Here's How to Make the Leap from Employee to Freelancer:
1. Do You Have Health Insurance?
Before you give up your existing coverage, you'll need to have a plan for getting coverage, whether it's through your spouse's plan, COBRA, or another provider. This is one area that was difficult for me. In full disclosure, I went without health insurance for quite some time!
If you need to look for a new provider try looking at Healthcare.gov, HealthSherpa, GetInsured, Medi-Share, or GoHealthInsurance.com on these sites you can add your age, income, and family members to get quotes from various companies. On a couple of the sites, I was able to find coverage for around $200 a month for myself. If your income is low enough, you and your kids may qualify for Medicaid or the Children's Health Insurance Program.
2. Do You Have a Retirement Plan?
When I switched from employee to entrepreneur, I was totally clueless about what to do with my existing 401K and how to plan for my future.
First, you’ll probably want to roll over your existing 401K into an IRA (Individual Retirement Account), SEP IRA (Simplified Employee Pension) or a Solo 401K, so that you can continue to contribute to your retirement plan. Each type of account has its own pros and cons, so meeting with a financial planner can take a lot of the guesswork out of the process. I was able to meet with one at my local bank. It took a couple of meetings to get the paperwork filled out, filed, and the account setup, but once everything was in place it’s been little to no maintenance to keep up.
3. Have You Thought About Your Taxes?
When I started my business, I knew I had to keep track of my income and expenses (yay, for my financial background!), so I used Quickbooks Online to record everything.
While it can be tempting to save a few dollars on expenses, don’t scrimp when it comes to managing your finances. Using a spreadsheet to track your income and expenditures is not only time consuming and segmented, it also doesn’t calculate how much you owe in quarterly self-employment taxes. Using a simple online accounting system like Quickbooks to help automate, organize, and track your finances will save you time and headaches when tax time rolls around.
4. What's Your Business Structure Going to Be?
The second part of your tax equation will depend on your business structure. As a freelancer, you can choose to run your business as a Sole Proprietor, General Partnership, Corporation, or a Limited Liability Company (LLC). Again each one has its pros and cons and meeting with an attorney or an accountant can take the guesswork out of which is best for you. It's easiest to get started as a Sole Proprietor because you don't need to have a separate business bank account or an Employee Identification Number (EIN), but I would recommend setting both of these items up. Another item to consider is when you're working as a Sole Proprietor your personal property and your business are considered one, which could be problematic if your business is sued or has bad debt. Forming an LLC provides a buffer between your personal property and your business.
5. How Will You Stay Organized?
It’s easy when you first start out to manage your clients “in your head“ or by using a simple calendar. But once business starts to pick up and you have multiple clients, it becomes very difficult to remember what needs to be done, and when. One of the easiest ways to manage and run your online business is by utilizing Customer Relationship Management (CRM) software. CRM software allows you to organize, automate, collaborate, notify, gather data, and track your projects all in one place — which simplifies and streamlines your business. And there is no reason to worry about price — Trello is not only easy to use, but it’s totally free and can be used on both your desktop and smartphone.
6. Do You Have Peace of Mind?
One of the biggest stressors for new entrepreneurs is lack of money. Unless you've gone through my Thrive Without The 9 to 5 program and you’ve learned and implemented my strategies to replace your income BEFORE you give your two week notice, you'll probably be starting out from scratch — no clients and no income. To help alleviate some of this financial stress, it's wise to have an emergency fund. Again, I work with my clients to alleviate this stress. Experts usually suggest having 6 months worth of essential living expenses (rent, food, utilities, etc) in your savings account. During this time you'll also want to modify your budget to cut out non-essential spending while you're ramping up your business. You may also consider doing some side tasks to bring in a little extra money.
7. Have You Found a Tribe?
Making the switch from employee to freelancer requires a huge change in your mindset. But not only that, you'll need people who understand your new world; which often your spouse, family, and friends don't quite understand because they work in a traditional work setting. Be sure to find groups, organizations, and like-minded freelancers to connect and network with. Your tribe will be invaluable when you have questions, need advice, or just someone to vent to. Be sure to join the Two Week Notice Society Facebook Group by clicking here.
Making the leap from employee to entrepreneur can be a scary endeavor, but once you start planning and executing your dream, you’ll become more at ease with the process and lifestyle. Just keep placing one foot in front of the other, and whatever you do, don't give up. You got this!