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The Joys and Burdens of Self Employment

04/04/2018

This post is a departure from what I usually write about.  I wrote this as a response to another blogger encouraging others to take the leap into self-employment if they feel it’s what they want to do.  He gave some good cautions but since I have been doing this self-employment thing for over 37 years, I thought I would offer my own thoughts on this.  I have modified my original post and added as I saw the need.


I have been a cabinetmaker for over 45 years and have had my own shop for 37 (and counting).  Trying to eke out a living in a trade where everyone working in their garage with a table saw and a nail gun thinks they are a cabinetmaker is hard, hard, especially when wanting to do it legally with: business license (zoning and cost), local mil tax on the gross, liability insurance (on rented shop and product) and contractor’s license (cost to get one and ongoing yearly fee; required in Calif.).  Then there is the self-employment tax and income tax that those who work in the underground economy don’t pay.

Self-employment never promises one to make a lot of money.  Very few of us do.  The success stories are rare and just because your friend Joe Schmuck made it big doing what you do, doesn’t mean you will.  Most of us struggle month to month to pay our bills.  So there is a trade off between loving what you do and actually being able to live on it.  This especially comes true with the health care insurance and doctor bills.  My health insurance has always been the most expensive part of the budget and that doesn’t include paying for $5000 deductible before insurance kicks in.  The premiums were close to $800 a month, while paying all what the Dr. billed…So if one is willing to live a frugal life, at least for awhile, then by all means go for it.  But if you have $1900 house payments, enjoy free health insurance with $10 co-pays, and 3 week paid vacations with your current job, then there will be an abrupt awaking ahead.

I love what I do, I love the flexible schedule (working Saturdays and holidays for no extra pay) and all the company perks (no sick pay, no Christmas bonus, no paid holidays nor vacation, no overtime, no company healthcare plan, no IRA matching contributions, pay all SS percentage).  But I do sleep in my own bed every night which I didn’t do with the shop I worked for.  I was able to watch my kids grow up instead of being a weekend dad.  So there is a trade off.  You just have to decide whether it’s worth it.

So before you decide whether to quit and work for yourself, just make sure you do the math real hard (and have your wife totally on board) to see if you can actually live on what you might make.  Notice I said “might”.   Because if, after a year, and it doesn’t work out, you may be broke and can’t find a job right away.  So having a LOT of money in the bank will be a first consideration.  It took me 6 months to break even and I burned through about $12,000 ($1980s dollars) of savings during that time trying to start the business.  I have heard that it can take 12 to 24 months for a startup to become profitable.   Do the math on that.

Also, there is the time issue.  Starting a business is all absorbing.  It takes all waking hours.  You think about it all the time.  You go to bed thinking about it and you wake up thinking about it.   It’s like another marriage and trying to make sure both are happy, when doing the first (main)  one right is hard enough.  State and Fed. quarterly estimated taxes need to be paid, and that money needs to be saved in order to pay it, a mistake I made the first few quarters.  This needs to be done correctly and on time or penalties will be accessed.  If one sells a product, then sales tax needs to be calculated, kept and sent in quarterly.  Hire someone to work for you and then there are all the forms and taxes that need to be figured weekly, totaled monthly and sent in quarterly.  There may be professional fees due and ongoing classes that need to be paid for and forms to fill out and sent in yearly.  Add to this estimating jobs, doing the job, babysitting clients, answering emails, keeping an online presence fresh, advertising online, and your schedule just became more than full.  It all takes time, time, time.

If you think that once you are out from under thumb of the boss, that your time will be your own, well, it’s not true.  I found that every client had become a boss and there were times I had 10 bosses instead of one.  And all 10 expected me to produce on time with quality work.  So working for yourself is actually an oxymoron, because you now work for the customers and they are the boss.  Don’t please them and you get fired, just like any other place of employment.

In my trade (and I think this applies to any skill set), there were a LOT of people who could do the work but a lot less knew about the business side of things and got into trouble with taxes and filing govt. reports and not saving for down times.  And I sense this is universal problem, not just in the building trades.  They went broke, not because they didn’t know their trade well, but because they were ignorant as to what was required once they got paid.  All that money is not yours to keep and spend on food and housing and toys.   After all that, a regular paycheck seems pretty nice, regardless of what problems are at work.  No amount of loving what you do will pay the bills.

If you are going solo just because you don’t like your boss or work environment, you need to reassess your motives.  Because you might hate working for yourself.  There is a difference between leaving and going.  “Leaving” a job may not solve problems, because the problem may be you.  “Going” to self-employment may energize you, but has its own set of problems, all of which land on your shoulders.

Read a lot, educate yourself, do lots of research, talk to self employed people to see what this venture is all about.  I’m not advocating not to take the plunge, just do it in an intelligent manner.

So jump in, the water’s fine, it’s just there is this huge drain at the bottom of the pool that creates this horrible sucking sound and if you aren’t fully aware and trained in all the facets of swimming, you won’t stay above water very long.

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