WMW: Entrepreneurship & Making Money
Posted by Gail | Filed under Take Control, talking about money
This post is a part of Women’s Money Week 2012. For more posts about Making Money, see womensmoneyweek.com.
People are under the misconception that when you’re self-employed you work for yourself. There’s nothing further from the truth. Self-employed people work for every customer they have. And customers can be a demanding lot. If you think entrepreneurship is a secret path to wealth and a short work-week, forgedaboutit! You’re going to have to bust your arse. You’re going to have to jump through hoops. You’re going to sweat bullets, pull your hair out and cry in the shower. If you’re up for all that, along with working 70 or 80 hours a week to make the sucker go, then you’ve got the goods to be an entrepreneur. If not, get a job!
You’re going into business to make a living. If you keep spending all the money you make on crap (think fancy cars, swishy office space, all the toys) and don’t have enough to support yourself, you’re playing at a hobby. Businesses earn money. Yes, it may take some time to make big money, but if you’re not making at least enough to support yourself, think seriously about what you’re trying to accomplish.
For anyone living on a variable income, the trick is to even out that income. First you decide how much you need to take as an income to meet your Must Have Needs. Next, you open up a separate bank account for your professional income (not your personal income) and you deposit all the money from your biz in there. (It doesn’t have to be a biz account specifically, just a separate account.) Every month regardless of what you make, you take only the Must Have income out as your compensation.
Over time the biz account will build up a surplus that can be used in the months when billings are lower. Once you’ve got that built up to about three months’ worth of your personal income, you can increase your personal income to include your nice-to-haves, always making sure you continue to build your biz account up for flexibility.
Being in business for yourself is no cake-walk. So what are the financial advantages of being self-employed? Oh, there are quite a few, but most of the advantages aren’t financial, they’re personal: The ability to set your own course; the control to decide what you love to do and do it with passion; time flexibility. I’ve been getting up to write at 4:00 a.m. for what seems like forever. That gives me hours during the day to do things for and with my children, to explore other opportunities or to have a nap! I’ve been self-employed since I was 25 and I wouldn’t change it for a minute.
March 5, 2012 at 6:42 am
I’ve been self employed for the last 6 years as a bookkeeper. I love being able to leave when the work is done and not having to sit and twiddle my thumbs till clock hits 5. It certainly isn’t glamorous but I enjoy it.
March 5, 2012 at 8:48 am
I’ve been self-employed for 7 years now. It has had it challenges, especially since I had no business training. I learned as I went. I’m still learning how to even out the wildly variable income, to have the feast months pay for the famine months. But the rewards have been tremendous. Not only have I grown as a business owner, I have been able to take part in some great moments in my childrens’ lives that I might have otherwise missed.
I always joke that my business is the best ‘part-time’ job I’ve ever had. The reality is, I put in more hours than if I was employed full-time. But I wouldn’t change it for the world.
March 5, 2012 at 9:17 am
Thanks for the reality check!
March 5, 2012 at 9:57 am
I love the control over my life that being self-employed gives me-20 years and counting. I can shift directions quickly, address problem immediately, work early or late to get to social events and occasionally fire bad customers (nicely). It took awhile to learn that I need to ‘turn off’ for a day to recharge and I’d be more efficient Monday morning. So now Sunday is my day to just haaaang out since being tired and short tempered does NOT help a small company!
I have to admit during the lean months, I’m envious of friends with benefits and health spending accounts and sick days and paid vacation days but then I think of the all day meetings where they just sit there listening to the latest mission statement and I know that would crush my fragile soul.
Gail, I’d add to your statement that you work for every customer you have..you’re only as good as your LAST customer.
March 5, 2012 at 10:06 am
Wow. Perfect timing this one! I’m a Realtor-2 years new-and it’s brutal. It’s dog eat dog and a man’s world. I’m juggling 3 kids, one a toddler, and a shift working husband so….I cry alot and feel lost often. I am working so hard, and I laugh when people say it is a part time thing since I have kids. Um, nope. Its a 24/7 thing right now. I find it so hard to juggle the kids…I refuse to let anything trump their needs so…I’m not near where I could be sales wise or totem-pole-wise…..I just plug away and pray alot that the money keeps coming….I also refuse to treat my customers/clients like a numerical stat to get their $$. Yes, this is how most agents get rich..so I know I will never be rich. But I strive to be good and happy and earn a good living. I worry though……….the stress………..
