With the start of every new year, I reflect back on the past year and think about what I have accomplished and what I want to do with the next few years with my accounting practice. This made me think of some of the commandments I try to follow being a self-employed person.
Find Balance in your Life:
All of us entrepreneurs know, it is difficult to draw the line between our personal lives and our professional lives. With technology being what it is today, we can always be available via email, text, etc. There should be a healthy balance between your personal life and your professional life. Just because technology makes it such that we can receive and see email 24/7 does not mean that you should try and always have your business open to these communications or that you should respond to communications that come to you after business hours. We all need personal time to engage with family and friends. You need personal happiness and success to be your most creative and productive self.
The problem with placing all of your focus and time to a business is that you will burn out eventually and then the business will really suffer. You need to give yourself time to decompress and rest both the body and brain. Make time in every day or every week to relax and enjoy yourself away from the business. I find my creativity and my problem solving get exxpionentially better when I have had a really fun or relaxing weekend. The key is that you cannot worry about the business when you have decided to make time for you, so you have to commit to the fun.
Defining focus and Goal Setting is a Continuous Process:
Just because you sat down two years ago and defined your business focus and goals does not mean they are set in stone and a sure bet. Remember to review your goals every year, at least to see how you are doing, what needs to be changed, what do you need to focus on that has not been accomplished. It is easy to get wrapped up in the day-to-day operations such that you do not realize that much of your time and effort is not getting you where you want to go. The only way to achieve a goal is to have it very well defined and constantly a part of your mindset and decision making process.
Being an entrepreneur is very exciting and offers a lot of freedom, but it can be risky by comparison to being an employee. You need to protect yourself in a few ways.
- Disability Insurance: Your ability to earn an income is now your most valuable asset. If you were to be hit by a bus tomorrow and unable to work for several months, do you have the savings to keep all of your fixed monthly payments current? Disability Insurance is a must for the self-employed. This insurance would provide for your monthly expenses should you be unable to work for either a short period of time or indefinitely. The younger you are when you buy into a plan, the less expensive it is. So I recommend that you find a plan as early in your career as possible. Disability Insurance is not cheap, but if you become physically or mentally injured such that you cannot work, it is the only thing that will save your future, your home and other assets and give you an income to live on.
- Retirement Funding: If you are self employed and your employer does not offer you a retirement funding option, you only have yourself to blame at this point as you are your employer. We are all pretty certain that social security will not be around or will not pay much when you reach retirement age. Plus, it would not provide enough benefit to allow you to continue with the lifestyle you will have created. As with so many things, the earlier you start the less you will have to invest in order to have a nest egg when you retire. I did a calculation years ago on what it would take to amass $1,000,000 with an 8% return. Here is what it looks like by age:
- If you are 25 years old $300/month or $3,600 a year will approximate $1,000,000 at age 65
- If you are 35 years old $700/month or $8,400 a year
- If you are 45 years old $1,800/month or $21,600 a year
- If you are 55 years old $5,700/month or $68,400 a year
If you do not think you have $300 a month now, do you really believe you will have $5,700 a month when you are 55? You have to start early and keep adding to your savings if you want to amass any wealth. Some of us pay $150 or more to have cable and another $100 or more to have smart phones. They are great to have, but how do you want to live when you reach your 60s or 70s. If you found the funds to have great cell phones and TV stations out the wazoo, then you should be able to find money to save.
- Business and Liability Insurance: Carry enough business and liability insurance to protect your assets against theft, fire, etc and protect yourself against someone falling down and hurting themselves on your business property, or your home if you use it for business purposes. An ounce of prevention is worth a ton here. Unlike Disability Insurance, this insurance is probably not as expensive as you think. A few hundred dollars a year will buy decent amounts of business and liability iinsurance. Should something tragic happen, you want to have the insurance cover it.
- Keep Good Records and Keep them Safe: Obviously as an accountant, I want you to keep good records of your business transactions so we can review your financial status, know how well the business in doing and file tax returns. But what food are the records if they are not safe from loss due to computer failure, fire, flood, whatever. So much time is wasted trying to create or recreate business records. Backup your computer files regularly. External hard drives are very reasonably priced and with that there is no excuse for not backing up your computer at least once a month or so. Don;t think you have enough time in the day now, just wait until you have to recreate your customer master files or get yourself through an audit of a tax return. Recreating files that could have been backed up is really time consuming and frustrating. Have a fire proff safe or a sage deposit box to keep back ups for every year and for documents that are very difficult to replace.
- Know the competition: Don’t assume you are offering the best of the most of anything that you sell or provide. If you do not know what your competition is doing, then you do not know where you stand in the market or how to make your product or service for appealing and profitable. Are you the highest quality provider, the best priced, the most convenient, the most full service? If you are one of these, can you charge more or less than you competition? If you know who you biggest competition is and why, you can alter your product, service or price to better compete with them and take more of the market. Shop the competition and don’t be shy about stealing any good ideas you come across. Do a better job of marketing how you stand out in the field. Go for the highest quality, market that component and price accordingly. Go for volume and price yourself lower to bring in the volume. You have to see what the competition is doing and decide how you want to be compared to them. Your marketing strategy will become more clear once you have done this.
I know if can be overwhelming at first to realize all of the things you need to do to be successful and to protect yourself from the unexpected. But if you don’t go through the exercise periodically, you are moving sideways more that you are moving forward. There are missed opportunities if you do not review your business, reconsider what you want it to achieve and plan and strategise accordingly. Make a master list of everything you want to do. Tackle one a month until they have been whittled down to a remaining few. Dedicate one day a month to looking at the big picture, am I going in the right direction, are my ideas working, do I need to change some things. If you had the gumption to give up steady employment to swim the murky waters of the self-employed, then you have it in you to do this. You will reap the benefits of it, there is no doubt about that. So while you are taking the weekend off to give yourself some balance, have a glass of wine and let your mind flow as to where you are and where you want to be. If you are on the right road, great, if not, get off that road and find the one you need.
- Keep Good Records and Keep them Safe: