]

Oh, and you need a new GS.

Yes, I quite agree. I wonder if I can write it off as a commercial vehicle? :D

[Holly]

When I set up my own business, I decided that the company would not designate a company car, but would pay generous mileage for whatever vehicle I was using. So now I can ride whichever bike I prefer and pay myself as if I was driving a cage. This does mean that business mileage has to be carefully recorded on each trip.

Holly

[GeoffMiller]

Another thought: always think cashflow. Small business' can get into trouble quickly providing services to large customers. Many states take at least 90 days to cut a check. One must price accordingly to compensate for the wait and must have cash on hand to continue operating until the big check comes. Other mistakes (mine): Becoming to dependant upon one or two big customers. If you get dumped, yer screwed. Try to spread yourself among many customers such that if and when one goes with the competition, you are still OK. Keep in mind that they dumped someone else to hire you! One idea that worked well for me (I spent the last decade selling and installing lawn sprinkler systems) was to price high and sell on quality. There is always someone else willing to undersell you! Even if you get today's sale, people who buy on price alone will drop you tomorrow for a guy selling for a buck less. You need to prove to your customers that you are the only guy in the world who can help them be successful. Your competition will just make them look bad! I got out of my business about a year and a half ago. Tried working for others but you get too used to being in the chase! I closed on a second mortgage last night and am starting my next adventure a week from Monday. You are either going to hate working for yourself or realize that you should have done it years ago! Good luck and keep your eyes wide open!!

[The_Veg]

Quality is already our selling point, now we just need to wait for our competitor to screw up enough for the clients to go with us. If you can tell a hospital engineer what he wants to hear and do it for a cut-rate price, you've got the biz. Our point is we tell them things they don't want to hear, but by doing so and by offering a solution we save their asses from liability in patient and employee safety.
Our corporate parent was becoming a liability. The other divisions, who did stuff like control systems and fire/security systems, were starting to really disappoint a lot of facilities. Just giving the company name while prospecting was getting doors slammed on us.

[RTRandy]

Veg, Good luck with your new business set up. I've been self employed for almost 15 years now and still earning a living.

I have a reasonable accountant who has been very helpful over the years and I can give you his info if you want to PM me. He's near Meadow and Central.

Being self employed, you need to keep track of all business expenses and Quicken has always been a good tool for keeping up with that. Also, you can't just spend your income without earmarking some for income taxes. No more withholding on paychecks when you're self employed. Depending on whether you set up your company as a corporation or other ways, you may be subject to quarterly taxes. You can also set up what's called a SEP account for retirement and you can defer income , I believe up to 13 or 15% of your income and there is a cap of about $30K per year. It can be a pretty good deal that will save on taxes and force you to save for retirement.

The one tax thing that I think sucks about being self employed, is that I have to pay social security which is fine, but then the IRS says that I am an employer of myself so I have to also pay Social security twice as an employer of myself. Go figure.

[PUDGYPAINTGUY]

An LT (light truck) would qualify as a commercial vehicle

[bluestune]

Ditto what everyone has recomended. You will probably work harder and put in more hours than you ever thought you could. Just remember that at some point you have to take care of you and yours (or your motorcycle ;-) Finding a balance between work and everything else can be a real chore.

When I was selfemployed I truly loved my work, I had some really great clients, and for the most part was paid within 30 days. The really hard part of selfempoyment, for me anyway, was to not work 16 hours a day, 7 days a week. It seems that when business is good you work harder to get everything done and when business is slow you work even harder to bring in more work.

The moral of my ramblings is this: plan to make time for yourself, no one else can.

Best of luck!
Dave.

[knary]

Ditto again. One of the biggest hurdles is managing cash flow. You have to stay far ahead of the bills as invoices have a nasty habit of taking a long time to get paid. Talk to an accountant and be prepared to put in funny hours.

[GeoffMiller]

Okokok.......just had a couple more thoughts after reviewing the thread. Is the hospital engineer really the best guy to talk to? How about planting the seed with the hospital administrator? Let him tell his engineer to use your services. Second thought, you mentioned wait for the competition to screw up. That takes too much time. Get agressive, sales and marketing are going to fill yer belly! Don't hesitate to demonstrate HONESTLY your competition's weakness'. If I am selling quality, I'm real willing to show what junk my competition is putting out. I bring samples of my competition's equipment along on the sales call so I can put it next to my stuff in the customer's hands. Think about your sales presentation and practice with someone who you can trust to be critical. Think about how to close a deal. I learned never to leave a customer without closing. Be able to provide all of the information for them to make a decision RIGHT NOW! If you leave in order to go back to the office a put together a quote, your competitor is going to have the chance to close his proposal. That's it for now. We now return you to your regular programming........ :D

[Bfish]

veg,

I'm a cpa and deal with this all the time. bit concerned about the sub s comment and consultants within. feel free to pm me with questions. find a cpa in your area if you haven't already.

brian

[Visian]

Okokok.......just had a couple more thoughts after reviewing the thread. Is the hospital engineer really the best guy to talk to? How about planting the seed with the hospital administrator? Let him tell his engineer to use your services.

