Being self-employed is fundamentally different than being an employee. When you become your own boss, you’ll find that the distinction between work time and personal time blurs. And your business decisions will have a direct impact on your personal life. In fact, you're likely to be on call 24 hours a day in the event an emergency arises regarding your business.
Prepare your home life
The impact of business ownership can be even greater if you work out of your home. You may experience conflicts over the use of space for business or personal purposes as well as the amount of time it often takes to start a company.
- Whenever you're at home, you're also on the job. This offers both pros and cons—such as no commute and inexpensive meals; but also the sense of always being at work.
- If you have a family, it's important to measure and discuss the impact your business will have on them—particularly if it is a home-based operation.
- You and your family must be willing to put up with lifestyle changes and the possible emotional and physical strain of long working hours.
Plan for income uncertainty
A big difference between being self-employed and being an employee is your source of income. Consider the following:
- Employees can generally count on regular, fixed paychecks. As a new small business owner, you'll be paid only when and if the business generates enough money.
- Even successful businesses rarely generate a profit in the beginning stages of operation.
Be prepared for a period during which your expenses will exceed any income derived from the new business.
Ready your health insurance
Although employees are being called upon to pay an increasing share of health insurance costs, it's tougher when you’re self-employed. Approach your health insurance coverage with the following in mind:
- There is no employer to pick up the premium cost, and no pool of employees that would allow you to negotiate a more favorable rate than you can get on an individual policy.
- You may be able to join an association of other small businesses and take advantage of cheaper group insurance rates.
- For those covered under employer-provided health care plans who leave to start a business, there's the option of coverage through your former employer's plan under the COBRA law. But there are many restrictions and coverage may be limited to as little as 18 months or as long as 36 months.
- If your spouse has insurance through an employer plan, consider coverage through that plan.
Save for retirement
When you’re starting a business, there’s no shortage of demands for your money. If you don't have health insurance and experience a catastrophic injury or disease, you may be wiped out. Failing to save for your retirement can be even more damaging, but people tend to down play the risk because "retirement is such a long way off." Be aware of the following as you consider your retirement plans:
- Employer-sponsored plans provide a convenient and painless way to set aside a portion of each paycheck, so it’s no surprise the saving rate is higher among employees than small business owners.
- A small business owner has to make a conscious decision to save, outside the framework of a plan administered by someone else.
- The choice to save can often can be deferred or forgotten when cash needs to be put right back into the business.
Transitioning to work for yourself is an exciting, as well as anxiety-provoking, time. Be realistic about what you can commit both financially and time-wise, and be open to change. Each day will be a new adventure.