Being an independent contractor can be quite complicated. The additional responsibilities of managing cash-flow, taxes, insurances and of course securing your next job/project can make it easy to miss vital responsibilities and compliance requirements.
To make life easier for contractors, here’s a list of all the factors you need to consider, in order to enjoy a successful career as an independent contractor.
1. Make Sure You Are Set-Up with an ‘Independent Contractor’ Status
The Australian Tax Office (ATO) determines your status as an independent contractor by your working terms i.e. Do you have your own equipment/tools? How are you paid? Are you responsible for defects in the duties that you carry out?
The status of your contract will determine the type of taxes you’ll owe the ATO so it’s essential to get this right from the beginning of your contracting career.
Be sure that your contract clearly defines your status as an ‘Independent Contractor’ not only by title but also by working conditions.
2. Do your taxes!
For many independent contractors the added responsibility of managing taxes can become complicated and out of hand. If you fail to complete your tax return there are associated penalties and fees, however missing the taxation deadline does not mean you should avoid paying your taxes altogether for fear of these charges. The longer you wait to pay your taxes, more severe repercussions can ensue, including criminal charges and further financial consequences.
3. Long-Term Personal Planning
Since you are now working for yourself, you don’t have a company deciding your future career path. No manager or HR executive devising your next professional move; no training manager to line up courses or to upgrade your skills. You are the company. You are your own manager and your career path is in your own hands.
So, you need to plan for your future. Where do you want your career to lead you? How are you going to pay yourself? How much are you going to reinvest into your work? Will you create multiple streams of income? Will you diversify your client base or services? Look ahead to see where you are going and what you need to do now and in the future to ensure you get there.
4. Commit to Quality Business Practices
When dealing with a client, always ensure you are delivering your service in a professional manner and at the highest standard of quality. Bad business practices can seriously damage your chances of gaining new clients, even if only one client has a bad experience with your service.
One thing to watch out for is balancing too many projects at once. With the feast/famine nature of contracting, it can sometimes be very tempting to take on lots of projects when times are good. But be wary of compromising the quality of your work. Unsatisfied clients can cost you future work. Be sure to follow up on existing clients for additional work. Having a few regular clients who are already familiar with you and your services will help to generate more stability over the years.
5. Keep an Eye on Your Own Performance
Without a boss constantly checking how you are progressing, it is very easy to let your performance slide. Try to work out how long projects should take to be completed and how long they are actually taking. Obviously, it is important to maintain quality, but efficiency is important too. A good idea is to set milestones to see how you’re tracking. Being organised and managing your time effectively will be helpful in monitoring your performance as well.
6. Keep Your Finances in Check
With contracting you can often find yourself with too much work to handle and at other times in a serious drought. Therefore, looking as far ahead into the future to work out your cash flow and where it’s going to come from is very important. Having a forecast can help you potentially balance out your workload over time, and if not, give you an idea of how to manage your budget to get you through those drier periods. A simple spreadsheet tool such as Excel should do the trick, or you might prefer to outsource the management of your finances to a Financial Planner.
7. Keep Unnecessary Expenses to a Minimum
Budgeting! This doesn’t mean being stingy. It is simply about spending money on things you need, and not wasting money on things you don’t, like that $2,000 ergonomically designed office chair claiming to ‘solve all your productivity problems’. Cost minimisation is a very important and often faster way to increase your profit. Taking advantage of freebies, like free software or trial versions is a good start. If you can lease rather than buy, this will make it easier to get it written off for tax purposes. Cash does not have the risk of high interest like credit cards, so use it wherever possible. Choose an optimal office space. Perhaps check out the new trend of ‘co-working’, which involves sharing office spaces with other contractors either on a short term or long term basis. Co-working is proving to be very popular and is usually cheaper than renting a regular office.
8. Be Self-Disciplined
Working for and managing yourself can be hard to get used to, with all the distractions of everything that is not your work. Make sure you are working both effectively and efficiently. This will leave you with more time to either work on other tasks and earn more income, or take well-earned long breaks to clear your mind. Not letting projects drag on unnecessarily due to low self-discipline will help maintain your motivation as well, as you see yourself getting through tasks in shorter time-frames.
9. Pitching ‘Value’ Rather Than ‘Price’
Legendary Investor, Warren Buffet once said, “Price is what you pay, value is what you get”. Clients are constantly looking at what they can get, so when pitching to them you need to show them the value you can give them over your competitors. It is surprising to see how many people who think they are pitching ‘value’ are actually pitching price. If you show your clients how the quality of your services will benefit them over competitors, they will be less likely to worry about comparing prices, which will enable you to set a higher price and earn yourself a greater income.
10. Nurture New Contract Leads
When finding business leads, perseverance and determination are key. You should be following up on leads in a timely manner. If you fail to get through the first time, keep trying until you do. Who knows, they could be your next long term client.
After reading this you may find yourself re-thinking your decision to go down the path of contracting. However, rest assured, for each problem and potential mistake out there, there is a preventive measure or at least a solution. The most important step in preventing yourself from making any of these mistakes, is simple awareness. Being aware of your responsibilities, potential pitfalls and expectations placed on you by your clients will put you in a good position for a successful career in contracting.
Make sure you set yourself up properly to ensure success. Look at all areas and identify your strengths and weaknesses, the areas you understand and the areas that leave you a little confused. You may find discussing your concerns with an area-specific professional helpful in the long run. For instance, if you are confused by the financial aspects of the business, speaking with a financial advisor may assist you in avoiding the pitfalls that could damage your business.
For further information on how we can alleviate some of your ‘Contracting’ responsibilities, please don’t hesitate to contact us, book an appointment or reach us at [email protected] or 02 9407 8700 where one of our Australian team members will gladly help you.