LOOK BEFORE YOU LEAP
Before saying goodbye to the daily commute and hello to being her own boss, MEG WALKER picked up a few strategies for preparing for self-employment.
Meg Walker navigates the minefield of self-employment
After nearly 20 years working full-time, I recently made the leap into freelance. It wasn’t easy. While working for myself was a tempting prospect, I’d heard from friends who’ve done it that they spent a lot of time chasing invoices, saying yes to every gig, and wondering when they’d get paid for a job they did three months ago. If I was going to do this right, I needed a plan, both mentally and financially. So I sought the advice of a career coach, a financial adviser, and a few women who’ve made the leap themselves. If you’re thinking 2020 is the year you’re finally going to set up that business and go out on your own, read their tips for making a strategic plan before you jump…
The coach
TRANSFORMATION COACH NI AM HEN NI SON HOW TO GET THE MOST FROM YOUR COACHING EXPERIENCE
THE CONNECTION BETWEEN COACH AND CLIENT IS PARAMOUNT.
The energy has to feel right on both sides. Look for someone who understands where you are now. Don’t be drawn to a coach that won’t hold you accountable. A lot of the work I do with clients is about changing their mindset to bring about deep transformation, yet I like to leave them with a practical guide on how to move forward with their newly furnished toolbox.
THE GREATEST MISCONCEPTION IS THAT A COACH CAN FIX YOU.
Nobody can transform or change you, except you. But you can, and should, expect for them to offer guidance and direction, share their own experience and wisdom, recommend the best tools that will work for you, get you to see things from a fresh perspective, help alter your mindset, help remove your fears and limiting beliefs, encourage you to change your narrative, assist you with creating better boundaries, and getting clarity on your vision, but only you can bring about real, lasting transformation. If you choose it.
I USUALLY WORK WITH CLIENTS FOR THREE MONTHS.
The work we do can be intense. A client needs to demonstrate a commitment to showing up and doing the work. Transformation requires dedication and can be uncomfortable, unsettling and demanding.
I’VE ALWAYS HAD A COACH OR MENTOR.
The one thing I have in common with all my previous coaches is that we continue to work on ourselves. I’d be wary of a coach who felt they didn’t need a coach.
BE CLEAR ON WHAT YOU WANT.
What do you want from your coaching experience? What’s your desired outcome? When you’re clear about your objectives, it will simplify the selection process. Has your potential coach been where you are now? Read their blogs, articles or posts. Do your research. Follow them on social media, visit their website, and start getting a feeling for who they are and what they stand for. Check their testimonials. If they’re speaking at events, attend them before you commit. Always set up a call or meeting with your potential coach. Remember, you’re making an investment in your own future. Tell them what it is you need and see if what they are offering resonates with you.
“Speaking to a chartered accountant at the outset will save you a lot of money and stress down the line.”
The financial adviser
RAY MULLIGAN, MANAGING PARTNER ATM BM CHARTERED ACCOUNTANTS& REGISTERED AUDITORS, SHARES SOME TIPS ON NEGOTIATING THE FINANCIAL MINE FIELD OF SELF-EMPLOYMENT
TAX First, decide whether to operate as a sole trader or through a company. Many will rush to set up a company because they think they need one, but there’s more compliance and associated costs with a company. One of the main benefits of setting up a company is the protection of limited liability it offers. As a sole trader, you have income tax, PRSI and USC to contend with. Make yourself aware of the various tax rates and thresholds at which they apply (revenue.ie). In no time, you’ll find yourself paying tax at the marginal rate, which can be as high as 55% (income tax 40% + PRSI 4% + USC 11%). While the headline rate of corporation tax is 12.5%, certain companies are subject to a professional service surcharge, which is a further 15% on undistributed after-tax profits, ie profits that have not been taken out via salary or dividend. Remember, any funds you withdraw from the company will be subject to income tax, PRSI and USC similar to that of a sole trader. What I would advise clients, especially somebody just starting out, would be to ask yourself, “What do I need to live on?” So there’s your mortgage, childcare, food, bills… put a realistic number down. Then project what you’re going to earn from the business. If you think you are going to need to extract all the projected profits from the company, there is no benefit from a tax perspective in setting up the company to begin with and incurring all the additional costs. If, on the other hand, you think, I’m going to make in excess of what I need to live on, and down the road I want to employ people, open offices, and I want to minimise the amount of tax I pay now, then a company is possibly the better option. Broadly speaking, if you are projecting sales/fee income of less than €100,000, I would not advise setting up a company.
GET AN ACCOUNTANT As a sole trader, there’s nothing you cannot do yourself, depending on how financially savvy you are, but I would suggest speaking to a chartered accountant at the outset will save you a lot of money and stress down the line. With the company route, there is far more compliance and regulations to deal with, so you’d be taking a risk not engaging a suitably qualified professional. Get references. Keep all your receipts and get your online banking sorted, so you can download statements. Get everything to your accountant early; you’re not the only one filing. The deadline for filing your personal tax return is October 31 each year – work back from that date and avoid any late filing fees.
SEPARATE BUSINESS AND PERSONAL ACCOUNTS Get a separate bank account for your business, then transfer a monthly lump sum from that account into your personal one, leaving enough to cover tax and other expenses in the business account. Again, figure out what you need to live on. Remember, as a sole trader, you are taxed on your profits irrespective of what you take in drawings.
PENSION Tax relief on pension contributions, which is allowable at the marginal rate of tax, ie 40%, is one of the few reliefs left. You can make allowable pension contributions up to October 31 of the following year, so for the 2019 tax year, you can make payments right up to October 31, 2020 (the deadline for filing your 2019 tax return). A lot of self-employed people will see where they are at the end of the year and what they can afford to pay into their pension.
Get proper advice and put a financial plan in place.