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Do Your Prep: Checklist to Becoming Your Own Boss

So you’re thinking of quitting your job to become your own boss. Self-employment offers a number of advantages over traditional employment, including greater freedom but also greater responsibility, and the luxury of working in your pajamas doesn’t come without a cost. You need strong self-discipline and a solid plan to transition from full-time employment to being the boss.

Evaluate Your Readiness to Be Your Own Boss

When you’re accustomed to working in an office, it can be difficult to transition to self-employment. Before leaving your job, take the time to honestly assess your strengths and weaknesses as well as your readiness to work for yourself. If you have trouble staying motivated while working alone, you may want to reconsider your decision to freelance. Do you enjoy working on your own? Do you get lonely without other employees around? If you’re the kind of person who works best as part of a team, self-employment may not be ideal.

Your creditworthiness is also a consideration, especially if you’re planning to secure funding to become your own boss. When was the last time you looked at your credit score? If you have a low credit score, you may want to take the time to rebuild your credit before quitting your day job. A poor credit score hurts your chances of landing traditional funding, such as bank loans and lines of credit.

You should also determine whether you’re prepared to handle basic business functions, such as accounting and IT. If these aren’t your strengths, you may need to hire an accountant or purchase business software like QuickBooks Self-Employed to perform these functions. These resources can help you handle those administrative tasks to keep the business running.

Another readiness factor is how prepared you are to handle an uncertain income. The fact is, few new businesses immediately turn a profit. Before going into business for yourself, take the time to consider how comfortable you are with financial insecurity. If you’re going to suffer sleepless nights worrying about your cash flow, self-employment may not be for you.

Create an Escape Plan

As you begin the process of quitting your job, you need an escape plan, but you also don’t want to burn any bridges. A successful escape plan utilizes your current assets and has several contingency plans in the event that emergencies come up. Don’t be afraid to lean on your family and friends for support, and continue building positive relationships with your coworkers and boss. You never know — these contacts could become some of your first clients, so continue to foster those relationships.

Give your boss plenty of notice before you decide to quit. For example, you might hand in your “two-week” notice several weeks before you plan to officially quit. Your boss may appreciate any extra notice you give them, and you can set a solid foundation before taking the leap. But it’s also a good idea to consider your boss and your company’s policies. If you think your boss might treat you poorly if they know you’re leaving, you may want to stick to the traditional two-week window.

Work on Your Resume

Considering a career change? Even if you’re planning to be your own boss, it’s a good idea to have an updated resume. Get yours in good working order before you leave your current job so you have a complete and polished resume to show potential clients and investors. This exercise also helps you remember all of your past work experiences and qualifications, which can help you shape your business and decide where to focus your attention.

Identify Your Expenses and Create a Budget

Before making any serious plans to exit your current position, it’s a good idea to calculate a budget to determine how long you can survive on your own. Along with rent, utilities, food, clothing, etc., be sure to factor in the costs of health insurance, and other benefits your current employer currently provides. Once you leave your job, you no longer receive these perks, which increases your costs. Also, always account for unexpected emergencies when crafting your budget.

After that, weigh your expenses against your income, such as investment interest, severance, stock dividends, and any other cash coming your way. If you can stay afloat for at least six months while you await profitability, you may be in position to branch out on your own.

Learn Cost of Being Your Own Boss

You also need to know all of the costs associated with your new business goals. Start by figuring out exactly what you want to do and what goals you want to accomplish. For example, since you want to quit your job, one goal is to replace your income to at least the amount you’re currently earning in order to keep your finances on track. Otherwise, you have to seriously cut back on certain expenses in order to ensure you pay your bills on time.

In the event you want to move to a new city, you need to research the cost of living, moving expenses, and what the local economy is like. Depending on where you want to live, you may or may not be able to afford it based on your current income. It’s important to know all of this up-front so you can establish a successful escape plan.

You should also estimate what you need to invest to get your business up and running. Do you need special equipment, raw materials, or inventory? Can you work from home, or do you need a commercial space? Having an idea of the costs and the potential profits helps you determine how much you need to sell to make it.

