It happens to the best of us. We are working a 40 hour a week job on salary, but are actually putting in 60 or more hours a week and only getting paid for the base 40. Eventually, if the annual COLA (Cost Of Living Adjustment) or merit increases aren't enough, we start to either look for another job to continue the madness, or, we branch out on our own. The first thought is, "I only need to work 20 hours a week being self-employed to earn the same salary I had at my job!" The math makes sense. Usually, being a self-employed consultant, or expert in your field, you earn more per hour than any of your peers working that supposed 40 hour job. So you'd think. But, the truth is in the pudding. As an entrepreneur, you end up working that same 60 hours, or even more, to earn that 20 hours of pay. Why? Well, you are now your own PR and Marketing person, your own accountant handling AP plus AR, your own HR person, your own sales force, your own ...... Well, you get the point.
At the end of the day, most small businesses fail within the first 2 years or less because many self-employed individuals don't take into account the process that is required to actually land your own clients and run the business. It's not easy. Plus, running your own business brings it's own costs along for the ride. That low cost medical insurance you were getting at your old job? Gone. That 6% matched 401k? Gone. That pennies on the dollar life insurance? Gone. Now you get to find out what COBRA or the Affordable Care Act (or sometimes called Obamacare) will cost you in real world dollars. What life insurance costs when you are not in a group. On top of that, add in the new tax burden - yes, you end up paying both sides of Social Security and Medicare for a total of 15.5% instead of the usual 7.65% you pay when working for someone else, and you now have to pay quarterly taxes to both the Feds and your home state (or multiple states if you work across borders). Oh, and did I mention business licenses? Business insurance? Having to collect and pay sales tax? The list goes on.
Yet with all that, a huge percentage of workers are leaving the traditional workplace and striking out on their own. What drives them to leave their jobs? Is it the promise of making more money? Partially. However, the real truth lies somewhere beyond earning more. For most, it's that sense of accomplishment, the feeling that we've done something worthwhile, something better. Being able to pat ourselves on the back for a job well done. Something that many managers in the job world fail to do for their employees. Recognizing your employees for doing their job, and doing it well, is paramount to your employees happiness. Happy employees stay the course. When they are unhappy, or their job future is uncertain, these employees will start to think about what it would look and feel like to have their name in bold on their own business cards.
At the end of the day, if you want to strike out on your own, do it. Just prepare and plan ahead. Save up 6 months worth of salary and don't put all of your eggs in one basket. Don't let one account or one customer define your business. Diversify across all client types, small, medium and large enterprise sized businesses. It's best to have a dozen small customers than one or two large customers. But at some point, you do want some of both.
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