However, no matter how big your dreams are, you need to fully understand the reality of being self-employed and what it will actually cost you.
Before you tell your boss to peace out and start pursuing your dreams, here are the six costs you must consider before making your final decision.
1. Lack of a consistent paycheck.
The biggest monetary concern you must face when becoming self-employed is having a lack of a consistent paycheck. Sure, you may think that you’ll reap all the profits of a successful business, but it could take months or years before you make any real profit that comes close to what you were making as a full-time employee.
Be sure you look into your currently monthly expenses as well as the expected expenses of the business, and then determine what you need to bring in to make ends meet. If you plan on living off of your savings account, you want to know just how long your savings will last before your company needs to start making money.
If you don’t consider this, you could put yourself into a very bad financial situation too quickly, and it could be detrimental to your personal finances as well as your business.
2. Start-up costs.
In order to start a business, you need to make sure it’s legitimate. This means you need to file your business with your local governments, and this typically requires a small fee.
In addition, if you need to produce products, build inventory, or purchase equipment to do a specific service, these are all expenses you’ll need to provide upfront to get the business up and running.
Throw in other necessities, such as a website or other marketing collateral, and you could find yourself with a hefty start-up cost expense list. Be sure to have a full understanding of what these are so you can be financially prepared for what’s to come.
3. Insurance costs.
When you are self-employed, you’ll be responsible for two different types of insurance: insurance for yourself as well as insurance for your business.
For the business, you’ll need to make sure you’re getting all the coverage you need to keep your company protected from liabilities, workman’s compensation, insurance coverage for employees, and anything else that is necessary for your specific operation.
As for personal insurance, you’ll no longer have an employer covering all of or a percentage of your medical/dental/vision/life insurance, which means you’ll need to pay for this out of pocket.
Be sure to shop around for the best deals and do some research by looking at reviews and seeing what other people have to say about the company before making your final decision.
4. Legal fees.
When you’re starting a business, it’s always a good idea to ensure you’re following the laws appropriately, and this means using the assistance of a lawyer.
However, legal fees can add up, and if you’re not prepared for these, it could damage your business. Be sure to meet with a variety of different lawyers in your area and choose the one that you have a good rapport with as well as one whose fees aren’t astronomical.
Also, have a clear understanding of how their fees and payment structures work so you’re not blindsided with a giant bill for asking them a question over the phone or having them draw up a contract.
5. Technology costs.
Most entrepreneurs will start their company from their home, and that’s a good way to lower the start-up costs without taking on additional rent or mortgage payments.
However, while running a business, you may find that the technology you currently have will not suffice. For instance, maybe you need a landline, a fax machine, accounts payable/receivable software, or a higher internet speed to help your business operate.
Any of this will create a higher technology cost on your end, and you need to be prepared to pay for this.
6. Taxes.
If this is your first time being self-employed, you need to understand that filing your taxes will be different than years past. As a business owner, you’ll need to account for all of your spending, which means you will likely want to itemize expenses.
In order to do this appropriately, you’ll need to keep records of your expenses, which means keeping receipts, bill statements, check stubs, and anything else that can prove an expense for your business.
In addition, you want to be aware of any self-employed tax credits you’re eligible for, as those can help reduce the amount of taxes you owe.
Running your own business can be a dream come true, but it’s also a lot of work you need to prepare for, especially when it comes to keeping your finances in order.
