Self-employment is a way of life for millions of individuals in the United States – around 16 million by July of 2019, to be exact. Whereas being your own boss has a myriad of exciting rewards, such rewards have a flip side. For several entrepreneurs, the idea of being self-employed is a lifelong dream, but in fact, it entails much more than just being able to choose your hours and follow your passions.
Jumping into the journey of being a self-employed professional means accepting the career path full of risks and challenges. Having a good sense of these points will empower you to determine whether this is a path suited for you and how to fast track your journey towards success.
#1. Having a Do-It-Yourself (DIY) Mentality
Whereas DIYs are trendy and inspirational on creative sites such as Pinterest boards, such an approach is not always suitable for businesses. Self-employed professionals are entering fields where they have no concrete experience, only learning as they go.
To be more specific, any single business has access to a ton of professionals and several people who are self-employed have to simply do everything on their own. That means besides being the boss, you are also the marketer, researcher, accountant, consultant and everything else. Whilst the vast majority of self-employed are motivated by a passion for their craft, handling all the aspects of small business management that fall outside of their core competencies can be tough and easily wear you down over time!
“Small businesses are remarkable for their ability to perform all the same functions as large businesses – just with fewer people,” said Matthew Baker, vice president of strategic planning at FreshBooks. “The catch is that small businesses are stretched incredibly thin and the ‘do-it-yourself’ approach is often good enough but not great.”
After all, inside expertise on specific topics is more than a necessity when operating a business. Hiring a consultant or expert adviser for critical areas can definitely help you fill in your knowledge gaps.
#2. Not Managing Finances Efficiently
More often than not, being self-employed also means having no one to teach you the ropes. Nonetheless, this doesn’t bode well, especially when it comes to finance management. In fact, there are is a large number of freelancers who are yet to have an effective financial strategy in place. Many people do not have a monthly budget drawn up, and they are not taking advantage of as many tax deductions as they could.
Whereas managing financial resources is only one of the challenges faced by self-employed professionals, it’s undoubtedly amongst the most crucial hurdles when getting the ball rolling. Unless you pursued a career path with the intention of “bankrupting yourself”, it’s a “must” that you take some critical steps to handle your business’s money.
Thus, let’s cast a glimpse over some small yet super-powerful financial habits stay on top of the day-to-day money management:
- Establish the right business structure (to reap tax benefits and deductions and expose yourself to unnecessary expenses)
- Properly manage your accounting and review your expenses on a regular basis
- Always maintain a budget
- Save an appropriate amount for taxes
- Proactively reduce debt
- Pay yourself a salary from business earnings
- Don’t get slack on invoicing
- Maximize tax write-offs and deductions
In addition to operational finance management, failure to obtain a bank loan – a major source of funding capital for SMB – can turn out to be a serious challenge to get your business off the ground. In reality, many small businesses are unable to find financial help through larger banks – as many as 40% are either rejected or only get some of the credit they requested.
“Large banks are simply not designed to lend money to most self-employed professionals,” Baker shared. “A credit officer at a bank is typically looking for collateral, steady income streams, cash reserves, and other criteria often absent for self-employed professionals.”
He also shared that independent professionals can maximize the chances of their loan application with a large bank being approved by demonstrating they have been in business over two years; furthermore, there are many other available bank alternatives that are worth your consideration.
#3. Not Gaining Well-Priced Resources & Established Reputation
One of the biggest saddening surprises that self-employed professionals discover is how expensive it is to replicate the resources they are accustomed to when working for a larger firm – for instance, information sources like Bloomberg or Crunchbase. Whilst these data sources are invaluable for competing as an independent professional, they may probably cost tens of thousands of dollars each year as well as represent significant upfront costs for the newly self-employed professional.
Not only can long-established companies negotiate more competitive rates for seat licenses, but they have more options in paying for those resources. But unfortunately – not so with the lone independent. In practice, there is virtually no negotiating leverage there to speak of, and customers are not going to pay higher fees just because your expenses are harder to leverage. By the same token, setting up systems for clearing, custody and so on can take time, and independents can rarely get the best prices the service providers have to offer.
Other essential inputs such as office rent, support staff, back-office functions, IT and info services all add up, and they’re not too hard to quantify. Rather, what will be more challenging is factoring in the cost and value of reputation. Customer confidence may be difficult to quantify, but it does show up as a real “cost” when it comes to establishing your own business and your reputation as a self-employed professional.
#4. “Flying” Without a (Social) Safety Net
It was revealed that self-employed professionals or small business owners tend to be less prepared for financial crises than those working in larger companies.
“Without a safety net for small businesses, such as health care, unemployment compensation or emergency savings, many small business owners will limit their own potential as a way to mitigate risk,” said Mr. Baker. “This means many small business owners will forego attractive growth opportunities that require an upfront investment or a longer-term commitment, such as hiring a full-time employee.”
