So you finally did it — you opened your own contract business and started serving clients on your own, without someone in the middle collecting the fees. Good for you! Or was it?
If you became an “accidental entrepreneur” recently, you may have discovered how very easy a one-person business can be to start and how utterly frustrating it can be to manage.
I have tips for issues concerning the financial health of your business. These should apply for any contract business, from technical writing to floor tiling. But you know the disclaimer: Newspaper advice won’t stand in for competent professional advice, so use these ideas to help clarify your questions for your own lawyer or accountant.
Contracts
It all starts here. If you’re doing work without a signed contract, you’re ripe for misunderstandings or worse. Minimally, a contract serves as a work agreement, letting both parties know what work will be performed, when and for how much.
But a contract can — and should — go much further to protect everyone involved. For example, do you have a clause specifying who owns the work you’re about to complete? How about issues of liability, confidentiality, quality, access to resources, and payment schedules? You may not need so much detail, but you should at least examine the question before you jump in.
To find samples of appropriate contracts, check with trade associations as well as books or newsletters in your field. This will help you form your questions for an attorney or even create a draft for him or her to review.
One last thought on contracts: Your clients may have standard contracts that they use for multiple purposes. Don’t be afraid to cross out sections that don’t apply to you, or to add sentences that may be missing. Until you get the hang of this, it makes sense to run these documents past your attorney, or to substitute your own contract instead.
Invoices
You’d be surprised how many people do the work but don’t send the invoice. After a while, they’re too embarrassed to submit such late paperwork or, worse, their sponsor leaves the client company and no one remembers the project (another good reason for contracts).
Another common problem with contractors’ invoices is their lack of needed information. If your customer is a private party (such as a homeowner using your cleaning service), you won’t need to provide much data to get paid. But corporations are another story. For these clients, ask before beginning the assignment what’s needed on the invoice: Purchase order number? Project code? Employer Identification Number? (The EIN is a better option than using your Social Security number, so check with www.irs.gov to get one.)
I’ve learned the hard way that invoicing errors can set back the payment schedule by weeks or even months.
Taxes
Where do I start? Probably by telling you to get a good accountant, pronto. Tax strategies for an independent contractor can be more than confusing, regardless of your profession. I can offer some basics, however, based on my own experiences and those of my clients.
First, keep the best records you possibly can: Track everything from your mileage to your purchases to extras like parking fees. Next, build some of your pricing strategy around your taxes. For example, since you must now pay both the employee and the employer FICA contributions, you need to charge enough to account for this self-employment tax.
Finally, learn about the breaks that you might be eligible for, such as not paying sales tax for materials used in the creation of product on which you collect sales tax.
The sooner you see a tax accountant, the better, even if you’re months from filing. This consultation will help you understand your responsibilities for collecting sales tax, filing quarterly estimated tax payments, and other steps you don’t want to first hear about on April 15.
So that’s the short course on the business side of contracting. If you get this part right, you’ll keep a lot more of the money you’re working so hard to earn.
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