From Accountingweb: One of the biggest milestones for a freelancer is the day they decide to abandon their day job and take their side hustle full-time. By leaving their job, they’re often entering a world where they’ll need to embrace greater risk and uncertainty. But as an upside, they’ll be their own boss, with increased control over the trajectory of their career. It’s important people prepare themselves before taking the plunge.
According to FreshBooks’ 2019 Self-Employment in America Report, roughly 15 million people across the U.S. work for themselves full-time, and another 24 million say they want to join their ranks in the next two years. This is an exciting goal, as entrepreneurs develop new offerings and services, create new jobs, and ultimately help form the bedrock of our economy. However, roughly half of U.S. businesses fail in the first five years – so it’s important people prepare themselves before taking the plunge.
Entrepreneurs are risk-takers by nature. As an accounting professional, if you have any clients who are considering working for themselves full-time, you can support them by helping them navigate the transition into running their own business. Here are some questions you may want to explore with them as they venture into self-employment.
1. Does your client have enough funding to get their business off the ground?
One of the first questions to ask your client is whether they are financially stable. While launching a small business will always take some measure of faith, optimism and self-confidence, it’s important for your client to ensure they have enough money to kickstart their business. Once their business is launched, can they afford to go without payment for a certain period of time if necessary?
Finally, is your client ready to handle their taxes and benefits on their own? When they had a traditional job, their employer would have been responsible for their tax deductions, but now that they’re going solo, it’s their responsibility. In addition, are they prepared to manage their own health benefits or do they have savings in place for medical care?
As a trusted source of advice, you can caution your client if you don’t think they’re financially ready for self-employment. That doesn’t mean they need to close the door to their dream of being their own boss – but they may want to continue with their day job and side gigs before taking the next step.
2. Does your client have a solid business plan?
Once your client takes their business full-time, they’ll need to cover their expenses, file their taxes and turn a profit, all without having the income from their day job to supplement them. Having a business plan will go a long way towards helping them succeed. Bplans is a great resource for business plan samples and templates to help your clients get started.
You can coach your client on ensuring they’ve done their market research, understand their target audience and that they have a plan for growth in the next five years. This could push them to change how they bring in new clients, how much they charge for their services or even if they should pivot their business model.
3. Does your client know how they will manage billing, reporting and tax time?
For many clients, managing the financial side of their business is an afterthought. But it pays to set up a system that allows for as much automation as possible for invoicing, billing, and expense management. Using Word or Excel for even basic accounting can be cumbersome. While software designed for these tasks can be intimidating for self-employed folks, it can be critical in helping them understand how their business is performing financially.