NEED ADVICE From the SELF EMPLOYED!!!

[Mikelly]

OK gang, So here's the deal... I'm looking at becoming an Independant Consultant with my friend of 18 years, Barry. We've known each other forever, and been the best of friends. Back in my Government employment days Barry worked for me and I had to write a bad review on him. It never impacted our friendship. This is how close we are. He's the executor of my estate if something happens to me.

 

Anyway, ICs in the federal government contracting business, WHich is what I do - except for a company, are pretty common. You're given a contract for X period of time, Billed in hours for the period agreed to by you and the government customer. You provide your billable rate within the parameters the government allows, and you're off and running. Here is the tricky part:

 

You provide the billable hourly rate to them

You have to factor in your quarterly taxes

You have to pay for Social Security

You have to pay FICA

You have to pay for your insurance

You have to pay your Long and short term disability

You have to factor in your overhead for time off

You have to factor in overhead for pretty much everything it will cost you to do this work.

 

We're talking billable rates of $120-140 PER HOUR, which is what the owner of my company is billing for my services right now. Now, I'm currently getting half that per hour, and clearly shouldn't complain. But I've been given some business growth opportunities for us to pursue and he (My CEO) hasn't done so. One of my key roles in the company is business development. I've had little success in getting my boss to pursue these leads. I've known this for some time, and was under the assumption that my next move as a consultant would be to go independant. I can write off some of the cost of the vehicle I drive to work, the maintenance, the fuel costs, PDAs, Clothing, Laptop, cell phone expenses, home office, and a lot of other stuff... Pretty sweet gig once you get it all laid out for you.

 

BUT, you have to calulate all of the above, and then set it up to be paid on time and to cover everything. I need info from the self employed on insurance rates, companies that handle the above costing and pay outs for the above list... Any advice would be great.

 

We plan to start an LLC with my wife and Barry's wife being the owners, and Barry and I being employees of the company. We also plan to hire others who are in the cleared environement to do what we're doing... We've already been approached by two companies to start sub-contracting to them as ICs, so the work is there.

 

Mike

[dsommer]

Mke congrats on the prospect of becoming your own boss. Before you take another step I would highly recomend visiting with a private business consultant AND an accountant (CPA). Earlier this year I was going to purchase two NAPA stores in my area. After visiting with the above persons I could make a formal strategy for moving forward. Example one was (corporate store) Store did not have enough cash flow to substantiate the price of inventory, even at the 30% discount they were offering me, additionally next years projected sales we're double of the previous year, lofty goals in deed. To cut to the quick the business brokers sent me away with contract to present to the corporte guys that had so many "out" that I could walk away at any time. I won't go into the second store that had NO sales history etc, that was scarry!

 

Anyway, what I'm trying to say is do your homework (which I know your're good at) and visit with others doing similar work and please consider the business brokers and a visit with your accountant.

 

David

[jonzer12]

I did a few years of sat-comm and computer networking as an independant contractor and can give a little bit of advice. I for one prefer working for someone else. I made more money working for myself but I was putting in lots of off the books time to keep it all running smoothly. The biggest piece of advice I can give you is to consider this. I spent so much time keeping track of bills and organizing things, purchasing equipment etc that for every hour I was actually working I was spending 20 minutes or so in overhead of my own time. This is an obviious statement that I am sure you have considered but in my case it was much more work than I first anticipated.

 

The earning potential is always greater on your own but keep in mind of the impact it will have on your lifestyle. There is something to be said for the ability to leave the office and actually not have to worry about work.

 

The only other thing I can say is that if you are familiar with accounting and tax practices (like myself) hire a bookkeeper from the start. I went through hell my first year because I failed to do this. It is worth every penny! Also be sure to educate yourself on all the insurances out there to protect your business. You would suprised how many things you need to protect yourself from.

[Synlubes]

First, find a very good accountant and lawyer to help set up all the details.

There is a saying that friends and business don’t mix, make sure all parties are aware of and agree to all the details of how the business will be structured.

IMO, the business needs enough monies (in the bank) to cover all the first years operating expenses.

Health and business insurance is expensive!

 

There is nothing like being self-employed / business owner, but its no cake walk either.

 

Good luck!

