9 cash strikes to make earlier than turning into your personal boss
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Amid the “Great Resignation” and the ongoing pandemic, millions of Americans are quitting their jobs to become their own bosses.
As of October, there were approximately 9.44 million unregistered self-employed in the United States, according to the US Bureau of Labor Statistics. Since April 2020, the number of these self-employed has risen by almost 2 million.
And from that year through October, Americans have applied for more than 4.5 million U.S. tax identification numbers, which are required for new business registration, according to the Census Bureau. This has already exceeded the approximately 4.3 million start-up applications for 2020 as a whole and the 3.5 million in 2019.
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The decision to leave a permanent job to a freelancer or start your own business should generally not be made without good planning. Here’s what experts recommend before, during, and after transitioning out of a 9-to-5 job.
“Whenever you’re considering a move, I always encourage people to get it right,” said Sheneya Wilson, CPA and founder of Fola Financial in New York.
Before you take the plunge
Before starting your own business, the first thing you should do is create a business plan for you and your new company, according to Kevin Lao, certified financial planner and founder of Imagine Financial Security in St. Augustine, Florida.
That means writing down in simple language what your company’s goal is, who your audience is, and what you want to ask for, he said.
“It is very difficult to be successful if you don’t have a convincing ‘why’,” said Lao.
You may also want to identify several potential sources of income for yourself, said Mandi Woodruff-Santos, a personal finance expert and executive producer and co-host of the Brown Ambition podcast. From there, you should also be open to taking on new sources of work or income as you see fit, she said.
Once you have a vision of your next steps as a sole proprietorship, you want to make sure you have the finances to sustain yourself as you build your business.
The exact amount depends on your risk tolerance and how quickly you think you can make a profit, Lao said, adding that when he started his own finance firm, he saved 12 months in living expenses and three months in business expenses.
Business expenses include things like the cost of starting a business like an LLC, if necessary, and paying for equipment and services like accounting software or buying a new computer. You may also need to get your own health insurance and set up your own retirement plan, benefits that you normally get through an employer.
One thing that can be helpful is setting yourself an income goal that will help you speed up your work each month and make sure you get your expenses back.
If you’re not quite ready to take the plunge, there are other options such as: B. Starting your business as a sideline with the hope of growing it into a full-time source of income later.
If you are just starting out
There are even more things to consider after you’ve taken the plunge and walked alone.
The first is that you need to stay organized with your finances and understand what personal and business expenses are.
“You want to start by creating a separation between you and your business,” said Wilson, adding that generally the easiest way to do this is to have another bank account and a credit or debit card for your business expenses.
Staying organized will help you with proper tax planning, including maximizing deductions, she added. That’s because small business owners typically have one of the highest total effective tax rates.
“Knowing this, you should plan how you can minimize your tax debt before the end of the year,” she said. This includes knowing what to write off as business expenses and what other credits and deductions you are entitled to.
For example, people who have freelanced or started a business this year can take advantage of the home office deduction, a huge tax break only available to people who run their own business from home.
To make sure that you have everything set up correctly, it makes sense to have a few professionals on speed dial. Wilson recommends having an accountant or tax advisor who can help you file your taxes correctly.
She also recommends having a good lawyer depending on the type of business you’re starting.
Additionally, it is helpful to seek the advice of a financial planner who can help you transition to freelance with your own budget and financial goals, said Woodruff-Santos.
Benefits of working as a freelancer
Once you’ve decided to go freelance or start your own business, don’t forget to treat this like any other career move.
“I announced it the way people announce they were engaged or had a baby,” said Woodruff-Santos, adding that it can help boost potential business in your current network.
She also recommends keeping in touch with a network of other freelancers, small business owners, or entrepreneurs doing similar jobs in order to have a professional group to lean on.