This is good advice. Networking inside an account is a very effective way to build a tighter relationship.

Keep in mind that peer referral is the most credible form of promotional communication. If you have a couple of good customers, consider writing "success stories" where you quote those customers... and focus on the problems solved/avoided, money saved/costs avoided.... not on hyping the features of your product or service.

Get these stories published in trade journals that your customers read. Schmooze the editors to get this done. Buy reprints of the stories and use them in your sales pitch. If you can't get something published, make these stories "white papers."

Believe it or not, I actually know something about medical air and vacuum systems, thanks to a client I had a while back. They made oil-less compressors and medical vacuum systems that cost far less to operate than the competitors' liquid ring units. Instead of focusing only on the features of their products, we helped them create cost justifications based on TCO (Total-Cost-of-Ownership ) against their competitors and got articles published in the appropriate magazines. These were not just engineering magazines, but administration pubs. Worked like magic.

These days, Forums like this one here exist for everything. Are there Forums for your industry. Work those hard!

And... after you've networked inside an account, get your accounts to help you network with their peers in other accounts. Nothing is more credible than one person telling his peer: "I worked with these guys and they were great!"

Good luck in your enterprise.

Ian

[Montana]

Oh, man, a thousand warnings, pay attention to everyone's advice but only do what you can live with.

I agree with the concern about you being consultants within an S-corp. You should be employees.

Health insurance is very easy to address. A small-group plan should be obtainable. It isn't any of the carrier's concern that the company may not be able to expense the premiums for shareholder/employees, but maybe you intend for each person to pay their own, anyway? If the shares are held in appropriate percentages, then you still should be able to write off the expense on your 1040.

There are two mileage rates for business use of a personal vehicle, 48.5 for a car or light truck and 30.5 for a motorcycle, and those rates are new this month. You're probably better off using this method until you can afford a fleet of company cars. Plus the depreciation rules have changed (again) so why go down that road?

Have your "new" clients sign an agreement that they are transferring their business to the new corporation. Set up your officers and do this stuff right.

If you are offering a professional service consider how to apply the concept of retainers. If you work as a consultant and don't bill for a month or more, then you are working out of pocket for time and expenses until you get the billing flow. Architects and engineers, for example, can ask for a retainer that covers this expense and that creates a cushion for when you finally and inevitably get stiffed by a client, otherwise you apply the retainer liability to the final billing, if you do it right you never actually return the money.

Track everything so it potentially can be treated as a business expense. Hire a good generalist for a business manager. If there are three of you and you look at how valuable your time is by doing what you do best, you can justify a 1/2- or 3/4-time individual to manage and maximize all the other issues. There are a million of these little details that will maximize how you operate to your success or detriment.

Quicken is good for the self-employed but you can use Quickbooks, check out the pro edition, if you want to track time and bill clients. I use both, Quicken for home (self-employed spouse) and QB Pro at the office (architectural firm).

I run an S corp, an LLP, three LLC. I micromanage the details for folks who can't use a long distance calling card because "there are too many digits." But they're very creative.

You are welcome to contact me via email, too, like the others that have offered; I'd hate to see a good startup fail.

[The_Veg]

Geoff/Ian,
Yes, the engineer is the best guy to talk to- he is in charge of physical plant operations. The engineer is who we work with on all projects (and we have some good relationships with some engineers), and it is the engineer who decides what needs to be done and who gets to do it. The administrator merely listens to the engineer's requests for the capital to Make Things So, if amounts beyond normal budget are required. Those large items are usually old equipment that needs replacing either for patient safety and/or operating budget reasons.
Beyond that, we do also try to get an 'in' with the safety officer and the lab director, as they are the ones who need our environmental/air quality services.
Don't forget that we are not entering a new line of work, we are simply taking our experienced, existing team into independent self-ownership. We've always functioned fairly independently from company input and intentionally kept the office as far out of our affairs as possible. The parent company with whom we may be parting ways currently handles HR, some admin, most of the accounting, etc. They've done a poor job with sales so we've had to take that on for ourselves lately. We have the know-how to do the job for the client, we just need to make sure that financially, legally and operationally we've got our bases covered.
I'm still all ears. I'll be printing all suggestions and running them by the rest of the team. We still do not actually know for sure that we will be on our own, but all indicators point in that direction. I have a meeting tomorrow morning with our parent-company boss that will likely include finding out.

[The_Veg]

Well, it happened. The team got canned yesterday. We haven't yet sat down to discuss rolling out our new company as our leader has been out of town. But that will come very soon. Wish us luck!

[GeoffMiller]

Nothing like a good canning to motivate oneself!! Think of it more as an adventure rather than a venture. Good luck. Now quit foolin't around on the forum and start selling! :thumb

[gsjay]

The only thing more over rated than natural child birth

is owning your own business



as told to me.........

gsjay

[Visian]

Well, it happened. The team got canned yesterday. We haven't yet sat down to discuss rolling out our new company as our leader has been out of town. But that will come very soon. Wish us luck!

Luck!

... and the energy, which I know you have, to do the hard work. This is a good thing and you're going to look back at this event as the point where things got a whole lot better.

