Want to Be Your Own Boss?
What You Need to Know About Self-employment
Ever dream about someday being your own boss? Most people at some time in their life seriously toy with the idea of quiting their 9 to 5 job and starting their own business. The quickest way to turn the dream of becoming your own boss into reality is self-employment. But the dream of self-employment can just as quickly turn into a nightmare, if you're not careful.
While most of use dream of running our own business, being our own boss, and being self-employed, only a relatively few American's ever realize this dream. According to the Bureau of Labor Statistics, as of April 2014 just over 15 million workers in the United States were self-employed. May sound like a lot, but that just 10% of the overall workforce nationwide. If all of us dream about being self-employed, but only 1 in 10 of every becomes self-employed, what accounts for the disparity? Well, there's much more to being self-employed than what most people dream of.
There are both pros and cons to being self-employed. The pros are what most of us "9 to 5" workers dream of. No boss. No set schedule. More free time. More motivation. Yes, this is all true but now let's consider the cons: No guaranteed paycheck. No health insurance. Unpredictable schedule. Long hours. New types of stress to deal with. More responsibility. No constant work flow. No one to give you direction. While most people think they're cut out to be their own boss and become self-employed, the opposite is true - most aren't. If you're not highly motivated and can't hold on to your dream through years of struggle and sacrifice, you're not likely to succeed as a self-employed worker running your own business.
Is Self-employment the Right Choice for You?Many of us that dream about one day being self-employed are experiencing the "grass is greener" syndrome. We think that once we've shaken off the shackles of being a "traditional" employee we'll be happier and more satisfied with our daily lives. More often than not, this isn't the case. Exploring the pros and cons associated with being your own boss, starting a business, and being self-employed can help you determine if the grass is truly greener, or if your dream is just an illusion.
ProsThe following are some of the biggest rewards associated with being self-employed.
- Pursue your passion. Maybe you completed a degree in civil engineering and now you're stuck designing sewage systems and water treatment plants for government municipalities. You became a civil engineer because it's a stable job, offers benefits, and you're dad said you'd be good at it - which you are. But your passion has always been outdoor recreation. You finally decide to pursue your passion and launch an outdoor recreation company that focuses on corporate getaways. Starting your own business, and being self-employed, allows people to pursue their passions.
- Being your own boss. For some, nothing is more oppressive than having someone else dictate what you'll do, where you'll be, when you'll do it, and what you'll achieve in your career. A big benefit of being self-employed is that you are your own boss. No one will tell you what you can or can't accomplish with your career.
- Satisfaction. Most successful entrepreneurs agree that running your own business, while challenging, is extremely satisfying. As a business owner, entrepreneur and self-employed worker, you'll have the opportunity to grow your own business, produce goods and services that people need, determine your own future, and provide employment opportunities for your employees. If you're lucky, you may even hit it big and become the next Mark Zuckerburg.
- More diversity. Many 9 to 5 jobs are very routine oriented. You clock in at 9AM. For the next eight hours until you clock out at 5PM you'll be performing the same tasks as the day before - as well as those you'll be performing tomorrow. This is an extreme example, but a very real scenario for many Americans. Starting your own business and being self-employed adds a boat load of diversity to your life. As CEO, CFO, Director or Marketing and Business Analyst for your new company, you'll get to experience just about every aspect of running and growing a startup.
- No set schedule. Sick of the same old routine? As a self-employed business owner, you get to determine when you go to work, how long you'll work, and when you'll go home. Want to take off for a few hours to play golf? No problem! No one sets your schedule other than you. Having control of your own time is one of the perks of self employment.
- Earn what you're worth. Self-employed workers are some of the wealthiest and poorest people in the world. If you feel that you're underpaid and overworked, starting your own business is a great way to have limitless income potential. In the United States the wealthiest group of people are small business owners - self-employed entrepreneurs who have left corporate American behind and ventured out on their own.
ConsIn Rocky VI Sylvester Stalone ("Rocky") says it perfectly, "The world ain't all sunshine and rainbows, its' a very mean and nasty place..." That couldn't be more true when it comes to running a company and being self-employed. Many entrepreneurs have said that before they succeeded they failed several times; that they almost didn't make it the last time; that the sacrifice was much greater than they were expecting; and that they might not do it again if they had to start over. Being self-employed isn't "all sunshine and rainbows" and there are many challeges to being self-employed. The following are just a few of the challenges self-employed workers face.
