Who hasn't fantasized about quitting their job and striking out on their own? The desire is perhaps especially strong for Americans, since doing it yourself and creating your own successes are so ingrained in our value system.
As someone who has worked for many small business owners, I've witnessed the drawbacks of running your own business firsthand. The information that follows isn't meant to discourage you if entrepreneurship is a dream of yours. Rather, it's designed to serve as a reality check for both those who are thinking of starting their own businesses and those who often feel disillusioned by being someone else's employee.
Myth #1: I'll earn more money if I start my own business: Are you tired of seeing your company bill your work out to clients at $175 an hour and then pay you a mere $30 an hour? It's depressing, isn't it? But if you started your own business, you would no longer have an established, reputable company behind your name. Without that, you might not have access to clients who are willing to pay $175 an hour for your skills. Even if you do, you might not be able to sign on enough clients or get enough hours of work from them to match or exceed your current salary, or you might have to charge less, especially at first. You can only charge as much as clients are willing to pay, after all. Your income also won't be steady--it will depend on how much work you find and complete in a given month, and clients don't always pay on time.
Myth #2: I'll get to keep more of the company's income if I start my own business: Does your current company frustrate you with money wasting practices--money that could be better spent giving you a higher paycheck? If you had your own business, all that wasted money could be yours instead, right? But when you run your own business, all of the things your employer provides you with to get your work done will become your expense. You'll have higher phone bills to pay and office supplies to purchase, and depending on your line of work you may need the services of a lawyer from time to time. You'll also have to pay for your own health insurance and any other benefits you're currently receiving from your employer.
Myth #3: I'll save money on taxes by starting my own business and incorporating: Unless you're planning to cheat on your taxes (which I don't recommend), any money that you save through the tax benefits of incorporating can easily be eaten up by the additional taxes you become responsible for as a business owner. You will be responsible for the employer matching portion of Social Security and Medicare taxes (about 7% of your salary), federal unemployment tax, and additional state taxes, not to mention the fees for legally required business insurance, business licenses, and franchise fees (these items will vary depending on the type of business you establish and your location). If you have employees, you'll have to pay worker's compensation (you must pay this every year regardless of whether one of your employees is injured on the job). You'll also probably need to hire an accountant to prepare your business tax returns, which can be significantly more complicated than personal income tax returns.
Myth #4: I'll have more vacation time and get to set my own schedule: Vacation? What vacation? Small business owners often take fewer vacation days, work longer hours on weekdays, and even work on weekends. If you're working on a project for a client, you probably won't be able to take a vacation in the middle of the assignment. If you have multiple clients, you might not be able to find a time when you've wrapped things up with all of them and can go on a vacation. The result is that you don't take vacations at all or end up working from your getaway spot. Also, you'll no longer have paid time off--any time you aren't working is time you aren't earning money.
Myth #5: I'll get to be my own boss--I won't have anyone breathing down my neck anymore: Even when you're self-employed, you still aren't quite your own boss. Sure, no one technically tells you what time you have to be at the office each day, when to take your lunch break, and when you can go home, but clients' demands will often end up determining your schedule. Your clients become your new bosses. You can always quit working with one of them, but you'll lose that income, and you won't always be in a position to take that risk.
Myth #6: Being self-employed will make my life easier: You may not have to wake up at 6:45 and endure rush hour traffic any more, but the truth is that when you're in charge, you take on a great deal of additional responsibility. You can't afford to be lazy, because your income depends entirely on your own initiative. Also, keeping up with IRS requirements when you run your own business is no walk in the park. You can choose between lots of initial training and frustration while you try to decipher tax forms and figure out what you have to pay and when (and why), or paying an accountant to handle it for you (which will add quite a bit to your expenses). Mistakes on tax forms can cost you hundreds of dollars in interest and penalties.
When it comes down to it, if you're motivated, hardworking, have lots of connections, and know how to sell yourself, it's quite possible that you'll make more money and enjoy your work more when you're running your own show. But if you really just want to collect a steady paycheck and keep the rest of your time free from worry and available to pursue other interests, you'll be better off both mentally and financially as someone else's employee.
Good article. Tho' I believe the pros of owning your own business far outweigh the cons (my husband & I are both self-employed) it is important to realize it's not all a bed of roses.
Two clarifications regarding Myth#3:
1. Federal unemployment tax only has to be paid if you have employees.
2. Depending on where you live, you may also have to pay county and/or city taxes.
The more reason to start a home based business that has minimal start up costs, no employees, tax and incorporation advantages and can provide residual income. Self employed people are really employees in disguise. If they stop working, they have no income coming in.
True business owners have others others working for and managing the business for them. But you need cash flow to sustain the first few years.
Read Robert Kiyosaki's CashFlow Quadrant and Rich Dad Poor Dad. His advice is to find a network marketing company that has a proven business system, training and mentors. I did.
I worked for a guy who owned a small computer company. He mortgaged his home to get money when things were slow. Also, at one point, there was no money for payroll and I couldn't cash my check for a week, had to borrow money to pay rent. It kind of soured me on the self-employed thing. Although I guess that can happen in any type of business, I've never had to worry about cashing a check at any of the larger companies I worked for. My dh wants to open a bakery/catering business and quit his corporate job, and that makes me nervous.
I am self employed. Here's the top ten things you should know
1. Expect 80 hour weeks to make 40 hours worth of pay
2. You pay taxes no matter how little you make.
3. You often deal with customers directly, people skills are a must.
4. If you mess up, you pay for it. No one will say it's okay.
5. Vacation? What does that word mean?
6. You really have to love having flexible time requirements, because you will be doing pretzels with your time.
7. No one else will do the work for you. Delegation is not an option.
8. No one else will do it as good as you, so hourly employees are usually a waste of money until you have two weeks of back logged orders.
9. You never get paid what your worth period.
10. Being self employed means long hours with little to no pay in down times. Plus extremely unstable income. Better be more frugal than frugal and have no debts.
As a wife of a husband who is self employed I completely agree with above poster aukxsona! it is totally hard but it is also totally worth it. I have a 'real' job and my husband is an owner. His ultimate goal is to simply schedule the work and have a crew work it for him, however, even then he still has to work. So I disagree with poster Peilan to a degree, no matter what you do you have to do something so that the business continues. my husband installs siding, doors and windows for a living. He does do some sub contracting for local businesses and he also does his own jobs as well. The benefit is that he can set his hours, if he must leave to go do something like pick up a sick child he can or go on vacation he can pick his own dates. The pay is not that great as people think. taxes eat up a lot as we pay self employment tax. we do not have employees but we have to carry workers comp and liability cuz the local business's won't use him if he doesn't. But I wouldn't have it any other way. It is worth it to us.
What do I do?
1. Phone psychic
2. Lavender Love affiliate lavender-love.com/aukxsona
3. sell books on Amazon.com
4. Farm for the Farmers Market
5. Blogger
5 different "businesses" and I barely make a living. My husband works a normal job. To be fair, 3 of those I started this year. I have 5 kids. I can schedule my time how I want, but often end up working more than I realize. Taxes ate a lot of my income last year. Luckily I had a tax credit for the kids or I would have paid in taxes for federal for the first time ever. My self employment tax was paid for by the child tax credit.
The benefits:
I can work while staying at home with the kids.
I have time flexibility, but this also means I might be up until 4 am finishing a job.
The kids can help! They often do too. My daughter took complete control of the potatoes crop this year.
If my husband were to die we would still have some sort of income and I wouldn't have to worry as much. (morbid but necessary)
So my industry is entertainment, retail, producing goods, and providing a goods.
Self Employment Myths
And if you don't mind me asking, what kind of business are you in?
