You Are Self Employed

I was recently talking with a friend who said he’d be scared to try to start his own business because it seemed so insecure. I asked, “How is that any different than what you do working for someone else?” After a moment’s pause, he admitted that it really wasn’t.

When it comes down to it, you work for yourself, regardless of who is the owner of the company that cuts your check. It is your responsibility to market yourself, develop your skills, identify trends and position yourself to profit. Abdicating these responsibilities doesn’t somehow put you into an “employee” category where you have more job security.

Most successful people see their jobs like this. They are in a business relationship with their employer, but they see the employer as their client. This represents a significant change in mindset for most employees, but if you can get your mind around it, it can be one of the most powerful changes in perspective you will ever have.

Here are some ways that being an employee is very similar to being self employed:

  • Your employer/client can get rid of you at any time.
  • There is minimal job security from any one employer/client. You need diversification.
  • Economic forces often determine if you keep the job/contract.
  • Clients and employers aren’t required to be rational – even if you make them money and are valuable, you may lose your job/contract.
  • Your ability to command large sums of money is directly related to your ability to “walk away” and find another client/employer.
  • Employers/clients want people who bring significant skills to the table.
  • Even if you are 10 times more productive, it may be hard to convince people to pay you 10 times more. (Although it is harder as an employee.)

If this is true, why aren’t more people their own boss starting their own business?  It mostly comes down to education. Most people have an employee mindset. They don’t know how to get the things that their employer provides for them and assume they need to work for someone else to get those things.  Here is a short list of some of the things that people tend to rely on their employer for and keep them from starting their own business:

  • Retirement plan
  • Health insurance
  • Tax witholding
  • Vacation and sick pay
  • Marketing (finding clients)

None of these are particularly hard to get/do for yourself if you start your own business, but you have to put some effort into learning how they work. If you think you may want to be in business for yourself at some point, it is time to start researching the above list and learning how you can provide those things for yourself. You are a lot better off having a solid knowledge foundation ahead of time. Not only does it take away some of the fear of the unknown, but it can help you understand how to structure your business in a way to maximize your profits.

Maybe you shouldn’t start your own business. However, everyone can benefit from acting as if they are in business for themselves–regardless of who actually signs their paychecks.

Comments

  1. says

    You bring up valid points. I never really thought of my job that way. Well, there is an issue of financing and if you fail, the possibility of losing a lot of money. Starting up a business is not that easy. It takes guts. Of course, there are now businesses you can start online where the only requirement is time and not money.
    I think not only the fear of failing is what’s stopping most people. Some people fear success (like I do). Besides, it’s not really for everyone. Maybe people are just happy being employed.

    • says

      A lot of people like the false security of being employed. It is amazing how little money it takes to start a business now days–and I’m not just talking about some online build-a-website type thing. So much of what you use to have to pay for is now free or very inexpensive.

      I was talking with a business man this weekend who told me how he bought a computer for his business in 1985 for $4000 (in 1985 dollars) and how much easier it made it to run his business. You can get a very usable computer and software today for $300 and probably less if you want to watch CraigsList for a few weeks to find a good deal.

      Same thing goes for how inexpensive communication is. You can get setup on skype with unlimited calling for something like $30 to $40 per year and it works very well. 20 years ago this would have been extremely expensive.

      So much of the basic infrastructure is free or dirt cheap.

      • says

        There are still a lot of things to consider. And it all depends on the nature of business. What if you need to hire employees? That would cost money too. And what if you can’t find cheap equipment? All I’m saying is it’s not that easy. Simple maybe but not easy. I guess most of my fear came from seeing my mother fail three businesses she had in the past. I didn’t want to make the same mistakes she did.

        • says

          You could choose a business that requires a lot of employees or you could choose one that you can start with just yourself and outsourced help. You can choose to start a business that requires a huge capital investment or you can choose to start a business where you can simply pay as you go with little start up capital needed.

          My point is that just because there are some businesses that require a lot of money to start up shouldn’t be an excuse. If I need a car, I don’t let the fact that some cars cost over $250,000 keep me from purchasing transportation.

          If you want to start a business, start one where the cost of failure is low. Yes it requires planning and yes it requires work, but you can either do your planning and work for someone else or you can do it for yourself. :)

    • Edith Darling says

      We share the same views just that i don’t fear success i actually fear the process of getting there,my problem is the income to start the business and what kind of business i can start coz i’m personally not a business oriented person but i need something to supplement my salary coz of these hard times.Any ideas?