[Guest Phil1934]

Been there. Done that. I have to agree with the last couple posts. I was going with a partner but he didn't pony up half the first ins. bill and no labor on first job so I went alone. After 7 years every gov't agency req'd monthly forms even though half of them were marked did not apply, but had to be sent. Also when you have people working for you, a slack time means beat the bushes for more work as even though I could coast, others depended on me. I was glad to let it go.

[Mikelly]

Barry Is very financially solvent, so I've got no concerns there. We've been involved in business before and it has worked out for both of us... 18 years is a long time to be best friends and tell each other "F you" and not take it personal...

 

9 years ago we both resigned from Government service together on the same day and went to work for BAE Systems. I left BAE before him and went to another company, then he left and did the same. I eventually hired him onto the company we're both with now, and got him the same business development contract deal, which as of now has yielded opportunities my boss simply does not seem to want to pursue. Low hanging fruit should be picked before it spoils...

 

Contracts and work within my environement... There is more work than we have cleared people. But there are people out there looking for the work who have the right level of clearances... You just have to be persistant and look for them.

 

I've already got a call into a CPA and an attorney I used a few years back when I was dealing with BAE Systems.

 

Mike

[johnc]

Some of the things I learned helping to run a software company that grew to about 100 employees:

 

1. The only thing you have to sell is your reputation.

2. Selling your reputation is something only you can do.

3. Figure a minimum of 80 hours of selling effort for each client you get.

4. Figure 10 minutes of administrative time for every billable hour.

5. You're doing real good if you get 30 hours billable time out of each employee each week (averaged over a year).

6. Contracts, project plans, requirements documents, etc. are only as good as the people who sign them. All of them can be challenged and can end up useless if they go before a mediator, a judge, or a jury.

7. The client is always right in their own mind. The only way you can change that is to get them to change their mind. Logic and a preponderance of evidence won't achieve that because "mind changing" is an emotional process.

8. Be on time and do what you say you're gonna do even if it costs you a bundle.

9. The first thing you and your partner should agree on is an exit strategy. How wil the LLC be disolved if: 1) one of you dies, 2) one of you gets thrown in jail, 3) an ex-spouse sues and wins membership in the LLC, 4) one of you gets really pissed off at the other, 5) forced disolution from creditors or the law, 6) one of you wants to retire, 7) one of you gets a better job offer.

10. Take this very seriously and treat the LLC as a completely separate entity. No mingling of personal funds, assets, home and business locations, etc. Get up in the morning when you're not billing and "go to the offifce."

[Dudeboy]

Mikelly,

 

I am and was in a situation were I could do both. I have my own mortgage document preparation/notary service and a friend of mine needing some help with auditing, quality control and bulk sales with his department and company. I executed a no compete clause in my initial employee package, were I disclosed how my business operated. There maybe competition and/or conflict of interest in your functions, but it can also be avenue of two revunue streams. Without disclosing to much information to your employer initially, this could be and opportunity of "agglomeration forces" business overflow if you will that you can take and advantage of. All good replys above, CPA, Attorney and add to the list find a business banker.

[mark]

Mike,

 

The advantages of being self employed have for me, out weighed working for someone else. I would love to be able to be self employed and not have any one else on the payroll but that would not work in my situation.

 

If you know what you are doing, and I'm sure you do, give it a try for a year or two. Sounds like you could always go back to a company if it does not work out.

 

If you stay where you are, In 5 years you will be asking what if.

[JMortensen]

Mike' date='

 

The advantages of being self employed have for me, out weighed working for someone else. I would love to be able to be self employed and not have any one else on the payroll but that would not work in my situation.

 

If you know what you are doing, and I'm sure you do, give it a try for a year or two. Sounds like you could always go back to a company if it does not work out.

 

If you stay where you are, In 5 years you will be asking what if.[/quote']

That's kind of the feeling I had when I started my little company. I was working for a well established company making more money than I ever had before but I was miserable there and wanted to leave really badly. Still the idea of starting my own thing felt like standing on a precipice and trying to muster the the courage to jump. I consulted with my managers at the job I had and told them what I was thinking. All of them told me to go for it, and if it didn't work out I was told "If you call here looking for a job on Wednesday, you'll be back at your old desk on Thursday." That's the thing that really gave me the gumption to do it. Never needed the safety net, but it sure is easier knowing it is there. In addition to that all of my managers had run their own business previously and they all told me how rewarding and satisfying it was, and how much they had learned from the experience.

