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Disclaimer: I am not a lawyer and corporate law is outside the thrust of this article. I present summaries here to help you move closer to self-employment and understand other forms of business ownership. Most large companies started out small. Somebody had an idea, tested it, and made it work. Microsoft Corporation started with only Bill Gates and Paul Allen. They made smart decisions and created one of the world's largest corporations. It was no accident.
Be Happy as a Sole Proprietor. You should decide how big you want to be. It's OK to look in the mirror and say, "I want to be a one-man show for as long as I do this business. I do not want employees, partners, or shareholders. I want 100% responsibility and I want to enjoy 100% of the rewards. I want to answer to nobody. I work for me, myself, and I." That is perfectly acceptable. If that's what you want, write it on a piece of paper and staple it to the wall. You should look at that paper every week.
You Are Creating a Separate Entity. Wikipedia defines an entity as "something that has a distinct, separate existence."View your business is a separate entity. This entity has a life of its own. It has its own name, branding, marketing, products, and services. It has its own address, phone number, and Internet presence. It generates enough revenue so that you can draw cash out of the business to pay your personal bills. It is not you and you are not it.
Create a relationship with the IRS. Since it is an entity, your business needs a relationship with the Internal Revenue Service. The IRS wants you to register your business with them and obtain a federal tax ID number, also known as an Employer Identification Number (EIN). It is mandatory if you hire employees, operate as a partnership or corporation, have a Keogh Plan, or file employment, excise, or alcohol, tobacco, and firearms tax returns, among other criteria.
If you do not meet these criteria, you should get an EIN anyway. I've had customers ask me for my EIN. They then send me form 1099-MISC in January, showing miscellaneous income for the previous year. This form has two roles.
1099-MISC helps the customer write off my goods and services from their taxable income. They can categorize my goods and services under "Office Expenses" or another category on their federal tax returns. That amount will not be taxable on the customer's tax return. However, the...1099-MISC form notifies me that money I received from that customer is being reported to the IRS. It is the vehicle customers use to reduce their tax liability while at the same time increasing my tax liability. I have to report this as taxable income on my tax return.
If a customer pays me $2,400 in a year, he can send me a 1099-MISC form showing $2,400 in nonemployee compensation. This reduces his tax liability $2,400 and increases mine by the same amount. It's a measure the IRS uses to ensure vendors are honest at tax time.
If I didn't have an EIN, then customers would need my Social Security Number (SSN). I am much more comfortable giving out my EIN than my SSN. Keep your business and your personal life separate. Get an EIN.
You own the entity and not the opposite. I am reprinting Wikipedia's definition here of an entity, which is "something that has a distinct, separate existence." You have to remember this every day. You are launching your business because you love what you do and also enjoy the buzz of being your own boss. You put time and energy into the entity because you purely enjoy what you are doing.
Sometimes, that is not the case. I've seen business owners allocate too much personal time and energy into their businesses. They get home after midnight and find themselves purely exhausted. They look in the mirror and say, "I didn't know it would be this hard," or "I did not finish what I wanted to accomplish today." I've seen them at parties and asked how they were doing. They respond with war stories about work, being tired, or not having enough time. Some of these were Christmas parties, birthday parties, and Fourth of July parties. They're still recovering from work or thinking about work even at these obviously social events. They're still "at work" even though they are physically somewhere else. These are classic symptoms of burnout. Do not fall into this trap.
Set a specific place and time for work. If you work out of your home, set a specific workplace in your home. When I started consulting, I lived in an 860-square-foot condo above downtown Chicago. I set up a table, chair, and computer in a corner. I knew that when I went to the computer, I was at work. I decided when I would start and when I would end my workday.
When you are self-employed, ending the workday is more difficult than starting it. Here's a tactic that worked for me. I usually scheduled something immediately after my workday. When I played 16" softball, I ended my workday at 4:30, changed into my softball uniform, caught a bus, and rode it to my 5:30 softball game. When I didn't have softball, I scheduled something else that would pull me away from the computer and toward a personal engagement.