It’s noteworthy that many self-employed individuals are not saving for retirement. An alarming proportion of 42 percent are doing absolutely nothing to ready themselves despite a median age close to 50 years – and a similar figure of self-employed professionals are also without life insurance.
Let’s think: If something were to unexpectedly happen to your workload, would you be fine for a little bit until work picked up again? Whereas “living paycheck to paycheck” can be troublesome for individuals who work standard jobs, it can be more than disastrous for those who freelance. Thus, each time you get paid, it’s “should” to set aside some money in a savings account that you do not touch. No matter how simple the idea seems to be, this will possibly give you a bit of safety in case anything happens out of the blue.
#5. Selling Themselves (As Well As Their Products/Services) Short
Self-employed professionals do adopt the mentality of “work today, sell tomorrow,” which is putting them at risk of not selling their products or services much at all. The reasons may boil down to the fact that report business development is such a challenge for them to build, they’re just too busy with tons of daily grinds to sell or they just dislike the idea of selling enough to put it off for quite some time.
“For small business owners, there is a healthy tension between winning new clients and delivering excellent results for existing clients,” shared Baker. “You can’t afford to focus exclusively on one or the other without jeopardizing the future of your business.” The expert recommended that independent businessmen should spend, at least, one day a week on new business activities such as soliciting referrals, attending industry-specific events or launching an email newsletter.
#6. Tolerating Mediocrity
When self-employed professionals are simply going through the motions to get their job done, they cannot distinguish themselves from the competition. Day after day, this will turn out to be one of the most common yet problematic temptations of management – the tendency to settle for mediocrity.
Understanding that, operational small businesses are geared to be dynamic, innovative, cost-effective, and efficient. Always bear in mind that your customers – whether being an organization or an individual – that contract your services as a small business are looking for something that shows you are not merely mediocre. After all, anyone who does perform up to and even above expectations is always recognized and praised for their efforts.
Other Tough Challenges of Self-Employed Professionals
- Uncertain earnings
Based on a survey carried out by the Federation of Small Businesses, staggeringly 44% of self-employed people consider a lack of certain earnings to be one of their main challenges.
When you work for someone else, you’re guaranteed a paycheck on a monthly basis – but when you work for yourself, not so much. Without knowing how much income you’ll have from month to month, it’s hard to make long-term plans and feel secure about your future earnings.
Actually, self-employment is a rising trend in the American workforce – every single day, more and more people jump into the path of being an independent business owner. Given that, you should realize that you’re going to have competition from all angles – on local, national and even international levels.
With this in mind, it is more than pertinent to be prepared to fight back, making sure that you’re aware of your competition and what you will face. Otherwise, there is a good chance that you’re going to be shut down by a bigger and wealthier competitor. Whereas it can be extremely tough to compete against their bigger rivals, this is not impossible! Let’s invest huge efforts to craft unique product/service offerings as well as pay close attention to deliver the most satisfactory customer experiences.
When it comes to operating an independent small business, adopting a pricing strategy is a tricky one. More often than not, many self-employed professionals will try to lure their clients by undercutting the competition and delivering a cost-effective service. This will work if the quality of the product or service meets client expectations.
Nevertheless, it should be remembered that customers and businesses will be prepared to pay a higher price if you are able to distinguish yourself from the competition in terms of service, product quality, and customer-centric focus. In practice, numerous SMBs have been built on a higher-priced model of operations, and actually, this does not deter their target customers from using their services.
- Disgruntled Clients
Within such a crowded marketplace, customers are more demanding today than ever before. They expect the fastest turn-around times, the greatest customer services or products highly personalized just for themselves. Should you make a single mistake, there is a good chance that you’re going to pay for it severely.
This is why it is more than vital to ascertain that you keep all clients happy. If you do not, you could wind up on the wrong side of a lawsuit. Whilst hiring a law firm may help, it is not going to stop the settlement from putting your company out of business prematurely.
- Not Expanding
Unfortunately, there are a great number of freelancers solely paying attention to tasks and responsibilities from one day to the next without focusing on how they can expand in the future. And this is definitely a serious mistake! Why?
Whilst you may have a few clients at the moment, you never know when customer taste will change and the need for a certain job will end. Of course, you wish to make enough money during the day, but you should also take some time out of each week to focus on expanding your product/service offering and selling yourself to new customers.
The Bottom Lines
Being your own boss, you assume all the responsibilities as well as uncertainties that come with it. Sometimes you will find yourself soaring with the “eagles”, sometimes you won’t. Before diving yourself into such a path, it’s “must” to know the ropes of any challenges involved. Be aware of them, take initiatives in today’s dynamic market, and chart your own course accordingly!
Being a self-employed professional is already overwhelmed with several operational activities but keeping your image visible online is also crucial to ignite the profitability of your business. Should you need any help with a dedicated team to get your business exposed to the digital world, don’t hesitate to get an online presence manager.