- Long and erractic hours. The 9 to 5 job is now gone... and replaced with 7AM to 10PM job. Many self employed workers, business owners and entrepreneurs (especially those just getting started) end up working long hours and are on call 24/7 to fix disruptions in business. They must always be available to make sure everything is running smoothly. Many business owners will attest that it takes many years, and a successful company, before working hours return to normal and they're actually able to take some time off.
- Stress. Your entire livelihood, the livelihood of your family, the livelihood of your employees and their families is all riding on the success of your new startup. You have to make employee payroll every two weeks, and if you don't, you're the one that's likely to go without a paycheck (if you want your business to survive). You need more cash to grow, you borrow money from the bank, you mortgage your house for collateral for a loan, and you max out your credit cards to buy much need equipment. Being self-employed can be very stressful.
- More responsibility. At your old job you were responsible for financial management of your entire department. Now you're responsible for the financial management of your entire company, including payroll, accounting and investment financing. Oh yeah, and you're also responsible for marketing, operations and human resources, at least for a few years until you're big enough to hire a full-time staff to support these functions.
- No consistent paycheck. Self-employed individuals get paid when they bring in money and after they pay all expenses. It's not uncommon for self-employed individuals to go several months without receiving a paycheck while they first get started and periodically throughout the first few years until the business is stable. Unfortunately, self-employed individuals are usually the last to receive a paycheck. Vendors, employees and expense must be taken care of first.
- No paid holidays, vacation or sick leave. Remember that annual two week vacation to Maui you take your family on each year? Kiss it good-bye for a while. Self-employed workers don't receive paid holidays, vacations or sick leave. When a self-employed worker stops working - for whatever reason - the money stops coming in. A day off of work is a day of no pay. However, successful entrepreneurs, small business owners and self-employed workers typically are able to take time off of work once their business is large enough to support itself.
- No benefits. Want health insurance, dental insurance, a 401k and an attractive compensation plan? Well, if you're self-employed than get working because you'll have to pay for all of your benefits out of your own pocket. One of the advantage of being an employee with an established company is that you receive paid benefits - typically from day one on the job.
- Risk of failure. There is all sorts of risk associated with being self-employed and running your own business. There's the risk of not receiving a paycheck. There is the risk of being sued by a customer or employee. There's also the risk of going out of business. Most business owners put their own money into their business to finance growth and to get it up and off the ground. Business owners, whose businesses fail, can loose everything. According to the Bureau of Labor Statistics, only half of new businesses survive for five years and only one-third will make it to ten years.
Self-employment at a GlanceThe average employment growth rate for all occupations between 2012 and 2022 is estimated at roughly 6%. The projected growth rate of self-employed workers is just 3.6%, substantially slower than the average for all other occupations. However, employment growth rate among the self-employed workers varies by field. When contemplating self employment, it's useful to know ahead of time which career fields are most favorable for self-employment.
According to the U.S. Bureau of Labor Statistics, there are two types of self-employed workers: incorporated and unincorporated. Incorporated self-employed workers have a registered legal corporation and typically employ other workers. Unicorporated self-employed workers, such as independent consultants and freelancers, operate as sole proprietors and do not have an established legal corporation.
The majority of self-employed workers operate on their own and do not have any employees other than themselves. As of 2014, there were just over 9 million unincorporated self-employed workers and roughly 4 million incorporated self-employed workers operating in the United States. The information and tables that follow represent unincorporated self-employed workers (those that operate alone).
Not surprisely, the vast majority of U.S. businesses are also unincorporate (also referred to as "nonemployer" businesses). These businesses are owned by one self-employed worker and do not have any employees. Since many self-employed workers own more than one nonemployer business, the number of unincorporated business in the U.S. is far greater than the number of unincorporated workers.
The table below shows that there were approximately 24 million nonemployer businesses in the United States as of May 2012. The largest number of these businesses were in professional services (such as accounting), technical services, real estate and construction. But since nonemployer businesses are relatively small, these businesses only generate about 4% of nationwide sales.
|Field/Occupation||# of Firms||Sales (in millions)|
|Professional and technical services||3,212,000||142,975,000|
|Real estate and leasing||2,390,000||227,428,000|
|Administrative and support services||2,006,000||42,443,000|
|Health care and social services||1,943,000||59,890,000|
|Entertainment and recreation||1,237,000||30,280,000|
|Transportation, storage and warehousing||1,060,000||69,900,000|
|Hospitality and food services||341,000||15,021,000|
|Information sales and services||328,000||11,800,000|
|Agriculture, hunting and forestry||240,000||10,614,000|
|Mining, oil, and natural resources||110,000||7,820,000|
|Source: U.S. Bureau of Labor Statistics (BLS). "Firms" and "Sales" figures rounded to nearest thousand.|
Occupations with highest level of self-employed workersThe table below shows those occupations with the highest percentage of workers being self-employed. However, just because these occupations have a high level of self employment, it doesn't mean they are experiencing growth. A few of these occupations, such as farming, are shrinking.
