It’s three hours until closing time and you’re already counting down. Once the clock strikes 5 p.m., you are ready to race out that door and find comfort with your family – at least until tomorrow.
Your morning meeting was beyond frustrating, your co-worker smacked her gum all day (again), and the entire day was wasted on pointless busy work. You’re starting to think you could be more productive than your boss and co-workers combined if you were left alone long enough to do your job. If only everyone would stop wasting your time, you could do both their work and yours.
And then the idea hits you — you could strike out on your own. You could start your own business, earn your own clients, and do things your way for once.
It all sounds wonderful in theory, but do you have what it takes?
Taking the Plunge Into Self-Employment
And herein lies the problem: To find out if you have what it takes, you have to actually take the plunge into self-employment. In other words, you’ll have to quit your job and walk away from the stability and income it provides. But what happens if you fail?
Those “what ifs” are what keep many people from going down this path. And when you look at the statistics, many would-be entrepreneurs are actually smart to worry. According to Bloomberg Business, eight out of 10 entrepreneurs fail within 18 months of starting their own company – a grim statistic indeed. If you’re itching to walk away from your 9-to-5, knowing you have an 80% chance of failure might be enough to scare you off. After all, you’ve got bills to pay and a family to support, right?
But, what if you could make it? What if you could defy the odds? What if you could wake up every morning and pour all of your energy and time into building your own dreams — not slaving away at somebody else’s?
The Truth About Self-Employment
Maybe you’re on the cusp of the decision – or perhaps you’re still dreaming. Either way, it’s important to know that the idea of self-employment doesn’t always stack up to the reality. When you’re self-employed, there will be ups and downs, frustrations and triumphs, and just as many disadvantages as perks. Before you walk away from your 9-to-5, here are some things you should know.
Truth No. 1: Certain Types Succeed More Than Others
In an essay in Forbes, contributor Molly Cain wrote about characteristics that most self-employed people share. People meant to be self-employed want flexibility, she wrote, along with more control over their ideas and their work.
But wanting control isn’t always enough to make it in the world of entrepreneurship. According to Cain, solo workers need passion, too.
“Whatever you decide to do with your one-person business, you need to have an ability to translate your passion to your customers and clients,” explained Cain. “The self-employed thrive on an unbridled enthusiasm for their work. Otherwise you will quickly burn out and get discouraged.”
And on top of passion, you need other attributes, like the ability to make decisions, the self-discipline to get started each day, and the focus to stay on task once you do.
If you don’t have all these qualities, and aren’t able to hone them over time, you may have a problem transitioning directly from worker bee to boss. Meanwhile, those who fit the self-employment “mold” make it all look easy.
Truth No. 2: You Have to Wear All Hats at Once
Being self-employed means much more than launching your product or service; it means taking care of the back-office stuff, too. When you’re self-employed, you are in charge of the financials, accounting, and organizational goals of your business. You’re the secretary, the janitor, the boss, and the employee. And you have to do all of those jobs at once, and do them well, to make self-employment work.
Poor accounting and organization are among the top reasons entrepreneurs and their small businesses fail, according to New York Times columnist Jay Goltz. Simply put, being self-employed and owning your own business mean having your hands in every aspect of your business — and not just managing things, but managing them well.
“You cannot be in control of a business if you don’t know what is going on,” writes Goltz. In other words, if you’re disorganized or financially inept, you might be destined to fail. Likewise, if you keep on top of details and are able to prioritize, you might be made for this.
Truth No. 3: You’re On Your Own
It’s a fact that some people are simply made for self-employment, but even those who make it look easy know that self-employment can be lonely. Aside from the fact that you don’t have co-workers to lean on, colleagues to share your frustrations with, or a boss to look to for advice or approval, you also go without all of the financial perks that come with working for somebody else.
When you choose to work for yourself, you have to say goodbye to your 401(k) and your company match. You must bid farewell to your employer-sponsored health insurance, gym membership, and company cellphone. When you’re self-employed, you have to fend for yourself in those matters, and all others, because there is no one else to do it for you. And if you’re ill-equipped to fend for yourself, you might be in trouble.
Fortunately, there are some perks that come with being self-employed in this regard. For example, self-employed workers have their pick of certain types of self-employed retirement funds including Solo 401(k)’s and SEP IRAs, both of which allow you to sock away a lot more tax-free money than your average worker can in their 401(k).
