When people first hear about self-employment, it sounds like something that's perfect for them. It can be, but there are a lot of things that you need to know to prepare yourself for the reality of being employed by yourself. There's more to it than just deciding to be an entrepreneur. You need to have a plan, and you need to be able to implement that plan to the fullest extent possible. Here are some things that you really need to know before you go ahead and quit working for someone else.

What Is Being Self Employed, Anyway?

To be self-employed means that you work for yourself. Whether that means that you start your own company and look for clients or you work for companies that hire you as an independent contractor, you are still your own boss. There's not one set definition for self-employment, since there are so many ways that you can be your own boss. You can even mix the various types of self-employment together, working both for your own company and as an independent contractor. Many people look toward self-employment as a way to get out of a stressful working situation, although working for yourself offers its own type of stress.

The beauty of being an independent contractor for another company means that you're often able to work on your own schedule at your own pace. This does still need to be done within the confines of what that company requires, however. Often you have assignments from which you can choose and you don't have to worry about finding work to do. It's provided for you.

If you decide to start your own business, you are in charge of every aspect of running that company on your own. That means that you will need to find people who need your skills and services, which requires marketing your skills and services. You'll also have to do the work yourself, unless you hire staff to do it for you. For someone who likes the challenge of being involved in every step of the process, starting your own company is the way to go.

Handling Tax and Insurance

No matter which type of self-employment you choose, you're going to be responsible for your own taxes. This is something that can get self-employed people into trouble, because they often forget this step. Local governments have very stringent guidelines for people who work for themselves, and it's important to become familiar with those guidelines. Some of the things you need to know about taxes include:

You may well be able to do your taxes on your own. You'll need to keep track of profit and loss information, what deductions you plan to take and whether they're justified, and you'll need to be meticulous about all of this. There are online bookkeeping programs that can help, but it's also extremely helpful to hire a competent accountant who can make sure you're following all of the laws. That can cost quite a bit of money, though, and few self-employed people start out with enough capital to do more than go it on their own. In saying this – it is worthwhile getting quotes from a variety of accountants. Well established ones in firms tend to have the higher fees, maybe finding an accountant in a similar position to yourself (self-employed) is the best way to go. Also in discussing a potential deal – it is likely the work they will have to do in your initial months will be relatively small, so negotiation their fee to grow as you grow – makes sense for all parties involved.

Information on Self-Employment Tax (Social Security and Medicare Taxes) from the IRS – USA

Information on Small Business and Self Employed Taxes from the Canada Revenue Agency or CRA

Self Employed Taxes Information from the Australian Taxation Office ATO – via the Australian Government

Business Tax for Self-Employment from the UK Government Inland Revenue including tax and national insurance, self-assessment, managing expenses and paying the HMRC.

Registering for Tax as a self-employed person from the Revenue , Irish Tax and Customs department, Ireland.

Inland Revenue information for working out your tax status (IR336) in New Zealand

Income Tax Department information from the Government of India

Every country has a different requirement and most of the government sites provide a self-employment tax calculator that is helpful to understand how much might be owed by year end, especially since the tax rates tend to change.

Another big factor to consider before you start your business is that you may legally need some insurance, depending on what services you plan to offer. Some types of businesses in which you go into someone's home may require that you have bonding insurance. This type of insurance is common for house cleaning companies or locksmiths, among others. To be bonded means that an insurance company has a guaranty that if something is broken or stolen, it will be replaced by the insurance company. This does not protect you from legal problems related to those circumstances, however.

The other main type of insurance to consider is health insurance of all types. Whether you employ others or your company is just you, you'll need some type of health coverage. There are plans available for self-employed people, but you'll need to research them carefully to find the right one for you. Keep in mind that if you hire others to work in your company, you may need to provide coverage for them as well.

Ideas for Jobs That You Can Do

Most people who go the route of self-employment already know what they want to do. They have either a skill or a service that they know they want to provide to a customer base. Other people aren't sure at all what they want to do, they just know that they don't want to spend the rest of their lives working for someone else. If you're still trying to work out what you can do for yourself, here are some ways to sort that out.

First, look at what you love to do and what brings you joy. If you enjoy crafting and making things for people, that may be an avenue to try. For some people, landscaping and mowing grass is peaceful and enjoyable. All of the things that appeal to you are fair game when you're starting your own business. Take a look at what you would love to be doing all day, every day, if only someone would pay you to do it. Remember also to keep your personality in mind. If you're extremely introverted, a service involving public speaking may not be your first career choice as an opportunity.