Ian

[Bfish]

Montana's advcie is excellent. also don't be so hung up on an S corp. LLC's in my state are excellent entities for the type of service you're discussing. check with a local professional as they have many "tax" options and issues. good luck.

[BMWBubblehead]

You at this point won't want to hear this, but... Be VERY warry of the "partners" arrangement. BTDT. People change especially when money is involved. Have the pay scales, the benefits costing, the handling of corporate reports/accounting/council all worked out and agreed to BEFORE starting the biz. Believe me, it will save significant grief down the road.

Here's one example, you decide you are going to bust butt during the winter so you can have some time to ride in the spring/summer. A partner thinks they work harder than anyone else, so they deserve a bigger slice of the pie... it happens! :banghead

Best of luck, better service at the same cost, don't leave money on the table!!!

[SHUNK]

Best of luck to you! I hope to have the cojones to do the same some day...

:thumb

[wanderer]

I love being self-employed.

I would, along with others, encourage you to reduce your agreement (with your other principals) to writing. It's all good now BUT. It becomes just as much of a problem later whether you are highly successful as if you're not. If, in the unlikely event one of you die, you are then in business with their heirs. You also need a buy/sell agreement in case one of you want out. It spells out the conditions of sale equally for each of you. You also need to get serious catastrophic health insurance ASAP. Health issues have sunk many a business. There are a million other things you need to accomplish but those are my areas of expertise. (pm me if you like)

Many people go into business and sadly the vast majority fail. In my experience the majority cause is lack of capital. Close behind that is people often have great knowledge in their area and are caught totally unaware of how much time and knowledge goes into what appears to be the simple day to day operation of "running a business."

I sincerly wish you the very best of luck.

[rinty]

Veg:
It's been 2 months since your employment was terminated and this thread has been inactive for a while, but there may be a legal issue here that you need to check out. My understanding of what is happening is that your group was hoping to get work from customers of your employer, and with whom it had established contractual relations. In some common law jurisdictions it is a tort to interfere in the relationship between two contracting parties, or for a former employee to solicit business from the employer's customers. The fact that the employee was terminated, or that the employer was inadequately servicing the customer, may be irrelevant for legal purposes. Also, the fact that a customer of the former employer approaches the former employee and requests that he/she provides services or supplies, may be irrelevant.

If liability has arisen, it may flow to a new employer who benefits from the business, as well as the former employee.

Hope this doesn't scare you, and if you still need to get the advice, I would suggest approaching an attorney in your state to give you a brief telephone opinion on a pro bono basis, and promise him/her some future work from your business in return. Lots of them will go for it.

Good luck with your new business.

Rinty

[lorazepam]

If Texas is a right to work state, like Ohio is, you can compete with your former employer and they can do nothing. You have the right to make a living, at least here you do.

[The_Veg]

Gale/Rinty, TexSux is indeed right-to-work, and my team leader (I'm not in this alone) has an attorney who's done the homework and he says we're good.

To bring things up to date, we officially launched on October 19 and since then have sold something like $30K of invoices, which our accountant says is unbelievably good for a new small company. Only about $400 of profit in that though due to startup expenses and the fact that we've only just now gotten Master Dealer status with our equipment vendor, and most of those sales are equipment. We're still trying to crack the competition for the more lucrative inspection market. Most potential clients for that don't seem to care that we are not only more qualified but also can offer a better price. That makes no sense since the potential clients are healthcare facilities that are usually driven strictly by the bottom line.
Yesterday we FINALLY got back the tools and other equipment that our former employer stole from us. Surprisingly little was missing.
In a strange development though, two other things that happened yesterday were that we got a notice that a flatbed truck made an unsuccessful attempt to deliver a 175-lb pallet of batteries to us by C.O.D. The strange part is that we didn't order any such thing, yet both my name and our leader's name were on the slip (I'm not even authorised to issue P.O.'s). Then later in the day, we got a call about some welding certification courses for which we've apparently been signed up. We don't weld, nor do we ever have a need to hire welders. We do hire plumbers to braze pipes here and there, but a welding school knows the difference between welding and pipe brazing. So it looks like somebody is messing with us, possibly trying to establish us as fiscally irresponsible- and we think somebody at our old company is behind it.

[Montana]

All are reasons why everything should be signed not by an individual, but by an individual with their title listed, and anything ordered should be done so in the name of the company, not the individual.

Right way to do it:
sold to: Jones Corp, attn: John Jones
Signed by: John Jones, President

Wrong way to do it:
sold to: John Jones
Signed by: John Jones

That way, bogus stuff will be obvious and arguable. Just wait until you're in the local phone book or published in some national service directory. I get calls asking for our copier's model number, so they can ship bogus supply invoices. Of course, we don't have a copier. I also listen to folks wanting to "verify" my company info in their listing. When I point out that we LOVE free advertising but have never paid for it, they hang up. Unfortunately, this still doesn't prevent the frequent bogus billing for advertising in bogus directories, or my favorite, a bill for over $600 for some bogus international internet directory. Yeah, sure, I'd spend money for that!