Better plan ahead for Self-employment

If you are considering self-employment because of a pending layoff, job uncertainty, or just because it is the right time, you have a lot to plan for. So, please consider the following issues while making this important, life-changing decision.

Check for Noncompete Agreements:

If you plan to continue in the same business as your present employer, make sure you have not signed anything that prevents you from dealing with the customers or clients you are counting on.

Continue Your Employee Health Insurance Coverage:

It often takes time to find private health insurance at a price you are willing to pay. Unless your spouse can provide coverage through his or her employment, you can continue your existing coverage under your former employer’s group plan by making a COBRA election. Generally, coverage is continued for up to 18 months at a cost not to exceed 102% of what it costs your former employer. Make sure you check ahead of time to find out what the COBRA cost will be so you can accurately budget your expenses.

Make Other Insurance Arrangements:

Contact your insurance agent to discuss property and casualty, personal and business liability, disability, and term insurance needs. Some professional associations offer relatively inexpensive umbrella liability policies that insure against some things not covered by your other basic liability policies. These umbrella policies are generally worth investigating.

Arrange for Credit before You Quit:

Even though you may have excellent credit, the change in your status from employee to self-employed can make borrowing much more difficult until you have a track record from being in business for yourself. If you have a definite need to buy a new house or car or make other purchases that involve significant borrowing, do it before you quit your job. If you are considering refinancing your home, do it now.Even if you do not think you will need the money, it is also a good idea to consider taking out a home equity loan or line of credit now. The extra cash on hand can provide some cushion if your self-employment expenses turn out to be higher than expected or if the money does not come in quite as fast as you thought it would.

Conserve Cash:

Before you actually quit your job, and for the first few months after you go into business for yourself, minimize your cash outlays so you can build up a margin for error. In the early months of a new business, revenues are often less than expected because you have to spend time in start-up activities and because at least some of the revenue you anticipated does not materialize. In addition, clients or customers do not always pay as quickly as you would like. You may also have underestimated your expenses. Two ways to deal with this are to (1) postpone spending money on things that are not strictly necessary (such as vacations or upgraded computer equipment) and (2) use your credit judiciously.

Make Sure Your Planned Home Office Is OK:

Many people starting a new business plan to use an office in the home—at least in the beginning. However, do not automatically assume you can do this without any problems. A little-known fact is that quite a few cities have surprisingly strict limits on home-operated businesses. Similarly, many residential insurance policies have exceptions and exclusions if a business is operated within the residence.

Avoid Cabin Fever:

If you are used to lots of interaction with people in your job, it may be a shock to go out on your own. If you have no employees, there can be little or no face-to-face contact for days at a time. Consider joining or becoming active in professional organizations or local groups. In addition to providing potentially valuable networking opportunities, such involvement will help provide the activity level that you are accustomed to and some needed diversions from your new business.
There is a lot to consider before making the plunge into self-employment. Please contact us to discuss ideas and methods to minimize the tax bill from your new endeavor.