If you aren't playing softball every night, you can find something else to do at the end of the workday. Let me propose cooking dinner, eating dinner with friends, going for a walk, riding your bike, swimming, running, and reading. Yes, you can schedule an appointment to read at the end of your workday. It will create a concise end of the workday and resumption of your personal life.
Sometimes work takes you to customer sites. You still have authority over your schedule. If you're up front with the customer, they will accommodate your schedule. I recently had a disaster recovery project. I showed up and diagnosed the culprit, and said the solution would probably take three to four hours. I told the customer I could start the project but I would have to leave for lunch with a vendor who was visiting from Atlanta. I could return after lunch and complete this project. She was accommodating. I went to lunch, returned three hours later, and finished the project. The customer was back in business and overjoyed.
Take real vacations. You also need to schedule real vacations. They help you get away from work, decompress, relax, think about non-work things, and enjoy special events. Vacations have to be out of town. I feel only out of town vacations count as real vacations because they let you get away from your usual environment. People who take real vacations come back refreshed, happy, and ambitious.
I see other folks taking a week off of work but staying in town. I do not know what that accomplishes. They remain tired, bitter, and passive. They return from their "vacation," but they didn't really take a vacation in the first place. I used to joke that my vacations must involve an airplane and a prepaid hotel room. I no longer think that is a joke.
A friend tells me he takes "working vacations." He goes to Hawaii or some other leisurely place. He sits on a beach and watches the surf. He applies sunscreen and dons his favorite sunglasses. He watches bikini babes play volleyball and surfers navigate the waves. He watches kids build sand castles and adults read books.
He sits there because he knows he can get a cell phone signal and Internet access from the local hotel. He makes and receives calls and sends and receives e-mail. He writes a proposal or two. He reviews proposals. He is preoccupied. If clouds obscure the sun for an hour or volleyball rolls up to his chaise lounge, he doesn't notice.
He calls this a "working vacation," but I would remove the word "vacation." I am calling this working from a very appealing temporary office. Maybe I'm describing you. Maybe you go on vacation but check the phone for new messages every 10 minutes.
A real vacation does not involve a cell phone-turn it off. Once again, if you think I live in Fantasyland, send me your comments. My contact info is at the bottom of this article.
Cell phones are an umbilical cord back to work. When you answer a call from work or a customer, you are indeed at work. Customers will call and not care if you are on vacation or not. If they have an emergency, that is all that matters. They will call and expect you to solve it. Vacation or no vacation...they do not care. Vacations should let you get away from work, decompress, relax, think about non-work things, and enjoy special events. I have a customer who traveled from California to North Carolina for vacation. She kept her cell phone on. Staff called her four times in one hour! What kind of vacation was that?
You should create a vacation greeting on your voicemail. This will let you keep your real vacation intact and also give your customers an option in case an emergency arises. I believe they understand everybody deserves a vacation. They should have access to somebody in case their emergency happens when you're not available. Before I go on vacation, I change my voicemail greeting to "Thank you for calling (my business). We will be on vacation from **** to ****. If this is an emergency, please call **** at ***-***-****. Otherwise, please leave a message. We will return your call after we return. Thank you."
I'm sure you noticed I said "we will..." and not "I will...." That brings me to the next point. What happens if your business becomes too big for one person?
Mark Anthony Germanos is a business author and speaker. He wrote Escape the Cubicle: How to leave your corporate or government job for something better after leaving corporate America and becoming happily self-employed.
He shares traits that he sees in successful businesses and bad habits he sees in those barely surviving. He helps people get over the fear of becoming self-employed. He helps people make better decisions with SWOT Analyses, utilize social media to attract customers and decide where they should focus their time, energy and attention.
For a SWOT Analysis workbook (at no charge), send an e-mail to mark@markanthonygermanos.com. Mark can be reached at http://www.markanthonygermanos.com/. You can also call 530-677-8864.
