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Going from employee to contractor is often a tricky move, especially if you’ve not worked as a contractor before. There are many factors to consider and sometimes can be quite daunting putting everything in place and the last thing anyone wants is to be told that they’re doing something wrong! However, having worked within the contractor industry for many years, we know that there are common mistakes that are made along the journey and we want to encourage anyone starting out as a contractor to think about the most essential points.
Work out your finances
Have you assessed how much income you’ll need to survive? This is something very simple but often overlooked by new contractors. How much money do you need to pay regular bills, i.e. mortgage, utility bills, council tax, fuel and food? This is the very bare minimum that you should be aiming for in terms of client income.
Don’t forget that as a contractor you will be responsible for your own Tax and National Insurance and therefore allowance for these should be added in to your buffer. On top of that you will need to add in a ‘living’ factor. Just because you have the minimum covered, there will be times that you need extra money, or you’d like to enjoy life a little!
When working out how much income you need to bring in, start with your minimum amount and then add a good buffer on top of that to account for any extras that may come along during the month. Anything above and beyond that amount is a bonus and can be put towards other things needed to run your business - or even a bonus at the end of the year!
You are a contractor - not an employee
Working as a contractor means that you set the times and hours that you work. You’re not tied into an employee contract as you were previously, and such do not have to work a 9-5 day. Negotiate between the client and what works for you in terms of working hours, thinking about why you became a contractor in the first place.
You may have chosen to become a contractor for the flexibility of working hours around other commitments. You may have chosen this path to work around your partner’s hours and childcare issues. Try not to be dictated to by the client as this could cause hostility in your working relationship. But gently lay out what you are prepared to do, for what cost.
Have the first client in place
Unless you’ve been made redundant, you’ve probably had a good amount of time to prepare for the change of becoming a contractor. A good use of a notice period whilst being employed is to search and pin down new clients ready for when you start your business. The last thing you’ll want (especially if you know what your finances require) is to start day one of contracting without a client.
Day one should mean that you’re ready to start, all prepped and prepared and ready to go.
If you’re struggling to find clients, you may be become stressed and anxious which will have a knock-on effect when approaching new clients. Be confident and clear in your vision. Knowing what you want, what you need and where you’re going to get it from.
Here at 2020 Accountancy, we specialise in accountancy for Contractors. We understand the pressures and stresses that accompany the role and are here as an accountancy support and backup for you. If you’re just starting out as a contractor and would like to speak to our team about how to get your finances in order ready for that first contract and how to go about running your business thereafter, we’d love to chat with you. Get in touch and let us guide you through.