Becoming a contractor after being in permanent, full-time employment can be a daunting step to take, so the last thing you want is someone telling you that you might be doing it wrong. But so many new contractors make the same initial errors as each other that you can learn and (hopefully) avoid making them yourself. Our partners Kingsbridge have pulled together some of the most common mistakes made by new contractors.
Not properly assessing finances
One of the recurring mistakes made by new contractors is that they don’t properly examine how much they need to be earning every month and just assume they’ll have enough money. What you need to do is come up with two figures:
- How much you need to earn every month. This is the absolute bare minimum amount you need to cover the necessities such as mortgage or rent, council tax, energy bills, utilities, insurances, petrol and food. If you split this with your partner, you need to know exactly what your share is and how much they can (or are willing to) cover extra if there’s a shortfall (assuming they themselves are in a salaried position).
- How much you want to earn every month. This figure includes all of the above plus the amount you’d like so that you can actually live your life. For instance, how much you’d like for holidays, meals out, home improvements, day trips, savings and so on.
When calculating these amounts, remember to take into account the fact that you should be putting some of your money aside to cover your tax obligations when you do get paid. Ideally, you want to be making a figure that ranges from somewhere between the two amounts to more than the second amount. But you also know that as long as you make at least the first amount, you’ll be OK financially.
Not having a first client in place
Unless you’ve been made redundant, you’ll usually have a decent notice period of between one and three months when you leave your job. Use this time to network and apply for contract positions so that you have your first client lined up on your last day at work. Even if the role doesn’t start immediately, at least you’ll know that you have work due to start.
Continuing to act like an employee
Two of the main attractions of contracting are more money and more flexibility. But so many new contractors end up back in an (albeit temporary) Monday-to-Friday-nine-to-five because they don’t assert themselves or negotiate.
Ultimately, you are charging an hourly or daily rate so you can set when you work and when you don’t. Remember, you’re charging more money for less time than you were being paid in full-time employment, so you can afford to only work so many days a week, or take so many afternoons off. Negotiate with your client and demonstrate that you can do the work they want you to in hours that suit both of you. This way you can maintain the flexibility that probably attracted you to take this route in the first place!
With thanks to our partners Kingsbridge Insurance for Contractors for this guest blog article.
For more information about Kingsbridge and their services, please visit the Kingsbridge website.
New to contracting, working in public sector, caught inside of IR35 or simply don’t have the time to run your own limited company? Contact Cloud9 Umbrella, we can take the hassle out of contracting and look after the administrative burden for you.
Are you a contractor looking to switch from your existing accountant? K&B Accountancy Group is offering a simple and straightforward approach to changing accountants allowing contractors, consultants and freelancers to have a stress-free experience by switching to them for FREE without the need to pay for any ‘catch up’ or retrospective accountancy fees for the previous year’s accounts and corporation tax return*. Sign up here. *T&Cs apply