Nine Things to Think About Before Taking the Leap to Independent Consulting

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Being self-employed is hard, so go in with your eyes open

Person leaping to a new career as an independent consultant

Being a self-employed solopreneur isn’t for everyone. Sure, it sounds fabulous—the ability to be selective about the work you do, have a flexible schedule, escape office politics, make good money—but there are drawbacks. I made the leap to independent consulting in 2004 and never looked back. Although I made more money while working fewer hours, I also had to learn how to run my own business. Here are nine things to think about before taking the leap to become a solopreneur.

1.     Cash flow – This can be the hardest part of being self-employed. Corporate payment terms are typically “net 45” or longer. This means if you work 100 hours in January and bill for it in February, you probably won’t see any money until late March at the earliest. Relatedly, your cash flow will likely be erratic. In my years as a solopreneur, my monthly income ranged from $5,000 to $28,000. You need to be able to pay your bills in good times and bad, and to have at least four months of savings when you start your business. Do you have enough savings?  

2.     Taxes – Depending on your income, you may have to pay more tax because of “self-employment tax,” the portion of Medicare and Social Security that an employer pays on your behalf. This can easily be an additional $10,000 in tax. That said, if you contribute to a solo 401(k) or SEP-IRA, you can pay less in tax if you earn more than $100,000 per year. Either way, you’ll have to make estimated tax payments four times a year. This means figuring out how much to pay and having fairly large amounts of money available to make the payments. Taxes are a pain when you are self-employed. Are you disciplined and organized enough to deal with this four times a year?

3.     Dealing with uncertainty – Depending on your area of expertise and price point, you may always have plenty of work or you may go a few months between projects. (See the point above about erratic cash flow.) Can you handle the stress of not knowing where your next project will come from?

4.     Your mental outlook – If you’ve just been laid off, it may be the best time or the worst time to strike out on your own. While a severance package can ease the cash-flow crunch, being laid off can be demoralizing. It takes a tremendous amount of confidence and energy to be successfully self-employed. Are you mentally prepared to start your own business? Are you feeling confident?

5.     Getting new business – For solopreneurs, business development is a common challenge. You’ll have an easier time getting work if it’s fairly easy for you to keep in touch with people. How healthy is your network? Are you good about keeping in touch with former colleagues or clients? Are you comfortable reaching out to nearly everyone you know to tell them that you’re going out on your own?

6.     Supply and demand – Assess the market for your expertise to get an idea of how hard it may be to stand out from the crowd and get work. Is there a lot of demand for your expertise on an interim, consulting, or outsourced basis? Is there a lot of supply (people) who do what you do?

7.     Benefits – Although health exchanges have made it possible to buy your own insurance, it’s still expensive. If you have to buy your own insurance, will you be able to afford it? Can you manage a higher deductible and possibly reduced coverage?

8.     Work ethic – It’s true that as a solopreneur you’ll have a flexible schedule, but the hours can also be erratic and demanding. You may be tied to your client’s deadline. The best solopreneurs (the ones who get referrals and repeat business) do whatever it takes to get the job done and keep their word. Are you the type to stay up late or work on a weekend, or are you more of a 9-to-5 person?

9.     Job fulfillment – Over the years I’ve seen professionals get excited about being a solopreneur, only to see them bounce pack to a full-time job nine months later. They miss the intangibles of “being on the inside.” Do you like being part of team? Do you like mentoring others? Do you like seeing how your efforts play out over time?  If any of these are true for you, a traditional job may be more fulfilling.

If you’re considering striking out on your own, perhaps the most important thing to ask yourself is this: Are you committed to this as a career choice, or is it something you’re going to do until the right job comes along? If the former, you’ve just increased your odds of success!

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