March 5, 2012 at 10:07 am
I’ve been wondering if this is in my future. Thanks for the reality check!
March 5, 2012 at 12:06 pm
I love this step by step approach of how to pay yourself when running a business! We’ve always just had side gigs- never gone ‘all in’ and left our ‘real’ jobs. I think how to pay yourself is one of the biggest struggles when you are starting your own business. This approach seems like a perfect answer!
March 5, 2012 at 12:32 pm
I hear you April, I’ve been self employed for 12 years and the income has never been what I had hoped for. I also have 3 kids under the age of 5 so perhaps my efforts haven’t been all that focussed. I find that one month is great and the next is a dog’s breakfast, I haven’t tried Gail’s approach to smooth out the bumps as I’ve always been inclined to put the extras on the mortgage or RRSP/TFSA. I am finding the current economic climate a challenge as my clients are not interested in spending extra, but neither am I!
April, hang in there, I’ll be cheering you on!
March 5, 2012 at 2:13 pm
I’ve been “self-employed” as a full time, full service Realtor for almost 20 years and it is a tough business to break into and a tougher business to stay in.
It takes more time than you can imagine, more resources than you plan to use, and can be a whole lot of work for nothing if a sale doesn’t pan out.
As a Realtor you are on call 24/7, whether the kids are sick, or your car has broken down, or you’ve got tickets to see the ballgame. Your clients are Relying on you to help them make the Most Expensive Purchase of Their Lives, so you Must be at their beck and call, you must be on top of all the trends in the market (which change daily) and know your stuff regarding financing.
I have been working with a partner (who also has a family) for the last 10 plus years and that makes it possible to have a Life, which in this business is a tough thing to have.
The most difficult part is the Budgeting .
Feast and Famine are cycles you learn to live with (sort of) in this industry, and Gail’s idea about having the separate bank account for “business” is brilliant. Its really easy to go wild when a large cheque comes in, and really painful when you are between cheques.
On the brighter side, I Love what I do and I truly feel like I help people make the perfect move.
March 5, 2012 at 2:49 pm
I would love to see more blogs about starting/running a business! I started up a business last year on a part time basis (I still work a regular job, 40 hours a week) and it was a steep learning curve. I use my income from my business for “fun” and my income from my 1st job for everything else. As I live in a small town, there isn’t much to do anyway, and so I might as well work. This system allows me to take a nice trip and get away from it all!
March 5, 2012 at 3:18 pm
Excellent post as always Gail. I have been self employed now for 26 years – ever since my divorce, when I found it was much easier to handle the schedules of my 4 kids if I set my own hours. It also allowed me to make more money than if I were employed by someone else. As others pointed out, the downfall is now sick leave or benefits, but that is where good insurance plans come in. The first year was a bit of a stuggle getting the cash flow established, but after that, no problems. I love the freedom to take holidays when I want and to pick and choose my customers. As the owner, if you are rude to me I don’t have to deal with you in the future, as an employee, you don’t have that option.
The only drawback I find is that everyone assumes you have TONS of money since you are a business and they are constantly asking for donations (I live in a smaller city) for everything under the sun. Including, here in Manitoba, donations for wedding socials!!!! For those who don’t know what these are, the bride and groom throw a big dance to which they sell tickes in order to raise money to pay for their wedding. If this isn’t bad enough, they ask perfect strangers (businesses) to donate money or goods for them to sell tickets on as door prizes.
Sorry, but that is my rant of the day as I was just phoned again by someone I didn’t know wanting me to donate to their wedding social. I know I feel the way I am sure Gail would about this and that is, if you can’t afford a big wedding, then don’t have one. You certainly do not have the right to ask perfect strangers to help you pay for it.
March 5, 2012 at 4:59 pm
As a self-employed person, I don’t have those flexible hours. It’s 9-5 every day at the client site, but I get breaks in between projects.
The tough thing about being self-employed is being realistic. If you make more money working at a job, then get a job.
You need to be able to make money, pay business expenses, turn a profit (your net income) and save every year after covering your personal expenses to stay self-employed.
Otherwise, a job would be more beneficial, even if it isn’t as fun or doesn’t have as much free time.
March 5, 2012 at 6:50 pm
LOL @ TaraP
Is there divorce socials?
March 5, 2012 at 7:47 pm
@ TaraP
Or “self-employed, having a bad quarter” socials?
