Joining the Ranks of the Self-employed?

By 2006, more than 11.6 million Americans will have joined the ranks of the self-employed. The reason behind much of this trend has to do with the dream of being your own boss. But it id also true that a lot Americans have been down-sized and/or outsourced so many times over the past few years that they simply do not want to endure another pink slip and are willing to take a risk and strike out o­n their own. Additionally, owning a business is o­ne of the proven keys to financial well-being.

Being your own boss can provide numerous financial and emotional rewards. But it is not for everyone. Before setting out o­n your own, you will have to delve deeply into your psyche to discover if self-employment is for you. Here is a short list character traits that you should possess in order to be successfully self-employed:

1. You are highly motivated;
2. You can handle a great deal of responsibility;
3. You are persistent;
4. You have skills in a profession, trade or hobby that can translate into a business;
5. You are a good planner and organizer;
6. You do not mind working long hours and at times, irregular hours;
7. You can readily make tough decisions;
8. You can endure the emotional and financial strain should your business fail.

If all of the traits listed above describe your personality, you may be properly suited for self- employment. Your next step will be to research the avenue of business best suited for you and which would satisfy your career goals. You will have to consider your talents, interests and areas of expertise. Do you have experience or skill in a particular area? Is there a hobby that you are proficient at that could become a business? If the answer to these questions is “no” then consider the following: Do you enjoy a lot of contact with people or prefer to keep this to a minimum? Do you like to travel or prefer to work from your home? Based o­n the answers to these questions, you may want to buy an existing business or franchise that conforms to your ideal. Buying an existing business is advantageous as there is a track record for review and the structure is already in place. A franchise is particularly advantageous as there is a pre-existing recipe for success in combination with a recognizable trade name and mark.

You must prepare seriously for “going solo” and you will measurably increase your chances for success as a result of your preparation. After exploring your personality and business possibilities, you need to research. Read about small businesses in newspapers, trade journals, magazines and o­n the Web. Is there a need for the business that you intend to open in your area? Who is the competition and what are their strengths and weaknesses? Do you have something new and refreshing to contribute? Can you manage for a while alone and then assemble a great team? Good planning or lack thereof, makes or breaks most businesses.

After confronting these fundamental questions, you must consider the tax implications.

Having your own business also includes keeping a detailed and organized paper trail, in particular for tax purposes. As your own boss, you will have to pay state (if applicable) and federal taxes o­n a quarterly basis. Taxes are not automatically withheld. You will also be responsible for paying your Social Security taxes.

And you must acquaint yourself with the applicable deductions and keep meticulous records to prove their validity. (Self-employed individuals are three times as likely to be audited by the IRS). Your deductible expenses must be “ordinary and necessary” for your type of business. These expenses must be paid or incurred during the taxable year and linked to the conduct of a trade or business. Such expenses typically include office supplies, rent, postage, professional and/or legal services etc. If you cannot manage your tax issues alone, seek out a reliable tax accountant. There are also a number of good computer programs o­n the market for filing taxes. Additionally, you must show a net profit three of your five years of business or your business may be construed as a hobby, which creates different tax issues.