So you want to be your Own Boss?

Welcome to the world of contracting

Let's face it, contracting is probably not the kind of work arrangement you had planned for yourself when you left university. Of course, as a newly minted graduate or post-grad, you didn't know much about anyone or anything - so hardly anyone would have hired you on contract for your skills and knowledge. In any case, your focus back then was almost certainly on getting a job to pay off your debts, and to begin your climb up the career ladder. And that meant full time employment.

The Big Push

Now, however, a few years down the track, something has happened to bring contracting into your decision set. Chances are it's a life changing event; it takes something that big to get most of us out of the fifty plus hour work-week and pay-check routine. The usual drivers are:

• you've been made redundant
• you've had a major change of circumstances in your life that requires you to have more control and flexibility - a new baby, or a sick relative
• you've decided to make a radical change in life style, like selling up and moving to a life style block, but you still need income.

The Key Ingredients

Apart from the push itself, I believe the key ingredients to making this a viable option include the following:

• Having skills or relationships of value to at least one large client. In my case, I knew more than most in my ex-employer's office about consumer goods and retail, and had strong links into a major client. Similarly, Galia had an in- depth understanding of Fonterra and an expertise in ethics.
• Being flexible. Depending on the kind of contract you obtain (see below for types), the workflow could well be intermittent. If you're a mum with a working husband or partner, you'll need to have childcare that can cope with the peaks and troughs. And the shift to irregular income can require considerable emotional adjustment.
• Being a confident networker. I'm not, but I wish I were. A 2003 UK study by Independent Direction Directors Advisory Service (IDDAS) of corporate managers who became self employed at the end of their careers or at the onset of retirement found that the key thing they would change if they could do things over was to network or self market more effectively. Personal networking with close contacts was overwhelmingly identified as the most effective way of finding new self-employed roles.

Different Kinds of Contract

Based on our own experience and observations, there are several types:

• The fixed term contract. Galia had one with Fonterra. A common reason for employers to offer fixed term contracts is having a specific project that needs outside skills. Uncertain funding is another, often the situation when state schools hire teacher aides from term to term. Note that in NZ employment law, it's illegal for employers to place someone on this kind of contract as a means of "try before you buy".
• The minimum hours or base income contract. I began my contracting life with one of these. The Boston Consulting Group, my ex-employer, guaranteed me a base income for the first twelve months. There was so much work that year that I'd invoiced them the base figure well before the contract period was up.
• The zero hour contract. This is my current arrangement with my key client. It works project-by-project with nothing written down. When they think they may have work that needs my skills, they ring. If I can make myself available, I do. I wouldn't recommend this as your initial set-up if you can avoid it because it is loose and unpredictable. It works for me because I know the client very well and there is huge trust on both sides.
• The single, one-off project. This is where you write the client a letter of proposal outlining objectives, deliverables, timeframe and financial arrangements. This becomes the contract you work under for the duration of the project. Galia has used this model too, and it works well as long as both sides are absolutely clear on what's involved. As in any consulting arrangement, make sure you don't underestimate the hours involved when quoting a project. It's a really good idea to constantly touch base with your client to avoid nasty surprises at the end.
• Work obtained via an agency. Galia and I have never done things this way but if you have readily defined and marketable skills, e.g. as an accountant or SAP consultant, you can find work this way. Presumably there is a contract or letter of agreement between you and the agency, specifying payment rates and frequency, time tracking mechanisms etc.

Your Legal Set-Up

I have to preface this by saying you must check with your professional business advisors as to what will suit your circumstances best. In principle, however, there are two main ways to set up as a contractor:

1. Sole Traders control, manage and own the business directly themselves. Normally, there are no formal or legal processes required to establish yourself this way. Sole traders are personally entitled to the profits and are personally liable for their business taxes and debts. They use their personal IRD number for the business.
2. A Limited Company of which you will probably be both a shareholder and director. The company receives all the contracting income, pays the permitted tax-deductible expenses, owns the assets and liabilities and is thus responsible for its debts. As a shareholder employee you receive a salary from the company and your liabilities are limited to your share of equity. You'll need to set up the company with the NZ Companies Office - this can be done online for a mere $50.

Lastly, remember that if you expect to earn over $40,000 (regardless of legal set-up), you'll need to register for GST. This means you'll need to account for GST, keep tax invoices, and complete GST returns. If you're like me, you'll think that paying an accountant to help with the last of these is money well spent!

What Should You Charge?

Here's my advice: take your current monthly salary and the average hours you work in a month to figure out a rough rate per hour. Then double it. At least. Why?

1. Because you're going to be offering your client/s a fabulous deal: you'll bring skills and resources they need, wrapped up in lovely variable cost packaging. They don't have to pay you when there's no work. They don't have to think about training you. For that bundle of benefits, you should charge a premium.
2. Because, from your perspective, you no longer get sick pay, holiday pay, maternity pay or end of year bonuses. You have new expenses, too. They might be tax deductible but they cost real money. Broadband to your home. A new laptop, and software. Stationery. Accountant's fees. Income insurance.

For anyone who wants a benchmark, this is ours: we wouldn't stir for under $NZ100/hour.

Is it For You?

I've now been a contractor for longer than I was an employee and I wouldn't willingly go back. It's not all sunshine and roses, but there are some great moments. Executives interviewed for the IDDAS study mentioned earlier were quoted in words that sum up the personal requirements, tradeoffs, risks and rewards pretty well:

"Be patient, retain self-belief and develop a thick skin."

"I don't miss the bureaucracy of full time work but I do miss the camaraderie."

"If I had not planned my exit and finances I would be in a pretty dangerous place."

"At [age] 50, the switch from multinational to self-managed business has been extremely rewarding."

Your Views

So, can you see yourself as a contractor? Perhaps you've already taken the plunge? If so, let us know your experiences. Contracting can be a lonely existence, and we'd love Professionelle to be a place for women in non-standard work arrangements, i.e. other than full time, to share ideas and support. Send us further questions on contracting, too, and we'll do our best to help.

© Professionelle Ltd 2007