Disclaimer: I am not a lawyer and corporate law is outside the scope of this article. I present summaries here to help you approach self-employment and understand other forms of business ownership. Most great companies started out small. Someone had an idea, tested it, and made it work. Microsoft Corporation started with just Bill Gates and Paul Allen. They made smart decisions and created one of the largest corporations in the world. It was not an accident.
Be happy as a sole proprietor. You must decide how big you want to be. It’s okay to look in the mirror and say, “I want to be a one man show while doing this business. I don’t want employees, partners or shareholders. I want 100% responsibility and I want to enjoy myself.” 100% of the rewards. I don’t want to answer to anyone. I work for myself, myself, and myself.” That’s perfectly acceptable. If that’s what you want, write it down on a piece of paper and staple it to the wall. You should look at that newspaper every week.
You are creating a separate entity. Wikipedia defines an entity as “something that has a distinct and separate existence”. This entity has a life of its own. It has its own name, brand, marketing, products and services. It has its own address, phone number and Internet presence. It generates enough income so that you can take cash out of the business to pay your personal bills. It’s not you and you’re not.
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 identification number, also known as an Employer Identification Number (EIN). Required 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 don’t meet these criteria, you should still get an EIN. Some clients have asked me for my EIN. Then they send me the 1099-MISC form in January, which shows miscellaneous income from the previous year. This form has two functions.
- 1099-MISC helps client write off my goods and services from their taxable income. They may classify 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…
- The 1099-MISC form notifies me that the money I received from that client is being reported to the IRS. It is the vehicle that clients use to reduce their tax liability and, at the same time, increase my tax liability. I have to report this as taxable income on my tax return.
If a client pays me $2,400 in a year, they can send me a 1099-MISC showing $2,400 in non-employee compensation. This reduces your tax liability by $2,400 and increases mine by the same amount. It’s a measure the IRS uses to ensure providers are honest at tax time.
If I didn’t have an EIN, customers would need my Social Security Number (SSN). I feel much more comfortable giving my EIN than my SSN. Keep your business and personal life separate. Get an EIN.
You own the entity and not the other way around. I’m reprinting here the Wikipedia definition of an entity, which is “something that has a distinct and separate existence”. You have to remember this every day. You are launching your business because you love what you do and also enjoy being your own boss. You put time and energy into the entity because you simply enjoy what you are doing.
Sometimes that is not the case. I have seen business owners allocate too much time and personal energy to their business. They get home after midnight and are completely exhausted. They look in the mirror and say, “I didn’t know it would be this hard” or “I didn’t finish what I wanted to accomplish today.” I’ve seen them at parties and asked how they were. They respond with war stories about work, exhaustion or lack of time. Some of these were Christmas parties, birthday parties, and 4th of July parties. They are still recovering from work or thinking about working even at these obviously social events. They are still “at work” even though they are physically elsewhere. These are classic symptoms of burnout. Don’t fall into this trap.
Set a specific place and time for work. If you work outside of your home, set up a specific workplace in your home. When I started consulting, I lived in an 860 square foot condominium above downtown Chicago. I set up a table, a chair, and a computer in one corner. I knew that when I went to the computer, I was at work. I decided when my workday would start and end.
When you are self-employed, finishing the working day is more difficult than starting it. Here’s a tactic that worked for me. I usually schedule something right after my workday. When I played 16″ softball, I would finish my work day at 4:30, put on my softball uniform, get on a bus, and head to my 5:30 softball game. When I didn’t have softball, I was programming something else that would move me away from the computer and closer to a personal commitment.
If you’re not playing softball every night, you can find something else to do at the end of the workday. Let me suggest that you cook dinner, have dinner with friends, go for a walk, ride a bike, swim, run, and read. Yes, you can schedule an appointment to read at the end of your workday. It will create a concise end to the working day and the resumption of your personal life.
Sometimes the job takes him to client sites. You still have authority over your schedule. If you are honest with the client, you will adapt to their schedule. I recently had a disaster recovery project. I introduced myself and diagnosed the culprit, saying that the fix would probably take three to four hours. I told the client that he could start the project but that I would have to go to lunch with a supplier who was visiting from Atlanta. I could come back after lunch and complete this project. She was accommodating. I went for lunch, came back three hours later, and finished the project. The client was back in business and overjoyed.
Take a real vacation. You also need to schedule actual vacations. They help you get away from work, decompress, relax, think about things outside of work, and enjoy special events. Vacations have to be out of town. I feel like only out of town vacations count as real vacations because they allow you to get away from your usual environment. People who take real vacations come back refreshed, happy, and ambitious.
I see other people who take a week off from work but stay in town. I don’t know what that accomplishes. They remain tired, bitter and passive. They come back from their “vacation”, but they didn’t really take a vacation in the first place. I used to joke that my vacation had to include a plane and a prepaid hotel room. I don’t think it’s a joke anymore.
A tells me he takes “vacation from friends who work.” She goes to Hawaii or some other quiet place. She sits on a beach and watches the waves. She applies sunscreen and puts on her favorite sunglasses. She watches girls in bikinis play volleyball and surfers surf the waves. She watches the children build sand castles and the adults read books.
He sits there because he knows he can get cell phone signal and Internet access from the local hotel. Make and receive calls and send and receive email. He writes a proposal or two. He reviews the proposals. He is worried. If clouds obscure the sun for an hour or if the volleyball goes up on his couch, he doesn’t notice.
He calls this “vacation from work,” but I would drop the word “vacation.” I call this working from a very attractive temporary office. Maybe I’m describing you. Maybe you’re going on vacation but check your phone for new messages every 10 minutes.
A real vacation doesn’t involve a cell phone, turn it off. Once again, if you think I live in Fantasyland, send me your feedback. My contact information is at the end of this article.
Mobile phones are an umbilical cord to get back to work. When you answer a call from work or a client, you are actually at work. Customers will call and they won’t care if you’re on vacation or not. If they have an emergency, that’s all that matters. They will call you and wait for you to solve it. Vacation or no vacation… they don’t care. Vacations should allow you to get away from work, decompress, relax, think about things outside of work, and enjoy special events. I have a client who traveled from California to North Carolina on vacation. She kept her cell phone on. The staff called her four times in one hour! What kind of vacation was that?
You must create a holiday greeting in your voice mail. This will allow you to keep your royal vacation intact and also give your clients an option should an emergency arise. I think they understand that everyone deserves a vacation. They should have access to someone in case an emergency occurs when you are not available. Before I go on vacation, I change my voicemail greeting to “Thank you for calling (my business). We’ll be on vacation from **** to ****. If it’s an emergency, call ** ** at ***-***-****. If not, please leave a message. We’ll call you back when we get back. Thank you.”
I’m sure you noticed that I said “we will…” and not “I will…” That brings me to my next point. What happens if your business becomes too big for one person?
