Self-Employed Survival Guide: What to Do When Work Dries Up
When you are self-employed you take on additional responsibility in most areas of your life. No one provides health insurance for you. You do not have a simple retirement plan to sign up for and you do not have unemployment to fall back on. One of the most difficult things that self-employed people worry about is the steadiness of the work they do. If you are considering becoming self-employed, you need to consider these strategies before you take the plunge. If you are already self-employed, then you need to start implementing them right away.
Whether you own and operate your own business, work as an independent contractor or freelancer you may be worried about staying busy and paid during a difficult economic time. Even when the economy is good you may worry about making ends meet if the business does not continue to grow. There are several things you can do to protect yourself and prepare for a slowdown.
Set Up an Emergency Fund
An emergency fund is even more important when you are self-employed because you will not qualify for unemployment insurance if your work were to completely dry up. If you want to keep the business open you should have an emergency fund set up to cover the costs to stay open for at least six months. At that point, you will need to determine if you need to close the business or not. These costs include all the costs that make your business run from day to day. Additionally, you should have a large emergency fund to cover your personal expenses.
If you are the only breadwinner in your family or you are single, plan for a year of personal expenses for your emergency fund.
Find Multiple Income Streams
Diversify your income streams. If you are an independent contractor or freelancer you should be working for multiple clients so that if one source dries up you have other ones to fall back on. If you run a service business look for ways to broaden your customer base through offering more services or expanding your product line. When you depend on just one business or company for most of your business you put yourself in a precarious position because you are relying too heavily on that business succeeding for you to succeed.
Make Networking a Priority
Keep networking while you are operating your own business. You should stay on good terms with past employers and keep your networking circle open. This can land you business referrals, but it can also make it easier to find a job if you need to go back to working for someone else. If you work as a consultant some companies may try to recruit you after you have worked with them. Try to leave any business you come in contact with on good terms, because they may become a future employer.
Establish a Clear Business Plan
Create a business plan that includes an exit strategy and a clear timeline about when you should use it. When you first begin planning your business you should have a backup plan and a way to close down the business without causing undue financial hardship for yourself. One way to do this is to avoid business debt and to stay current on your taxes and your accounts with your suppliers. When you have trouble doing this you may need to begin looking into your exit plan so you do not face large amounts of debt with little work to cover it.
Establish Good Billing and Collection Practices
Make sure you have an effective billing and collection method for your business. Freelancers often run into problems collecting payment for their work, because the companies they work for may not be getting paid either. If you offer lower fees for upfront payments you can prevent a lot of the hassle you would otherwise spend tracking down payments. Basically, you offer your basic services at the rate you want to receive to people who pay upfront and put the late fees into the fees for people who want to pay thirty or sixty days out.
Many companies respond well and will pay on time to save money.
Know When It Is Time to Quit
Be honest with yourself about how the business is doing. If you have marketed as much as you can and explored all other avenues, you should admit that you need to change directions before you get yourself in a bad financial situation. Using your credit cards to cover your monthly expenses is one major sign that your current financial situation is not working out. At the very least consider taking on a part-time job to help cover your expenses while you try to build back up your business.
If you have an emergency fund in place and a good marketing plan you should be able to get through difficult economic times even when you are self-employed. Be creative and come up with new services to offer and switch up your target demographic to keep yourself in business. Remember to take the lessons you have learned from a slower economy and apply them to your business planning in the future.As the economy recovers are sure to practice these financial habits to make the most of it.