Create a Stable Financial Base

Once you’ve assessed your living costs, it’s time to start saving up. Along with your living expenses, you may need money for startup expenses, including travel fees and setting up shop. You may want to consider working out of your home until your new business gets off the ground. However you start your business, you need to create a stable financial base before you quit your job.

There are only two ways to increase financial stability: spend less or earn more. Oftentimes, spending less is a bit easier than finding extra time to earn more money. Look for areas where you’re willing to cut back on spending, and then make a few sacrifices for a short period of time. Being your own boss means your income may be less predictable from day to day and week to week, so paying off debt and getting control of your spending is essential to preparing you for weathering these ups and downs.

Vary Your Income Sources

Want to ensure you stay on your feet during the transition to self-employment? Try diversifying your income by taking on part-time or freelance work in your area of interest before leaving your job. Not only do these opportunities pad your wallet, but they may also garner valuable experience in your chosen industry.

It’s also a good idea to set up your new business with multiple streams of income. Your primary business may be an e-commerce store, but you might also monetize your business blog and offer training related to the products you sell. If you’re an accountant, you might offer various types of accounting and bookkeeping services instead of relying on a single service.

Launch a Side Hustle

Another option is to start your new business as a side hustle before you actually quit your job. When you’re not working your full-time job, focus on gradually building your business. Starting as a side hustle gives you time to build up your clientele and start earning a profit before you give up a steady paycheque. If you’re starting a consulting business, you might spend time creating your service packages, building a website, and developing your marketing materials before you quit. You can even take on a few clients as your time allows to get income rolling in.

Identify Potential Partners and Employees

While the idea of going into business for yourself can be attractive, many people require some degree of help to start and run a new venture. Before launching your business, consider whether you need a mentor, partners, or employees. If you do need help running your company, make sure to find people who are compatible with your personality and goals and can grow with the business. If you’re considering hiring employees early on, also be sure to account for expenses like payroll taxes in addition to wages.

Make It Legal

Both service-based businesses and retailers need to register as a business with the appropriate entities. This begins with choosing a name for your business. Before you choose a name, it’s a good idea to see if the domain name is available. Use a domain search tool to enter the business name you want and get suggestions from the list of names that are available. Once you’ve found a good domain name, make sure there isn’t already a local business with the same name. You can then register your company’s name with your province. If you plan on using a brand name other than your personal one, you must also file for a “Doing Business As” name. It’s also a good idea to register a trademark for your name to prevent competitors from using it. These steps legally establish your brand, which is a big step in starting up.

Cover the Other Legal Stuff

Making your freelance business legally compliant before you officially launch helps you avoid potential legal problems down the road. Your province, municipality, or city may require you to have a license or permit to operate your business depending on local laws and the type of business you run.

You also need to decide on the business structure you want to use. Determine if you want to go beyond operating as a sole proprietorship and register as a limited-liability partnership (LLP) or other type of corporation. There are many reasons why this is worthwhile, especially when it comes to protecting your personal assets and establishing a different tax status. If you’re not sure of the best strategy, it’s a good idea to meet with a CPA to discuss your options.

Change Your Tax Status

There are more tax actions to take once you establish your own business. Some of these tax documents may vary, depending on what structure you decide to take. One general action you should do is pay estimated taxes. If you think you may owe more than $3,000 on your taxes, you need to pre-pay these taxes. You may also need to collect GST or HST on the products or services you provide.

Draw Up Relevant Business Documents

Be sure to follow a formal process for every client you work with. This standardized process helps ensure you’ve covered all aspects of the relationship to minimize any misunderstandings or issues that could arise later:

  • Create a business proposal document that you can customize for each client that serves as a template for bidding on projects. This offers a professional way to let potential or existing clients know how you work.
  • Provide a contract and non-disclosure agreement (NDA) so your clients know you’re completely transparent and trustworthy in your business dealings. This lays out the terms and conditions for your business relationship and helps establish a level of trust from the beginning, as well as protect the information and activities shared during the course of working together.
  • Generate a statement of work (SOW) for those clients that want to have a specific work plan for projects that includes deliverables, key dates, and costs. This reassures the client of the scope and cost of the work or services you agree to purchase or provide.
  • Use an online invoicing system that offers professional templates and a standardized process for charging your clients for work completed, a monthly retainer or recurring charges. The ability to receive an email invoice that links to payment systems increases the probability of receiving payment early or on time, thereby enhancing your cash flow.