Next, is there something you're good at? Even if you love crafting, maybe the finished product can be hard to sell or not have enough demand to secure you a steady income. But you're really great at proofreading for people. That's a skill that is marketable, particularly if you're talented at it. Ideally what you should do is create two lists of possible services you can offer – then critically analyse each one with an aim of finally settling on a new career path you can follow.

If you're coming up blank on that list, here are some specific self-employment ideas from which you might be able to choose or expand on:

All of these ideas and more are things that you can use to jumpstart your brainstorming process. Some of them will enable you to start earning a living right away, while others require time and possibly word of mouth to enable you to get your foot in the door. As you build a positive reputation, your new venture will grow. It is often said that the best self-employed jobs are the jobs that you would enjoy doing day in and day out, no matter how hard or tough it got.

While you're brainstorming your list, put a star next to ideas that people in your area need and want. If you can set yourself up in a self-employed position that fills a need for those around you, you're going to have readymade business opportunities. You want people to find your skills and services appealing and helpful, because that will keep your small business in operation. Some of these ideas may be out of your comfort zone, but that's okay. You're looking for a mix of something that will be profitable and something that you enjoy.

Tracking Your Income and Expenditures

No matter what you decide to do during your self-employment, you'll need a way to track what you make and what you spend. One of the easiest ways to do this is with a simple paper ledger, where you mark down every expense and every bit of income. This means that you'll need to tally up the totals periodically, though, so many self-employed people prefer using a spreadsheet or an accounting program. That enables them to see in real time what they've made and what they've spent. You'll still need to keep up with the data entry, though, in order to make sure that the amounts are correct.

Keep in mind that many of your business expenses can be used as deductions when tax time rolls around. Having those expenses detailed--and keeping the receipts for proof--is extremely important. If you don't want to wind up with a shoebox or a file folder bursting at the seams when tax season arrives, start keeping track of your receipts electronically. Take a picture of the receipt, and then save the picture with the name of the expense, the date, and the purpose of the expense. Keep them in one folder in your computer specifically labelled for business taxes or file them in a software program such as Evernote, tagged with the appropriate tags. When you need the information later, you'll only have to search.

Once You're Up and Running

You've figured out what you want to do, you've hired an accountant, and you have the structure in place for your self-employed business. But now what?

Something that many people who go into self-employment forget is that they still have to adhere to a work schedule of some kind. Yes, you're your own boss and you call the shots as to your working hours. But that doesn't mean that you don't have to stick to a working schedule. Your potential customers will expect that, and many times you may find yourself working when friends and relatives are relaxing. That's the nature of the beast.

Set office hours for yourself. Even if you don't have clients yet, you can be working on marketing your business and finding new ways to let potential clients know that you're out there. Give yourself regular breaks, but don't forget that if you're not working, chances are you aren't bringing in income. Productivity is the name of the game, no matter what you're doing.

Being self-employed is vastly different from working for someone else and surfing the Internet when you're bored at work. If you did your homework properly and figured out what you want to do and what you love to do, you should be in a space where you're thrilled to be at the grindstone every day. Make sure that you put that time to good use, and you'll see your self-employment pay off.

Now that you have a better handle on that tricky question--what is self-employed?--you have a foundation on which you can go out there and start doing the job you were meant to do. Working for yourself may not be the easiest job in the world, but it can definitely be rewarding and the sky is the limit.

How to be Self-Employed Checklist

  1. List what you like doing and can do – compared to what the market is looking for
  2. Check what competition might already exist – competition can prove there is demand, is there enough room for you to offer your service also? Can you offer a different or better service?
  3. Review and understand the legal requirements locally – insurance, taxes and more.
  4. Prepare a basic business plan to review what you want to do – does it look good on paper?
  5. How much capital is needed to start?
  6. Company/Product name – logo, can be harder than you think! Can you create a website? Online marketing – people will search for you online! This includes having a ProfileTree business profile!
  7. Test the market – ensure your assumptions are correct before committing a lot of money and time to your idea. Better to fail fast so you can find the concept that works.

To summarise – being self-employed has many advantages and even some disadvantages – there are many things to consider. Have you worked through the full list?

There are national associations and local support groups that would be an excellent resource and advice network, it would be advisable to connect and possibly join some of these for more help and guidance. Getting professional help with tax write offs or expenses for your new enterprise, along with advice on what your income could possibly be ensuring all legal obligations are met is critical. Hopefully after reading this you still are thinking “I want to be self-employed!” Next step? Sign up for a free profile on ProfileTree today so potential customers can see your business offering online.