 

In my LLC we made my wife and I members and it would actually have been better for tax purposes if we had just made me the only member. It sounds like you need to have your friend as a member, but you might want to check on the wives part. The thing for us was that it pushed her income into another tax bracket, where if she wasn't on the payroll we would have done better on the taxes. Just something to consider.

 

You might also consider an S corporation as they have tax benefits as well. We're considering restructuring our business so that it is an S corp and I'm the only employee.

[ZROSSA]

The only thing I would ad that hasnt been mentioned is find a good insurance broker. One that leaves you alone to do what you need to do and understands your needs. Mike, It sounds like you have thought it out. Buisness' with friends and family can be disaster but they can also work as long as the people involved have clear objectives and a similar work level. Here in New Zealand the positives far out weigh the negatives. Cars and fuel paid for, house turned into the office, power and phone paid for, Travel becomes buisness trips etc. All of this before you pay tax, so here we are 45% ahead.

 

Go for it.

 

Douglas

[dr_hunt]

Alot has been said about CPA's, lawyers, insurance guys, but not alot said about partners. It was said to me and I'm going to say it to you. If you would marry your "partner" then go into business with them, if not, then don't.

 

Partners seldom works unless it's limited partnership. There has to be one boss only. Seen several fall apart.

 

All of my companies are S type, and an LLC is usually only formed if you have liability in what you do. Nothing is immune to lawyers when you have a target on your back. All types have advantages of tax write offs and a CPA can guide you and a lawyer can keep you out of jail.

 

To me there is nothing more satisfying than working for myself and it's not the income either, but that's a bonus.

[jt1]

Lots of good advice above, I pretty much agree with all of it. About the only disadvantage I have in my own business is that it becomes your life if you let it, and it's real hard not to let it take over. 50 - 55 hrs/wk are the norm around here, more when things are bad. It's so much a part of you that if things aren't going well you feel totally responsible, and sometimes the stress mounts up. The money can be excellent, but the downsides can be bad too. Don't be overly optimistic and set yourself up for a big letdown when you hit hard spots, cause there will be some. Employees can be a huge headache when you are depending on them and they let you down, and if you're doing a partnership you had better know the partner as well as you know your wife.

 

One of my good friends summed it up pretty well:

 

How do you turn an adult into a 2 year old?

 

Hire them.

 

John

[Mikelly]

Good advice guys, Keep it coming... We're taking these and running with them...

 

We've already talked to a number of people doing what I'm suggesting, and this business, once you have the clearances, is BOOMING. Once you're inside, you're there forever, so long as your clearance is active.

 

Getting the work is a non-issue. Having employees wouldn't be being an employer in the sense that I'd be truly hiring people and providing benefits. I'd be hiring other ICs and handing them a 1099 every quarter. They'd be self employed as well. I'd be providing the opportunity and taking my cut.

 

I can't go into specifics because of the type of work, but it isn't like I'm creating a product or selling a product. Our work truly is in support of the government customer, in the areas of research and assistance with their QC, CM processes, documentation of their processes, adherance to those processes, and lots of briefing material support.

 

Mike

[dr_hunt]

SOOOOOOOOOOOOOO, your the reason why toilet seats and hammers cost our Govt $500 each!

[Mikelly]

 

I'm the reason they NO LONGER cost that... Boy I could tell stories!

 

Mike

[randy 77zt]

i dont know about east coast but just the health insurence bill is a killer.if your car insurence man finds out about using a car for commercial purposes than you will get hit hard with a big bill.start adding up projected monthly expenses.i was off work on a planned job change for awhile and was left with no health coverage.since i ride a motorcycle i picked up major medical coverage but it still cost alot of money.good luck.

[Mikelly]

We plan to establish all the correct coverages. We're looking at bill rates somewhere between $110-140 per hour, and I've got others who would like to come work for me at those rates minus my 15% take on their hourly figure, and me handing them a 1099 every quarter. I'd have a company car, as would my partner, and they would be covered under business insurance.

 

We've got meeting setup for next week and the week after. I'll know more after these meetings. Bottom line is it looks like we're gonna do this if the bill rates are correct. Once we get over the hurdle of contract positions being offered, We'll officially start the process of transfering out of the companies we're with and onto our own contract.

 

I've spoken with several independant consultants this week and it sounds like the real thing.

 

Mike