Switching from working for an employer to stepping out on your own as an independent contractor can be daunting at times and it is important to make the right decisions at the start when it comes to your new business. Here are five steps to help get you started in this new and exciting phase of you career.
1. Get professional accounting advice – You can independently go online and grab an ABN number, set up the business structure by consulting the government websites, and research about bookkeeping for your business. However, have you thought about what business structure is best for your type of business, what kind of growth you will expect and if you will have employees later and if you will hire any employees? All of these factors will impact how you run the business structurally and from the accounts end. You may feel confident enough to do it all yourself, however it is always best to get professional advice. A professional can help to align your business with future goals and maximise your tax returns. Sure, it might cost a few hundred bucks but chances are you will make this back in the money they save you.
2. Review contracts – Always ensure you get a third party to review contracts you enter into. Some bigger companies may try and lure in smaller businesses to sign contracts which expose them to a high level of liability, whilst keeping the liability low for the big business. Depending on how your company is set up, a liability risk such as this can put your personal assets, including your home, at risk if something goes wrong. A lawyer or insurance broker can offer contract review services to ensure you are not exposing yourself to unnecessary liability.
3. Consider superannuation – Independent contractors will need to pay themselves considerably more than what they were paid as employees to make up the super payments. This is something you should not forget. You may be earning more now as a contractor, however ensure you put away a percentage at around 10% at least to prepare for the future. Otherwise you will be left with nothing for retirement. Speaking with a financial planner is generally free and they can help to plan for retirement and make financial suggestions throughout your career.
4. Save your tax – As an employee you would have been used to spending every spare cent of your pay package and splurging when it comes to tax time. When out on your own you will need to manage your own GST and PAYG tax for the money that you earn. Many new contractors find themselves under a pile of debt all too quickly because they spend most of their earnings and have nothing left for the tax department.
If you are not sure about how to manage this part of the business you can talk to your accountant or bookkeeper who will suggest to you how much you should put aside of your earnings into a business savings account. If you have anything left over in this account it is wise to keep it aside in case of illness or a rainy day. If you find it hard to manage, you can engage your book keeper to do it all for you and transfer over only the money you can spend.
5. Make sure you have insurance – Professional advice about insurance for businesses is vital so you do not leave yourself open to financial risks. You may be contractually obliged to have a particular type of insurance for your profession such as Personal Accident and Illness, Professional Indemnity or Public Liability Insurance. An insurance broker can provide the help and guidance you need based on your contractor type.
Congratulations on embarking on the independent contractor journey. If done right you can really skyrocket your career. However, it is important to be aware of what can go wrong and minimise the risk of financial devastation before you get started. To get a quote on your contractors insurance now contact Contractor Cover today.