      • says

        Obviously it is a lot harder to start a business when you need the money. I know that a lot of people do things to drop their expenses before they launch a business. My wife and I sold our house and moved into a small apartment before we started our business so our expenses dropped dramatically. On the other hand you can start a small business today with less capital than probably any time in history. You’ll have to look hard to find something that matches with your skills.

  2. Kate says

    Health insurance isn’t particularly hard to get for yourself? Maybe that’s true if you have no children, no pre-existing conditions, and no need to ever go to the doctor. My husband actually quit freelancing mostly to get our family decent health insurance at a price we could afford. It remains to be seen how much the new health care reform package will change this situation. (And yes, I know all about HDHPs and HSAs and all the other options, believe me. Been there, done that.)

    • says

      I’m speaking from experience of getting health insurance for my wife and I when my wife was already pregnant–so a pretty big pre-existing condition. Yes we had a high deductible, but we were able to keep the costs fairly low by forming a two person group. In some states group policies can’t go up by more than a certain percentage for pre-existing conditions so there was a cap on how much more they could charge. It wasn’t super cheap, but it wasn’t too much out of line with what an employer would have had to pay for our insurance.

      Was the insurance you were finding significantly higher than what your husband’s employer has to pay for your coverage?

  3. Andrew Ziemba says

    I often think that ‘being self-employed’ vs. ‘being an employee’ is very similar to ‘owning your own home’ vs. ‘renting’:

    As a renter/employee there’s less responsibility (you pay the rent & that’s it/you do your job & go home). But there’s also less flexibility (your landlord sets the rules/your employer sets your hours).

    As a home/business owner there’s more flexibility (you make the rules/you choose your work). But also more responsibility: You’re the one who has to replace the roof if it blows off/If your payroll taxes are late, you’re the one with a penalty.

    I know people who have the education to run their own business, but they choose to exchange some flexibility for a lighter load of responsibility. I know others who have their own business, but are suffering because they are unprepared for the responsibilities that come with it.

    • says

      Is working for someone else really that much less responsibility? Obviously if you work for yourself, you have to deal with your own payroll, doing taxes, etc. but most of these things can be outsourced to other small businesses that specialize in those things. But when it comes to taking responsibility for making sure you have an income, working for someone else isn’t any less precarious than working for yourself.

  4. says

    The only real difference is mindset. Our schools train us up to think like employees and teach that there is security in working a job. On a subconscious level many people just think that is the way it is, and have been taught that stating your own business is risky.

    However, starting a traditional brick and mortar type business, especially in today’s economy, is still very risky, the internet offers several, love investment business opportunities, that the risks have been drastically reduced for today’s entrepreneur.

    We live in the information age, isn’t it wonderful?

  5. jd- says

    What is being compared is tangible value, there is immense intangible value of working for yourself. I willingly put in an additional 16-24 hours of work a week running my own business for that peace of mind that I would for an employer working a straight 40. Also working harder because well, I found that working hard for an employer isn’t exactly valued fairly all the time. I do not have to deal with office politics any longer. And I do not have to participate in a largely corporate workforce which my personal values do not align with. No more filling corporate interests greedy pocket books. When I work my business, I can say yes or no to potential clients, only choosing ones I would enjoy working with. Sure there are still some bad clients but nothing like the corp world. I view the gov work the same way.

    • says

      And depending on what type of business you are doing, your work may be building up residual value. When you leave a job, you usually don’t have any value built up from all the years you put in. When you are ready to retire from your business you can hire a good manager and keeping making money or sell it to someone else and cash out. It is a lot easier to invest those extra hours when you have a chance of getting them back as cash in the future.

  6. John Wayne says

    I think the difficulty of starting your own business heavily depends on the type of business. In some businesses it can take years of work before any income can be expected back. Even if that income is very rewarding when it finally starts arriving (and often it is), how many people can afford to work without, or with very little, pay for 2-3 years?

    The main obstacles in starting your own business is lack of financial freedom, lack of willingness to take risk, and lack of sincere belief in success. Once these obstacles are overcome, it’s truly rewarding. Even if business fails, a lot can be learned from the experience.

    • says

      There are businesses that take years of R&D and intense capital to start. However, there are many businesses that don’t. Many of the things that would be very large expenses for a business 20 years ago are not today. Computer systems are inexpensive and many of the things that previously required large investments can be outsourced today.

      • John Wayne says

        I completely agree. Just wanted to note that there are more complicated cases, and state some of the obstacles not mentioned in your article.

  7. says

    I agree with everyone about having the right state of mind. If you are just thinking about failure then it’s not for you. They don’t train car racers to look at the wall when going around turns do they?

    Before you invest any capital some research on whether or not people are willing to pay for your products or services. This is as simple as asking acquaintances if they would pay for your services or products.

    Anyone who wants to start their own business read Michael Gerber’s The E-Myth Revisited. Stands for Entrepreneurial Myth and was introduced to me by a mentor with a successful business who said this was a fame changer for him.

  8. lx123 says

    Hi! Nice article. I started my own business around July last year, I’m already seeing some decent income. However, I’m concerned about the fact that when they offer me a job it actually pays more than what I get. Do you think it might be a wise idea to work on my business on the side? With a 9-5 job I would have around 2-3 hours per day plus the weekend, where I can at least put 12 more hours.That’s like 98 hours a month, two weeks of full time job. Basically working at half speed, I’m not sure though if this formula would actually work out. Any ideas?

    My long term plan is to have my own business, but right now I’m starting to really question my decision, is it possible that it’s wise to wait? The thing is that any job as a programmer, with my experience, offers me at least 80 EUR per day after taxes. To get that working for myself I need to make at least 150 EUR daily (because I have to pay my taxes, social security, etc) And I’m not getting that, these last days I’ve lost some of my motivation because I worked really hard for the last two months, working 16 hours a day, 6-7 days a week, and I made like $1500 in the whole 2 months.

    I’m thinking on maybe working on the side and get like $500-$600 extra per month, maybe a bit more… Definitely I want to have my own business, but I’m a bit tired of not being able to have savings… Can you tell me more about your personal experience? Are you enjoying now a very profitable life?

    • says

      I think keeping your current job is an excellent idea for now. Particularly if you have very little savings. Once you are in business for yourself, you will probably go through dry spells and you’ll need to make sure you have cash on hand in case you need it. It is a lot easier to make good business decisions when you know you have a year’s worth of living expenses in your bank account than when you are trying to figure out how you are going to pay for food tomorrow.

      I would encourage you to try to to find ways to run a business that doesn’t just involve just selling your time by the hour. For example, if you are a programmer, you might want to consider creating software and selling the software itself. Lets say it takes you two months of spare time to make a simple product that you can sell for $10 and you can average 10 to 20 sales per month. If you can do this for a year and create 6 products that bring in $900 per month without require continued large investments of time, that is a significant amount of income that keeps coming in even while you work on other products or doing other work.

      Another example, from my experience. I do software engineering as well and I’ve started taking on clients in a startup arrangement. Basically I’ll do software at half the normal cost for half ownership. So if someone comes to me with an idea that sounds good, I’ll write the software, but they only pay me half the invoice. The other have is the portion that I’m putting into the business. This type of approach helps give me some income now from selling my time, but ongoing income in the future as the product is sold.

      The trick is to spot the opportunities that are worthwhile and where the other person has something to really offer. In particular you want to look for partners that have an established customer base to sell the new product to. I’d much rather partner with someone on a good idea who has excellent chances of marketing the product than someone with a fabulously incredible idea, but no existing customer base. And as with any partnership, you have to make sure you can trust the people you are partnering with. Get things in writing, etc.

      It is much easier to quit your job when you know you have enough passive income to cover your basic expenses already.

      Best of luck in your new ventures!

    • John says

      It’s absolutely wise to have a steady job and continue working on your own business on a side. If all your income is coming only from your new business, you might start “strangling it” by not re-investing that income back.

      I have a 4-year old internet business that does well, however I still keep my steady job, as the income is not the same yet (it’s around 60% of the pay I get working for a large corporation). It may never be. However the satisfaction and flexibility is not even comparable, and when I look at work/pay ratio my own business always wins. If I couldn’t keep both jobs I would always choose my own business. When income comes to 100%, I may finally decide to quit the corporate job.

      Do not get discouraged, do not get greedy (e.g. charge how much you need instead of how much is wise to keep the customer base growing), treat your customers right, and most importantly, be patient. Good luck.

      • says

        Thanks John. I think one of the problems people run into is when they start making money from their side job, they just expand their expenses. You want to set that money aside as funds to further the business or to pay yourself if you quit your job. If your expenses just grow along with your side job income, you’ll never get to the point where you can actually quite the job that requires you to show up everyday.

  9. sarah says

    If you worked for someone as an employee and you had your own private company can they pay your private company or do you still need to be paid as an employee. Stating this as better tax deductions with private company

    • says

      If you work for someone, but they pay your company instead of you, then they are contracting with your company–not you directly. In this US this would mean that they wouldn’t have to pay about 7% FICA tax because your company would be responsible for paying that on whatever salary you take from the company.

  10. Christina says

    I’ve wanted to open a vegetarian sandwich/small scale restaurant
    for quite sometime however it is very risky given the money i’d have to sink into it
    Just to get started. It seems like only people who are well off or have a lot of savings can do it. A successful eatery would require a great location, custom remodeling to accomadate cooking equip, in house seating, etc. not to mention hiring help and the food supplies themselves. Seems much less daubting to punch someone elses clock :(

    • says

      There are always going to be businesses that require massive amounts of capital to start. However, creative people can find ways to start a business and bootstrap it with minimal capital. For example, if you were to start out small doing catered sandwiches for special events your cost wouldn’t be nearly so high to start off.

      The town where I live has a pretty nice taco/hotdog place. They started off selling hotdogs from a cart downtown. Now they have a small building and they seem to be keeping pretty busy.

  11. Olivia says

    I’m wanting to start a tutoring business, but I don’t know
    where to start. I’m just wondering if it would be
    worth my time and effort to start my own business. I currently work for a
    school district and I am dissatisfied with the “behind the scenes”
    politics that goes on… What are your thoughts???

  12. johnny says

    My employer wants to terminate my employment and wants me to go self-employed and rent my own seat in a hairdressers. Where does this leave me with regard to redundancy I have been working for them for 2.6 years, the last 9mths of this have been on a part-time basis due to the down turn in business

  13. Sam says

    I am a nutritionist and I want to start up my own business. I am working a full time job right now (that I hate) and I really want to finish my own run business. I have 12 years exeprience in my field but I am nervous though because I do not know where to begin and how to build up a client base. Any ideas? I was thinking of starting home consultations before setting up a clinic? Many many thanks.

  14. sanudiya willie says

    One need to put all efforts together in order to come up with a sound business, you need to know your strength, opportunities, threats, and weakness.

  15. SANUDIYA WILLIE says

    SUCCESS IS NOT BY LUCKY.

    Success people are not lucky, however, they have taken their time, effort, and ideas together, some of them have secrified their valuables, properties. There is a need to work hard inorder to achieve our goals, some of us we are already there, but, we don’t know it, we need to work hard and smart so that our goals will come true.

    Honesty, if you want to be someone, there is a need to be faithful in all your business transactions and everything you do, for those who are not yet in business this is the time to make it. Keep on working hard and praying your dreams will come true.

    With Lord everthing is possible.

    SANU-EXTRA: BUILDING THE SOCIETY TOGETHER.

    “It’s more than usual”

    Email:sndwillie@gmail.com
    Cell :0774062495

  16. Joseph says

    A person can “what if” themselves right out of doing something in which they’re interested. This sometimes can mean that a person is saying, “I really don’t want to do that.” Those that really want to, will respond to the “what if’s” with, “then I’ll deal with it when it comes along.”

    One of the best tests of whether to pursue something worthwhile (and anything creative is worthwhile IMHO), is will we ever look back on our life decades from now and wish we had taken the risk? Sure, failures are possible, and financial problems can happen when business doesn’t work out, but to want something and NOT EVEN TRY FOR IT – is far worse.

    All this from a person who has been “a puppet, a pauper, a pirate, a poet, a pawn and a king. I’ve been up and down and over and out” and I’ve learned more than just one thing.

    And glad I tried going after some of what I wanted in life.

  17. Dodo says

    My partner has run a business for the last ten years. Much as I love him and want to support him I am so thoroughly sick of it. It has never justified the hard work he put into it. Fora number of years we have been unable to take even a basic salary from it. A quiet weeks work for him is around 60 hours. Many many times he has worked between 80 and 90 hours. I’m watching the man I love age rapidly with his every waking thought consumed by the business it seems to me. I manage the house and kids essentially alone most of the time with the help of a childminder. I work full time to support us. I thank God for my relatively secure job and caution anyone going into business to be ready for a turbulent and difficult life. I have been self-employed in the past where circumstances required in the past. A salaried job is for sure a safer bet for sure. Bills are relentlessly predictable so income needs to be as well.
    I would urge anyone starting to really examine what they want out of life. Running a business successfully or otherwise in my view does not leave much time or energy for anything else. My aim in life was very ordinary: to have a happy family life with the man I love and our children. As far as I’m concerned the business is gradually destroying that dream but I hope we will pul ourselves out of this soon.

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