Set Up a Place of Business

You don’t necessarily need an office from which to run your business. However, as a self-employed person, it’s essential that you stay organized. If you’re working out of your house, set up a home office with plenty of room to store tax records and other documents. Keeping those important financial documents organized makes your life easier at tax time. The CRA requires businesses to keep their documents at the place of business or in your home unless you get written permission. You should store tax documents for at least six years.

Establish a Work Schedule

While leaving your job to become your own boss comes with a great deal of freedom, it also requires responsibility and self-discipline. Because you’re a freelancer, friends and family may not believe they have to respect your work hours the way they would if you were in an office. Create a work schedule, and let your loved ones know the hours you’re unavailable. Setting specific work hours also helps keep you on track. Consider when you’re the most productive to choose work hours that help you stay productive.

Purchase the Basics

Before you can make your first sale, you need some basic supplies to get started. You probably already have a computer, smartphone, and maybe even a tablet. You can use personal equipment to run your new business as long as it’s reliable and has the software you need. There may be some other basic office supplies you need, including a desk and chair, briefcase, notepad, and scanner for digitizing documents.

Many small businesses need at least a few software programs to help run the business. For service-based businesses, this likely means an invoicing solution such as QuickBooks, which allows you to create and track invoices. E-commerce businesses may need to set up credit card processing if they plan to handle their own online sales, rather than work through a service like PayPal or OpenCart. You may also need industry-specific software, such as computer-aided design software. You can also use a variety of apps for invoicing, inventory management, time tracking, and other tasks. Many of those apps integrate with QuickBooks to automatically transfer transactions and data to your accounting software.

It’s tempting to think you need to buy everything right away, but many small businesses can operate on minimal supplies and tools initially. Think about what you truly need to run your business when making your initial purchases. Then, you can add to your collection as you start having a steady income.

Determine How to Reach Customers

Before leaving your job, it’s essential you research your market for opportunities to connect with customers. This comes from assessing your area’s potential client base, identifying your competitors, and determining whether you have something unique to offer to your target demographic. You also need a plan for how you’re going to find clients. While trade shows and cold calling were popular in the past, online marketing is now considered an essential component of any marketing strategy.

Set Up Your Website

Today’s customers find businesses online, whether those businesses are located down the street or on the other side of the world. Your online presence starts with a business website. Customers should easily be able to find the information they need about your services, prices, and how they can do business with you. If you have a physical location that invites customers and clients to visit, you should include your address and offer directions for getting there.

Other components you might include on your website are:

  • About us page
  • Testimonials
  • Portfolio of work
  • Contact form
  • FAQ
  • Information about you and your staff
  • Online scheduling for appointments
  • Chat
  • Payment portal

If you’re selling products, you may find your website needs even more features. Services like Shopify let you set up an online store, upload photos and descriptions of your products, and process payments. You may also opt to sell through a marketplace like Etsy to reach customers you wouldn’t otherwise reach.

Start Social Media Marketing

No matter what type of business you run, you need a marketing strategy to increase your reach and attract customers. Social media is an inexpensive way to start and grow your following as you develop your business. While it’s tempting to open an account on every platform, it’s often better to focus at first on one or two platforms where your target customers spend the most time.

Marketing can be time-consuming, especially for the owner of a one-person business, so set up tools to make it easier. Dashboard services like HootSuite or Buffer allow you to schedule posts and duplicate the same posts across multiple social media sites at once, which lets you continue with your day without neglecting the rest of your business. Be sure to regularly share posts by your online connections, and interact with any customers who directly address your business online.

Give Your Notice

Although the temptation can be strong to offer your walking papers and walk out the door without looking back, it’s important you give your current job two-week notice once you have all the pieces in place and feel prepared to launch your business. Offering this professional courtesy helps you maintain a good working relationship and prevents you from burning bridges you may want to cross down the line.

Technology makes it possible to start a business from anywhere, using internet-connected devices and an array of local resources. The QuickBooks Self-Employed app helps freelancers, contractors, and sole-proprietors track and manage your business on the go. Download the app.

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