Editor’s Note: This story originally appeared on Penny Hoarder.
Freelancing, consulting or starting your own business can be the perfect way to start your dream job. But making the leap into self-employment is never easy.
Leaving the comfort and security of your day job for the greater responsibility of running your own business is exciting – but completely exhausting.
If you’ve been in the workforce for years, it’s hard to know where to start. Here are some important tips to keep in mind during your self-employment journey.
1. Create a Business Plan
Creating a business plan is one of the first steps to becoming self-employed. Your business plan should outline your objectives, the services or products you will offer, your target audience and your financial projections.
Ask yourself these questions when creating a business plan:
- What services will you provide?
- Who is your target audience and how will you reach them?
- How will you get your first contract or project? How will you find clients and future leads?
- How will you price your products or services?
- How much money do you need to cover expenses?
- When and where do you want to work?
- How will you grow your skills and network?
You can also check out this free guide on how to create a business plan from the Small Business Administration.
When developing your plan, be realistic about your financial projections and set achievable goals. Don’t underestimate the time and resources it takes to start your business.
This is also a good time to decide what makes your skills or service unique. How will you differentiate yourself from the competition and position yourself as an expert in your field?
2. Create Wiggle Room in Your Current Job
You can work on your new job for a living even before you leave your old job – in fact, this is advised by many career experts.
You are probably spending more time than necessary doing work that you do not like in your current position. Start your transformation by cutting fat.
Find out what tasks should be completed by subordinates or other departments, and take them off your plate.
Cutting out mundane aspects of your work, such as team-wide meetings and performance reviews, can free up more time to focus on your business.
Start growing your hustle, work with a few clients and gigs in your free time so you can replace your income and change your career and your lifestyle little by little.
Your side hustle will probably take over your free time and other hobbies for a while. But it will pay off when you can leave your day job behind, start a new career and do what you love.
3. Fix Your Finances
Be prepared to save three to six months of living expenses in an emergency fund, as well as any money you need for business. This financial cushion will give you breathing room if you experience unexpected expenses or a slow month.
Start saving by looking for ways to cut costs to save money quickly, such as canceling subscriptions and shopping for cheap car insurance quotes. Use an expense tracking app so you can identify areas where you can cut back and save more money.
By preparing for life on a low income, you can eliminate the financial fear that comes with quitting your day job.
Now is also a good time to take care of major expenses. Upgrade your computer, pay off credit card debt and eliminate as much other debt as possible while still relying on your current income.
You also need to find out how much money you need to start your business and how you will finance it: personal savings, loans or private investors. Calculate how many hours per day and week you need to work to meet your financial goals and replace your current income.
Don’t expect to make full-time money right away, and be prepared to work hard and stay dedicated. Be realistic in your budget and make sure you account for things like new goods and marketing.
Finally, create separate accounts for your business and personal finances. This makes it easy to track your business income and expenses for tax purposes. Keeping things separate also helps avoid mixing your personal savings with your business finances.
4. Get Your Health Care and Taxes
Launching your own business means you will be responsible for many of the costs your employer pays, including taxes and health insurance.
Unlike regular jobs, self-employed people are responsible for paying their own taxes. A good rule of thumb is to set aside about 20% to 35% of every salary you make to cover your freelance contract taxes.
You will have to pay estimated taxes each quarter in addition to filing an annual tax return. This would include federal income tax and self-employment tax, an additional tax levied on independent contractors totaling 15.3%.
Before you switch to self-employment, sit down with a certified public accountant (CPA). This expert can help set up your accounting and tax reporting procedures. A CPA can also help you create realistic billing rates.
Next, you will need to get your health insurance. Buying your own can be expensive, but luckily, there are several ways to get health insurance if you’re self-employed.
You can purchase a plan through the Affordable Care Act (ACA) Health Insurance Marketplace. Here, you can compare health insurance offered by different providers – and you may qualify for subsidies based on your income.
Additionally, you can look into getting health insurance from your spouse’s employer. Or you can continue to work part-time so that your current employer can keep your benefits in place.
5. Network and Learn
Use this time before leaving your full-time job to educate yourself about freelancing and your new industry.
Continuing education and professional development is essential to stay competitive in today’s job market.
Attend workshops and conferences, take online courses and read industry publications to stay up-to-date on business trends and best practices.
Learn how to use your resources and find new ones. Join your local chamber of commerce, access Small Business Administration and connect with your peers on social media.
Work to add more people to your support network over time, whether that’s a mentor, business coach or meeting your fellow entrepreneurs.
6. Embrace Time Management
As a self-employed person, you are responsible for managing your schedule, finances and customer relations.
It’s important to stay organized and keep track of your to-do lists and deadlines.
Learning to track your time will make it easier to calculate your billable hours, create reports and analyze cost/benefit ratios.
Consider using tools like project management software, accounting software and time tracking applications to stay on top of your work.
Using a time sheet calculator or similar app for a few weeks can give you insight into your biggest time wasters, as well as your most productive hours.
7. Skip … Gracefully
When it’s time to leave your job, give proper notice and maintain a good relationship with your employer.
You might consider helping to train your successor and help with the transition.
After all, you never know when you might need a reference or want to work with the company again on a part-time or contract basis.
Before you quit, review your employment contract to see any non-compete or non-disclosure agreements you may have signed. However, don’t let these documents stop you.
Be proactive and let your employer know that you will not solicit their clients. If you are honest and objective, your employer is less likely to enforce an NDA or non-compete.
8. Know What’s Holding You — And Let Go of That Fear
Sometimes, fear is the biggest thing that stops people from turning to self-employment.
You have the passion and ability to acquire all the skills and knowledge you need to do what you want. Obstacles in your life can make change difficult – a family that demands your time and attention, a day job that leaves you exhausted, a loan that insists on being paid each month.
But none of these challenges make your dream impossible.
Be prepared for the ups and downs of business and have an effective plan to deal with obstacles and challenges.
Then, take a deep breath and jump.
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