Monthly Archives: September 2016

Independent Contractor

At some point in our lives, almost all of us dream of breaking the shackles of employment and becoming our own boss. But before making such a big decision, it’s essential to weigh up the advantages and disadvantages that becoming a contractor will bring.

Being your own boss is not all mid-morning croissants and frothy cappuccinos. The reality is that you could end up working longer hours for less. And then there are all those additional tax and accounting obligations you have to meet. You could find that being your own boss is a lot harder than you first thought.

Hopefully, the below snapshot of the advantages and disadvantages of being a contractor will give you plenty of food for thought before you make the decision to go it alone.

The advantages of being a contractor
Freedom and flexibility

The freedom to choose what contracts you want to work on, which you’d rather leave and even when you work is probably the biggest benefit of being a contractor. Although contracts are for a fixed time and are often extended, you can pick and choose whether you work with the same company for the long term, or simply move onto another contract.

You can earn more

One of the first things people think about when considering life as a contractor is the financial benefits this new route could bring. In many cases, the average contractor will earn more than they would as an employee. This is because much of an employee’s pay is actually made up of benefits, such as pension contributions and subsidized medical insurance, which contractors do not receive. As a result, contractors can be paid up to double the rate of a full-time employee. This will depend on your level of skills, the industry you work in and the location.
Tax benefits

In the UK, independent contractors can operate through a limited company as opposed to an employee. This can provide significant tax benefits as contractors can pay themselves in the most tax efficient way i.e. by taking a small salary and more dividends. This reduces the amount of National Insurance contributions contractors have to pay.

In the US, although an employee is likely to enjoy better benefits than a contractor, they will not have the same tax advantages. An independent contractor can also write-off all reasonable and necessary business expenses.

The disadvantages of being a contractor
Extra administration

There are a number of additional burdens contractors have to deal with. This includes completing and filing tax returns and annual accounts accurately and on time. Contractors also have to keep a track of their expenses. There are specialist contractor accountants who will take care of these obligations for you, but that is an additional expense that’ll eat into your earnings.

No guarantee of work

Life as a contractor is not all plain sailing. If you predominantly work short-term contracts, you have to make sure you are always on the lookout for that next job. The reality is that there is no guarantee you will find work straightaway, so it’s a good idea to keep significant savings in case the work dries up.
Limited job security

Most contracts will only run for a limited period of time, and in some cases, depending on your terms, they can be removed with very little notice. Typically, this notice period will be a lot shorter for contractors than employees in the equivalent role. There are also no financial safeguards to fall back on such as sickness or redundancy pay. Generally as a contractor, if you’re not working, you’re not earning.

How To Negotiate Your Way to Lower Business Expenses

Studies show that goods and services are among the top expenses for America’s small businesses. While SMBs have been cutting back on their spending since 2008, according to one report, costs for goods and service comprise 28 percent of a small business’ budget, making them the second largest expense after payroll.

While small businesses can’t eliminate some of their priciest costs and services – like rent, equipment purchases, and marketing – they can take steps to negotiate better deals on these and other expenses, provided that they do their homework.

Although businesses are often hesitant to ask their suppliers for deals, the truth is that many B2B companies expect their clients to haggle for prices. Here are some tips for haggling your way to lower expenses…and a healthier business budget.

Create an RFP

Before attempting to haggle for lower business expenses, take time to draft an RFP, or request for proposal. These documents are used to solicit bids on given products or services. You can then compare the proposals you receive from different vendors to determine which one is best for your business’ unique needs. Be sure to do some research on the cost of the desired goods or services in your area, so you can go into the situation with realistic expectations.

Many small businesses submit RFPs when attempting to choose providers. SMBs might send RFPs to marketing companies, technology developers, or website designers. For best results, create a detailed document that offers information about your company and the project in question. The more information you can provide a vendor with upfront, the more accurate your quote will be. Putting an RFP together is time consuming, and these documents are best used for larger purchases.

Alter Your Ordering Strategy

If vendors aren’t offering the prices you desire, you might consider changing your overall ordering strategy. In many cases, small businesses can cut overall costs by either consolidating orders or breaking them down.

Generally, consolidating orders and buying goods in bulk both increase your value to suppliers and boost the odds of them giving you deals. After all, vendors have cash flow problems, too. If you place a bigger order with a larger initial deposit, the supplier might be willing to negotiate with you on cost per item. As a note of caution, you should avoid purchasing in bulk for inventory that is likely to expire or become outdated. For best results, confer with your sales department and accounting team before buying bulk. You don’t want to tie up cash that you need for other purchases.