And when it comes to health care, the passage of the Patient Protection and Affordable Care Act, also called Obamacare, guarantees you can buy coverage whether or not you have a pre-existing condition. Whether the coverage you find will be affordable is an entirely different issue.
Truth No. 4: You’ll Never Get a Real Vacation Again
Speaking of things you’ll give up when you leave your 9-to-5, let’s talk about vacation. If you’ve worked for someone else, you’ve probably enjoyed those paid vacation days, sick days, and PTO days, even if you just used them to relax at home.
But once you walk out that door and start your own business, you can kiss your paid vacation goodbye, and along with it, your hope for a “real vacation.”
Of course, being self-employed means you can take vacation whenever you want. The problem is, your clients might frown upon waiting days to hear back on an important project or get a return phone call. In fact, you might lose your clients over it altogether.
And so it begins. Once you become self-employed, your relaxing vacations turn into working vacations, where you spend a few good hours of the day responding to emails instead of drinking mai tais. If you love self-employment, you may not mind giving up that piece of your life. But that doesn’t mean you won’t miss the freedom to walk away from your job completely for a week while still getting paid. Once you’re self-employed, you’ll never have that option again.
Truth No. 5: Taxes Can Be Painful
It’s true that there are a ton of tax breaks for the self-employed, but it’s also true that the taxes we pay can be brutal. Because self-employed workers are responsible for all their Social Security and Medicare taxes, they often report tax rates of up to 43.3%, the highest tax rate in the United States. Add in the fact that entrepreneurs often go without their own benefits – things like health insurance and retirement – and it’s easy to see how self-employment can become unattractive fast. But the pain doesn’t end there.
Since self-employed workers don’t get a regular paycheck with taxes withheld, most pay quarterly taxes to the state and federal governments. In other words, they send in a big, fat check once every quarter to cover their share of taxes, which can be difficult to estimate since the self-employed often live with fluctuating incomes. Imagine how hard it would be to figure out how much you owe when you don’t know how much you’ll make this month, this quarter, or even this year! When you’re self-employed, all of that is your problem, and nobody else’s.
Truth No. 6: There Will Be Bumps
And now we’re left with the biggest reason self-employment doesn’t work for many – cash-flow problems. When you work for yourself, it is often feast or famine. Where one month you’re working 60 hours a week, the next you’re left staring at the phone. And what happens if a client takes several months to pay?
Simply put, being self-employed means having to manage the ups and downs, financial and emotional. It means socking away funds in the profitable times and keeping your cool in the lean times. It means riding out the storm. Alone.
Some self-employed workers handle the ups and downs better than others, and having financial self-restraint can help. Further, using a zero-sum budget and learning to live off a monthly salary you pay yourself can shield you from any wild swings in your income. But even then, the stress can be too much for some people to bear, which is why they’ll rush back to that regular paycheck and 9-to-5 life. And who can blame them?
Truth No. 7: It Might All Be Worth It
With all the disadvantages that come with self-employment, you might be wondering why anyone would choose it. The thing is, with self-employment, there is one perk so valuable it simply outshines all of the bad: your personal freedom.
Meanwhile, those who succeed and continue to choose this path will tell you that the euphoria you get from your successes is both unique and addicting. And once you start finding and creating your own success, changing course becomes out of the question.
Other benefits that come with self-employment are financial. When you work for someone else, you have to ask for a raise. But when you’re self-employed, you can take one any time you want – either through raising your rates, working harder, or taking on more clients. In that sense, you’re not only in control of your future, but you’re in control of your income, too. And for many entrepreneurs, the unlimited earning potential is what keeps them coming back for more.
No work situation is perfect, but self-employment is unique because how it turns out depends mostly on you. If you stay organized and pour your heart and soul into your new business, you just might succeed. But if you don’t have what it takes, you could easily be among the eight in 10 who throw in the towel before the 18-month mark.
But you’ll never know unless you give it a shot, which is both a blessing and a curse.
If you succeed, you might end up with the life you’ve always wanted – with the freedom to earn unlimited income and experience the ultimate personal freedom that comes with working for yourself. But if you never put yourself out there, your dream of self-employment may just be a dream forever.
The truth about self-employment is this: Only you can make it happen, and only you can stand in your own way.