With escalating headlines on the gig economy, Uber’s definition of employment being parsed, politicians focusing on the economics of on-demand employment, and the entrepreneurial profiling of the upcoming Generation Z, I felt it was time for a post about what it means to be a designated 1099. The good, the bad and the fuzzy.
Two things to clarify before I get to the good stuff:
1) To be clear, along with tongue in cheek, I tell people that I have been a consultant for 17 years, of which I have taken 2 “real-job” sabbaticals (equaling a total of less than 2 years).
2) Personally, I eschew the term freelancer. While free does elicit a response it also sets up an expectation. The #1 thing I hear from those who are independent is they are often spending more of their time collecting payment than doing the work. That is wrong. Just sayin’.
To get at the singularity of being your own boss, I’ve created a list (like that hasn’t been done before) to peruse based on your interest and/or need in being a solopreneur. There are a lot of moving parts (I picked some that I feel are important and left some out because they are thorny); I hope I’ve covered the most pertinent ones here.
1. A checklist of skills for being a successful independent.
Here are the 4 traits that are imperative to being out on your own:
iii) Passionate about what you do/offer (you’ll be talking about it all the time)
iv) The ability to get along with almost every personality type (you’ll work with them all)
I hope it is implied that you should also be comfortable being independent.
2. Treat your business as a business.
One of the reasons that 1099’ers “get no respect” is because often others see us as temporary, in-between full-time jobs. And the best way to counteract that is to act like your business is a business. Here are some examples:
– Separate your financials so that there is clear delineation between your professional and personal, specifically checking accounts and credit cards. (More about savings accounts in #7.)
– I pay myself a salary; it is clearly noted in a balance sheet of my business.
– Get in a habit of looking at the data of your business: conversion rate, best referrers, sales cycle, cost of doing business, allocation of time use, and year-over-year income (as a starter list).
3. A very important detail of acting like a business (a.k.a. Uber’s headache).
One sticky area that is not always detailed out is how important it is to not only have the appearance of being your own boss, but being sure you have more than one boss at a time. This is the contractor vs. consultant issue that is clouding up (okay I’ll take the pun on that one) the courts in California. Because I am not a lawyer and all states are different – let me just jump to how I manage this for my own business. I always have several clients within the year. More often than not I have them overlapping each other. There is a clear paperwork trail that establishes me as being an independent entity and not an employee of any of my clients (something my clients also want). Per the likely growth of the gig economy, this is going to have to be better defined, with clear guidelines, and with more consistency across the country (think rules for the Information Era vs. the Industrial Era).
4. To run a business you need marketing, sales, HR, accounting, legal, and tech support.
You need a lot of skills beyond what you are offering to the marketplace. Pick and choose which ones you really want to be and outsource what you need to. Get smart about legal (that could be a whole other post), but get a lawyer when you need one. I run my own P&L but I don’t mess around with taxes – I outsource to a professional accountant.
5. Uncle Sam isn’t so friendly and you have to deal with him more often.
At the federal (and in many cases the state) level government is still under the impression it is the 50’s when it comes to company structure. The biggest burr in my butt is as an independent I pay into Social Security twice, once as the employer and the other as an employee and … wait for it … I only get one of those back! (I’m totally simplifying this but the gist is you put in more than you get out.). Also you have to pay taxes quarterly not just once a year! Put in your calendar April 15th, June 15th, Sept 15th and Jan 15th as a reminder. Finally, when it comes to taxes – be prepared. The one thing I do is separate out 40% of every incoming check for taxes and costs of doing business (think: squirrel, nuts).
6. Here’s to your health.
Geez, independent or not, health care is an abyss. You need it and it is hard to get as a single payer (to be transparent, I am totally pro- everyone being single payer, and especially so if the ranks of 1099’s are getting bigger). This is definitely a big portion of the costs of doing business. There are options: Freelancers Union, I know some consultants using Obamacare, and there are new entrants like Oscar. This is truly a personal choice. The answer shouldn’t be “I’ll go without.”
7. Here’s to your financial health.
I’ll make this quick because it can easily take up its own post – instead of 401(k)’s, as a solopreneur, you have a great advantage being able to save through a SEP-IRA (Simplified Employee Pension), or as I like to call it Self-Employed Pot o’Gold. Read up about this, pick one that is right for you, and stuff it full of the allotted money every year. (Every major fund company has them, plus the banks. If you have a financial advisor, ask them. It is overwhelming but worth the several hours of learning and choosing … or just take a dart throw and start one.)
8. Make it legal.
Your business should have a legal definition. This is another area where there are no easy answers, but not looking for an answer that suits you is fraught with peril. Start by searching for legal definitions of a Limited Liability Corporation (LLC) and S/C-Corp. There are costs of doing business for both. Talking to a lawyer and an accountant should be part of your investigation. Bottom line this legal definition should separate your personal from your professional liabilities.
I’ve left out a lot because there is a limit to a person’s ability to list them and read them! Didn’t get into all the different insurances. A biggie I get asked all the time is how to market your business and convert business, which is missing here. Also left out the importance of tracking your time (big benefits when you do). Didn’t address some of the lifestyle issues of solopreneurism (e.g., feeling isolated, missing working with others, having freedom, time management). If you are interested in any of these – or have any questions – post them in a comment and I’ll do the best I can to answer/guide; might just write another post. (Disclaimer: I do run my own business and will likely have time delays in getting answers or post up quickly!)
I’ll wrap-up with two parameters that are often mentioned as being benchmarks of a successful independent:
1) If you can make it work, string it all together, for 2 years; mythology says you’ve made it. You may know sooner than that if you want to be doing it.
2) A wise mentor told me: you will know you’ve made it when you fire your first client. Which was heresy to me. But she was right. It means you know whom you can help and whom you can’t.
Learn more about Beth Temple at Linkedin (https://www.linkedin.com/in/btemple)