Self-employment: Taking the plunge

Hi everyone! I have been asked a while ago to talk about being self-employed. I have been self-employed since late 2004 and can't ever imagine being an 'employee' ever again as I am so used to being self-employed. In one sentence, Self-employment is the act of generating one's income directly from customers, clients or other organizations as opposed to being an employee of a business (or person).Now this is a concept that is increasingly being popular for a variety of reasons and if you haven't considered it before, well perhaps you ought to now.

Times are still hard, we are still struggling to come out of a long and deep recession and a company can save a lot of money by using contract workers rather than full time employees. There are a whole range of employee benefits that a self-employment contractor simply isn't entitled to: healthcare benefits, sick pay, holiday pay and pension schemes. Furthermore, it is a lot easier to fire a contract worker than a full time employee - a reason why Spain is in such deep recession today was that the powerful unions made it very hard for companies to fire anyone even when they couldn't afford to pay their salaries anymore and as a result, whole companies went bankrupt. This is why many companies prefer to take on self-employed contractors instead these days and if you're a currently looking for a job, you could improve your chances of getting paid employment by offering yourself as a self-employed contractor.

Really, you can be a self-employed contractor for any industry, it boils down to your ability to find work directly or indirectly (via agents/middlemen) from multiple sources. Common examples of self-employed contractors are electricians and plumbers - they turn up, do the job, get paid and you rarely ever have to deal with them again .But really, everyone from journalists to actors to teachers to chefs can be self-employed. Even in the world of sales, it is becoming increasingly common to find self-employed sales staff who work solely for commission. That way, the company will only reward those who do sell (often with quite generous commissions) whilst those who do not manage to sell are not paid a penny. This is becoming an increasingly popular business model.

Many professionals are self-employed these days.

What are the benefits of being self-employed? Well I have been self-employed for nearly ten years now and I wouldn't have it any other way - the fact is I am currently pursuing careers in two very different industries: finance and showbiz and being self-employed is the only feasible way for me to pursue both careers. I am grateful to be in a position where I can juggle these two very different careers and still have a good work-life balance. There are many people who have two very different interests and don't really want to be forced to choose one over the other - I suppose this concept is hard to understand for people who are not even good enough at one thing to find just one decent job. Mind you, for my job in finance, it could quite easily be a full time job - but the company knows that they get away with paying me far less by using me as a contractor and I have no desire to have a full time job with them whilst I am still keeping one foot in the word of media. It is a win-win situation: they save money whilst I retain my freedom to still pursue my acting.

There are also those who want an alternative to 'part-time' work - the term 'part-time' still implies a certain element of routine - whereas my experience as a self-employed person can be better described as "flexi-time". This means that sometimes I am extremely busy and can work 12, 14 hours a day and others days I can take it easy and do as little as 2 hours of work that day. I can also decide to take a month off and go traveling without worrying about how many days of annual leave I am entitled to - hell no, screw that. I do not keep to regular office hours and sometimes I can choose to have a lie in on a Thursday, sometimes I have to work on the weekend. Sometimes, I have the flexibility to say, "This can wait until later, I want to go to the gym first." (Oh and here's a Youtube clip of me in action at my gym below.)

Many self-employed people depend on work agents to help them find work - let me use the classic example of actors. An actor would usually rely on an agent to help him find work, in return the agent gets a cut of the actor's earning. If the actor doesn't get the job, the agent doesn't earn a penny. The actor works for himself, the actor does not work  for the agent - rather the actor supplies his services to the client (the film company, TV station, media production company, theatre company etc). Thus an actor needs a good agent to find him loads of work and it is a symbiotic relationship. Such agents exist across a range of industries and the arrangement is basically the same - the agent helps the self-employed person find work in exchange for a small cut of their earnings (or a fee in some cases).

There are some basic principles that do apply whether you are self-employed or an employee: you really need to be doing a job that you have some interest in, otherwise work would be sheer torture. Once you have a job that you do enjoy, then you don't have to worry about motivation. One of the questions I was asked is, "How do you get on with work without a line manager making sure you are working? How do you maintain your focus? Wouldn't there be just too many distractions to keep you from working, such as Facebook, computer games or porn on the internet?" Well it boils down to interest, it is Angry Birds vs your work - if your work is less fun and interesting than Angry Birds, then you're clearly in the wrong job. Whether you are self-employed or an employee is definitely not the issue here.

Is this more interesting than your work? Then we have a problem.

One aspect about being self-employed that you will have to come to grips with is the tax situation. When I worked for a company, the tax was deducted at source and I didn't have to think about how much tax I had to pay. But now as a self-employed person, I send an invoice to the client and I get paid in full (no tax deducted). I then fill up a tax return at the end of each tax year and declare my earnings to the government - they then give me my income tax bill. Filling in my tax return is a tedious, horrible experience (some people hate it so much they pay an accountant to do that task, but I do it myself) - I usually spend the quiet week between Christmas and New Year to do it. If I spend 3 to 4 hours a day to do it, I usually finish it in about a week. I have to keep records of all my earnings and business expenses for this tax return and that was something I didn't have to do before I became self-employed.

Another challenge you will have to deal with is not having a stable source of income: some months I earn more, some months I earn less - I have to monitor my finances and make sure that I make hay when the sun shines because there will always be periods in the future when I do not make as much as I like. When I have a good month, I have to act responsibly and save the money (rather than go on a big shopping spree for nice clothes). If you wish to plan for a long term investment like a mortgage under such circumstances, then you need to make sure you do not overstretch yourself just in case you do run into a dry patch where your earnings fall below average - you will need to stash away a 'rainy day fund' so you know that in a worst case scenario, you can always use that as a last resort.

I have to manage my finances carefully as a self-employed person.

Another troublesome aspect of being self-employed is credit control - you know, big companies can have a whole department of people just responsible for credit control. For those of you not familiar with this, allow me to explain: after I complete a piece of work, I send in an invoice and I usually wait a week or two. Then I check my bank account and hope that they have made the payment. - if the payment hasn't been paid, I have to chase the payment. In an ideal world, my invoices should be paid in a week but you'll be amazed how much chasing I have to do just to make sure that I am paid. It is a pain in the butt to say the least, when I was working full time for a company, there were many things I hated about them but at least they were very prompt in paying me at the end of the month.

I don't think being self-employed is for everyone - you really need to be quite confident about having a skill set that is in constant demand, that will keep you busy enough to generate your desired level of income. Mind you, you don't need to be some kind of rocket scientist to take on the challenges of being self-employed - a very down-to-earth example is the humble tuition teacher in Singapore. If you are a good tuition teacher, then the kiasu parents will always need tuition teachers to enhance their students' potential. Many tuition teachers are self-employed and that's fairly common in Singapore. When I was young, I used to go for piano lessons with this really fierce teacher Madam Lim - again, she was self-employed. Students turned up at her flat and took piano lessons from her, she was paid directly by the parents at the end of each month. This is neither a new concept nor is it all that complicated at the end of the day.

So there you go, that's it from me on the issue of being self-employed. If you have any questions on the issue of becoming self-employed, please do let me know and I'll see what I can do to help. Thank you for reading.