|Farming and agriculture||681,000||499,000||-27%|
|Retail sales supervisorss||391,000||333,000||-15%|
|Real estate sales||176,000||193,000||9%|
|Non-retail sales supervisors||147,000||123,000||-17%|
|Source: U.S. Bureau of Labor Statistics (BLS). Self-employment figures rounded to nearest thousand.|
Occupations with fastest growth of self-employed workersAccording to the Bureau of Labor Statistics, between 2012 and 2022, the number of self-employed workers will increase in over 50 percent of U.S. occupations. The table below lists the occupations with the fastest projected growth rate in self-employment.
|Self-employment growth rate|
|Personal care aides||70,000||121,000||72%|
|Management analysts and consultants||154,000||199,000||30%|
|Housekeeping and janitorial supervisors||71,000||80,000||13%|
|Landscaping and groundskeeping supervisors||107,000||120,000||13%|
|Accountants and auditors||85,000||96,000||12%|
|Janitors and cleaners||83,000||93,000||12%|
|Source: U.S. Bureau of Labor Statistics (BLS). Self-employment figures rounded to nearest thousand.|
Making The LeapOnce you've decided that you want to start your own business, and you've identified an occupation, it's time to sit down and develop a plan to turn your dream into reality. It's an old adage that the only way to be successful is to "jump in with both feet". While there is some truth to this saying, we recommend making a slow transition and testing the waters, if possible. Just take one step at a time.
One of the biggest mistakes that wouldbe entrepreneurs make when starting a new business is that they don't have a fall back plan, or they gamble everything. What if the business you start fails? What if it takes a long time to make it profitable? Do you have the funds and resources to grow your business slowly? Do you have savings to fall back on if things don't go as expected? If you currently have a good job that sustains you and your family, and you don't have substantial savings to fall back on, we recommend that (1) you don't quit your job to start your business until you do have savings and (2) you get your business going on the side while you maintain your current job.
Learn What You Need to KnowIf you're planning on starting a daycare, do you have the knowledge and skills to perform this kind of work. Taking care of kids seems like a breeze, but have you ever done it? Have you researched all the startup costs associated with licensing, insurance and business operations. Don't ever start a business in a field where you're lacking skills or knowledge.
Even if you're familiar with the ins and outs of daycare, do you understand basic accounting, bookkeeping, marketing and business operations? If not, don't despair, these skills you can learn by taking a basic business class, finding a mentor, or reading up in industry publications. Although not always necessary, earning a degree from a reputable college or vocational school may be helpful.
Does the occupation you want to pursue as a self-employed entrepreneur have any specific entry requirements? Dentists, for example, must have a dental degree and obtain a license. A real estate agent must pass a state test to become licensed. If you're pursuing self-employment opportunities within an occupation that has specific entry requirements, make sure you do you due diligence and figure out how realistic the career option is based on your resources and situation. Attending six years of medical school to become a doctor may not be the best path to self-employment if you have limited funds and a family to take care of.
In additional to technical skills, self-employed workers need to focus on developing or improving their "soft" skills. Interpersonal communication, time management and multitasking are all needed if you're going to run your own business - especially as you get started. You'll need to be able to determine how much time is required to complete tasks, organize your days to maximize operational efficiency, and have the ability to sell yourself, your service or your product to potential customers.
Last, but not least, you need to be passionate about what you're doing. Passion is what leads to motivation, commitment, and determination - all essential characteristics of successful self-employed workers and entrepreneurs.
Expect the UnexpectedThe road to living your dream of being your own boss and being self-employed is littered with unexpected trials, stress, sacrifices and setbacks. You were expecting that everyone would run to the store to buy your product, but they didn't. You weren't expecting it to take so long to close your first deal. You weren't expecting it to cost so much to get your business going. You weren't expecting it to require so much time. Expect the unexpected.
In order to get a good idea of what to expect and mitigate the risk associated with running your own business, we recommend doing your research, talking with professionals who've done what you're doing, and developing a well thought out business plan. Your business plan should detail the services you'll provide or the product you'll bring to market and outline realistic milestones. Setting milestones will help you recognize when progress is being made and keep you motivated. A good business plan should also include an analysis of your competition (strengths and weakness), outline your strategies and competitive advantage, include financial projects, and identify threats and opportunities.
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