Know The Dangers of Rapid Business Growth

The growth and expansion phase is an exciting time for any small business. The primary goal of a startup is to get customers, deliver the product or service and reach the break-even point as quickly as possible. According to the conventional business plans, once the break-even point is achieved, profitability should follow. For some small businesses, however, another goal is rapid growth. And, that can be a problem. Businesses often underestimate the intense pressure that accompanies rapid business growth.
1. Your business may face a cash flow crunch as it deals with increased demand for your products or services.

The costs of running a fledgling business can be difficult to manage, especially coming on the heels of cash outlay to open the business. At this point, your business may be surviving on credit as you try to grow sales and revenues. As you push for higher sales, expect monthly expenses to grow and possibly exceed your monthly revenues. If your collections are on track, that’s not an insurmountable problem. However, a cycle or two of delayed collections could leave your business in that proverbial spot between a rock and hard place.

To keep cash flowing anticipate the cash crunch with a realistic plan that accounts for delays in the collection of receivables. Prepare a back-up plan for raising cash from personal sources or through a pre-approved line of credit from your bank. Diversify your client base if possible. If you depend on one big client as a revenue source, you are leaving your small business vulnerable to the whims of the client.

2. Operational inefficiency because of uncontrolled expansion will cost your company time, money and other resources.

When your business starts growing quickly, you will be forced to improvise to manage increased demand for your products or services. When business buildup happens too fast and too soon, you will not be able to adhere to your perfect business plan where your operational processes flow smoothly. You may be pressured to hire more people sooner than you anticipated, and you may not be skilled in choosing the right people or you may not have the time to redesign your workflow to accommodate increased demand. While higher demand should lead to economies of scale, this may not happen if rapid growth results in any of these problems:

Your new employees are poorly trained
You can’t manufacture or buy inventory quickly enough to fill orders
You haven’t accurately determined the cost of delivering your products or dealing with customers
Your customer service isn’t up-to-par

Manage the ordering system and the order fulfillment process so that you will not end up over-promising to your customers. If possible, talk to owners of other fast growing businesses to see what problems they experienced and so you know what to plan for. Ask advisors at a local Small Business Development Center (SBDC) or SCORE chapter for advice. Their services are free, and they may be able to help you be aware of problems and solutions for your type of business. Remember, too, it is better to turn down customers than risk annoying them if you can’t deliver on time or can’t deliver quality goods and services.

3. You start receiving a lot of negative feedback due to customer service issues.

A few customer complaints occasionally are part of doing business, but when negative feedback starts to pile up, it is an indication that you are not meeting client expectations. This could be due to lack of personnel to manage client interactions. It could also hint at other issues if your staff is spread too thin and is cutting corners to meet customer demand.

Clients who provide positive feedback are bound to be repeat customers. A host of negative feedback could indicate that you are unable to cope with the market’s expectations in terms of the delivery because you are overwhelmed. Make sure to monitor your feedback system regularly, keep an eye on social media mentions of your business, and have a plan in place for handling both positive and negative feedback.

RELATED: 8 Keys to Building Customer Loyalty

4. Your employees are overworked, putting in long hours and getting ready to jump ship.

A vibrant workplace inspires employees to work their hardest, but when work consumes most of their waking hours, you run the risk of losing your trained and trusted employees. You may find that your business is a revolving door of employees in spite of generous compensation and benefits.

Pay attention to the evolving workplace culture as your business grows. Find the time to discuss quality of life issues during staff meetings. Make sure to address personnel matters as needed, but do it expeditiously.

5. Your ability to lead and manage falters as your work processes come under pressure from increasing demand.

As the business grows, the founders eventually transition to a leadership role, delegating most of the operational decisions and functions to someone else. However, growing too quickly could make you lose your focus on essential functions and take on too many tasks, delivering below-par outcomes that lead to frustration within your company and disappointment for your clients. The problem escalates when internal business systems and procedures are mishandled due to everyone being overworked. Inadequate control over budgeting, inventory management, marketing and sales programs could derail your success as a business.

Outsourcing some functions is a viable method to delegate some non-critical administrative functions. This arrangement can be transitional or permanent, depending on your needs, but it is important to scale your processes to align with your growing business. No one is an expert in everything, so this may be the phase where you bring in the best personnel you can find to help guide your company through the changes required to become a bigger and better business.