Unemployed: Are They the New Self Employed? Top 5 Mistakes
1990 was the first time I got a pink slip; I sent out about 800 resumes.
I finally took a temp position at a financial institution in Boston and wormed my way in that way.
It happened again in 2002 at this financial institution after 10 years of employment, one terrorist attack and a market crash.
I remembered the 800 resumes.
So I joined the world of the self-employed as a QuickBooks consultant in early 2003.
Becoming self-employed is not for the faint of heart.
In my ten year journey, I have met many people like myself.
I learned from my mistakes and theirs.
1.
Not understanding the types of entities and their tax ramifications; for example, self employment taxes are usually a big shock to entrepreneurs.
If you have been an employee all your life, your employer has been kicking in half of Social Security and Medicare.
If you are a sole proprietor or in a partnership, you are paying both sides of the equation and making quarterly estimated payments.
The good news is that you get credit towards social security.
2.
Not having enough capital or a financing plan in place.
Entrepreneurs have a lot of great ideas, but think they can finance everything through day-to-day operations.
I am here to tell you that strategy does not work.
Current Assets (Inventory) should be paid for with short term debt (under a year); Long Term Assets (Furniture, Fixtures, Equipment, Leasehold Improvements, Buildings, etc.
) should be paid for with Long Term Debt (Longer than a year).
3.
Not doing their homework regarding the market they are in and the kinds of things they need to do to make a go of it.
Trying to save money by doing everything and not getting expert help.
One great resource is the IRS; they are happy to tell you what your responsibilities are as a new business; SCORE is an offshoot of the Small Business Administration; they are retired business executives willing to share their expertise for free.
Small Business Development Centers are also great resources.
Local schools also may have resources.
4.
Not understanding a balance sheet or profit and loss statement; I have often heard from clients how could I have made a profit and be broke? Because most of the profits went to buying assets, paying down debt or owner draws: all balance sheet accounts not profit and loss accounts.
5.
Leasing equipment they cannot afford.
Leased equipment becomes part of overhead.
It does not go away when revenue goes down; to buy out of the lease is very expensive and the leasing company doesn't want it back especially if it has depreciated in value.
Make sure you know what you are getting into.
You could make a deal and try to negotiate with the leasing company, but if it was an expensive lease, even a negotiation can be expensive.
Being in business for myself has been the most rewarding endeavor of my career.
It fulfills my love of the business world while being in control of my destiny.
I finally took a temp position at a financial institution in Boston and wormed my way in that way.
It happened again in 2002 at this financial institution after 10 years of employment, one terrorist attack and a market crash.
I remembered the 800 resumes.
So I joined the world of the self-employed as a QuickBooks consultant in early 2003.
Becoming self-employed is not for the faint of heart.
In my ten year journey, I have met many people like myself.
I learned from my mistakes and theirs.
1.
Not understanding the types of entities and their tax ramifications; for example, self employment taxes are usually a big shock to entrepreneurs.
If you have been an employee all your life, your employer has been kicking in half of Social Security and Medicare.
If you are a sole proprietor or in a partnership, you are paying both sides of the equation and making quarterly estimated payments.
The good news is that you get credit towards social security.
2.
Not having enough capital or a financing plan in place.
Entrepreneurs have a lot of great ideas, but think they can finance everything through day-to-day operations.
I am here to tell you that strategy does not work.
Current Assets (Inventory) should be paid for with short term debt (under a year); Long Term Assets (Furniture, Fixtures, Equipment, Leasehold Improvements, Buildings, etc.
) should be paid for with Long Term Debt (Longer than a year).
3.
Not doing their homework regarding the market they are in and the kinds of things they need to do to make a go of it.
Trying to save money by doing everything and not getting expert help.
One great resource is the IRS; they are happy to tell you what your responsibilities are as a new business; SCORE is an offshoot of the Small Business Administration; they are retired business executives willing to share their expertise for free.
Small Business Development Centers are also great resources.
Local schools also may have resources.
4.
Not understanding a balance sheet or profit and loss statement; I have often heard from clients how could I have made a profit and be broke? Because most of the profits went to buying assets, paying down debt or owner draws: all balance sheet accounts not profit and loss accounts.
5.
Leasing equipment they cannot afford.
Leased equipment becomes part of overhead.
It does not go away when revenue goes down; to buy out of the lease is very expensive and the leasing company doesn't want it back especially if it has depreciated in value.
Make sure you know what you are getting into.
You could make a deal and try to negotiate with the leasing company, but if it was an expensive lease, even a negotiation can be expensive.
Being in business for myself has been the most rewarding endeavor of my career.
It fulfills my love of the business world while being in control of my destiny.
Source...