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. My artistic husband, Bruce, once made a 12-part card in lieu of a holiday letter to explain why he was no longer a self-employed roofer. Hum along to “12 Days of Christmas” and you'll get the gist: “Twelve traffic tie-ups,” “Nine pleas for paychecks,” “Six days too crummy” and so on.
These tips 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.
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? 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.
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 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?
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.
First, keep the best records you possibly can: Track everything from your mileage to your purchases to those little bitty 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.