March 5, 2012 at 9:04 pm
When the large number of hours self employed folks typically work is mentioned, it always sounds like we’re working like a dog. What needs to be tied to that is the freedom to work those hours when you want. It’s hard to describe how that freedom actually makes it seem like one is working less.
I’m often working by 7am, sometimes by 6. I’ve got 2+ hours in before my neighbours are even at work. But if I want to take an afternoon off, or take a long lunch, or whatever, I have the flexibility of doing so. It’s that flexibility that’s so liberating. I have more time with my kids than I ever did working 9-5 for someone else.
Here’s the skinny on being self-employed. Have you ever heard of someone who regretted being self-employed? Probably never. Ventures might succeed or they might fail, but I’ve never heard of someone who regretted the experience. If you’ve ever thought about it, now’s the time to try something – even if only part time. I guarantee you won’t regret trying.
March 5, 2012 at 10:11 pm
I’ve got a wee side gig going on to pay for those items falling right on the line between “nice to have” and “need to have” like curtains. Technically yes, a human being can live without curtains if they have food and a shelter with the windows in it, but at a certain point, you just need curtains. And not any old sheet tacked to the wall; real curtains with a colour and a pattern and everything. I’m always proud of myself when I look at my curtains because I know EXACTLY how much work it cost me to buy them.
Most people can live without scrapbooking paper, but not this human being, hence, the side gig. Good luck to you April. Our realtor had left a well paid but miserable job to become a realtor. She worked for a small firm that had been set up by a woman and was only staffed by women. I don’t know about the other gals there but ours was vivacious, honest and funny. It’s been years but I still pop in from time to time just to visit her.
March 6, 2012 at 12:00 am
Hello Gail,Firstly i must say i love your show. I wish i had someone like you to walk me through how to manage my finances since i’ve never had anyone in my life to teach me anything when it comes to managing my money. I’m a 27 year old Dental Assistant from Toronto and i’m in desperate need of help with my finances. I’ve been with my boyfriend for more than 5 years now. We have talked about getting married but we never have enough money to get a ring or do a wedding.we both have great jobs that we can live comfortable but we are always scrounging up money at the end of the month to do things. We live together so we can cut down on our expenses of having to pay double rent but still we don’t seem to have any money. we have no saving in the bank or anything put aside for our retirement or emergency . I’m so frustrated and don’t know what to do.Please help me because i feel like i’m at my wits end with everything.
March 6, 2012 at 1:31 am
I suppose I am a bit cynical about self-employment. Because of my profession, I’ve seen a number of businesses fail. I’ve also seen my step-father’s businesses fail, and watched my sister get in over her head financially because she left her job to be self employed.
I believe that all these groups failed because they were unrealistic regarding the money that they would make in the first 5 years of their venture. In each case, I think they so much wanted it to be successful, that they weren’t able/willing to make a realistic plan.
I would recommend that anyone wanting to go into business to estimate their revenue as realistically as possible, by doing market research, talking to others in the industry etc. Then divide that anticipated revenue in half.
Consider this to be your (likely) worst case scenerio. If the worst happens, what is your plan? Do you have sufficient cash resources in place to take you through those few years of rough times?
If you achieve your anticipated profit, then the extra is gravy.
March 6, 2012 at 12:30 pm
Excellent post! I like both sides of the story- financial and personal. For financial part, opening a separate bank account is a must! And for personal… Can not be said better. I am having a bad cold right now and have to close my private fitness studio that runs only by me. So, any solutions to that, beside hiring a trainer to help?!
March 8, 2012 at 10:41 am
Great info-DH is in the process of starting up a business, and I love the simple description of how to pay himself. Luckily, we balance out his feast and famine with my steady salary income, which can cover all our need to haves (and some of our nice to haves if we are careful).
I grew up with entrepeneurial parents, and it was awesome that they could come on school trips, attend afternoon sports games, etc., but the other side of that was they worked after they put us to bed many a night.
March 8, 2012 at 2:53 pm
I’ve been self-employed for 8 years. Two different companies, one in online wholesale and now in the local service area Entertainment. The only problem I have is come tax time when as a self employed induvidual you have to pay almost 10% CPP Tax on your net. If you don’t save it ahead of time we’re talking a couple of thousand dollars!! This year, I’ll definately try to build up a business savings account to help with tax time.
March 12, 2012 at 1:01 pm
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