When consultants, coaches, and other service professionals are getting set up for self-employment, I notice they often worry, as I did at first, about all the business logistics and mysteries you think you should know.
Maybe you’re even worried you’ll get in trouble for something you didn’t know.
I’ve seen many people let worries about these things really get in their way, thinking it’s something huge to tackle. They think they can’t do anything else before getting a business name, some kind of incorporated entity (e.g., LLC), etc.
I’m a self-employed business coach and I had to learn this stuff too, 11 years ago. Even though I understood a lot about marketing and business, the business setup stuff was new to me, having been an employee until then.
Business setup stuff felt like a big mystery to me, behind a curtain like in the Wizard of Oz.
It turns out it’s not that huge, especially for solo service providers like us. Important, yes, and sometimes tedious, yes. But much of it can be easier and is often not as urgent as you might think. In my case, I did it over time.
Let’s have a look. I’ll share some basics as well as what I have done as a coach.
There are plenty of things you’ve done that are harder than this. Don’t let business logistic worries stop you from going for your dreams.
I am not a lawyer or tax accountant. None of this should be taken as legal advice or as what is the right thing for every case. Please consult the appropriate professional for your particular case. There are different ways to go about these steps. This gives you an idea of where to look.
When To Focus on Setup Stuff
It’s time to think about formal setup steps especially in these situations:
- Before you see clients at your location in person.
- Before you see clients for things like health care or hands-on work.
For others, there is often more flexibility:
Usually, for solo professionals (like coaches, consultants, trainers) who work from home, you don’t need to set up everything immediately, and not all of the setup logistics are needed for solo professionals like us.
If working from home, here are some signs that it’s time to think about formal setup:
- You start spending and earning enough to know this is a real thing.
- At least once you’ve been earning money for a couple months and it’s time to track things and potentially pay taxes.
- At the very least, before tax time.
Experiment first before putting too much in writing.
You want to understand your business focus, and feel confident about it, before you choose names, branding, pricing, software, etc.
For instance, get some practice clients before going too far down one road. (I’ve talked about how to do that, later in this post.)
If seeing people in person, such as in healing arts, ask others in the field about how to explore things up close or shadow someone before choosing that path.
I recommend holding off on business names and websites at first. Too many people think they have to do that before getting clients. That can be a distraction from just getting your first client.
Once you begin with clients, so much is revealed about what feels right to you and them. THEN you’ll know more about the business you want to build.
Setup Logistics To Do or Consider
It’s time to open that door and see what’s inside.
Let’s look at the logistics.
Here are some ideas of what self-employed services professionals need to learn about, in the USA.
- Get a business accountant and set up your books.
Find an accountant who is a good teacher for new business owners. They can help you:
- Set up income and expense tracking, and know what to track or not.
- Understand how to pay taxes as you go (e.g., quarterly tax payments).
- Understand your numbers and what’s working or not, or where you might need to change pricing and spending.
- Consider the legal entity that’s right for you (e.g., sole proprietor, LLC, etc.)
- Get a tax accountant.
Your business accountant might also do taxes, but sometimes these are different people and they can refer to each other. Well worth the small expense.
- Home office considerations.
Ask your accountant whether and how you can take your home office as an expense. If so, you’ll also need to track some expenses around that.
- Separate your personal and business financial accounts.
Set up separate accounts for your business, so that income and expenses are not mixed in with personal. This includes a separate bank account and a separate online payment account such as Paypal.
OK, this kicks up the business name issue. Talk to the bank about using your name for now and options to change the name later. Naming concerns shouldn’t stop you.
- Consider business liability insurance.
Some situations are a higher risk than others, like health care related. I recommend you ask others in the same field what they do and what they use. If you see clients at your location, your landlord will most likely require it.
- Health insurance.
- There are income-based insurance options you can find through the US government here.
- Or find a business insurance agent who can find you the right match.
- Or ask colleagues or a business organization such as the Chamber for recommendations. There might be group options you could join.
- Health insurance can be partially used as a business expense. Ask your tax accountant.
- Talk to a free business counselor.
In the USA, there is free business counseling available in each state. Find your local place here. They can help you know the logistics relevant to you.
Beware that these free business counselors are mostly familiar with businesses with employees, business loans, etc., but they can still be helpful if you remind them of your type of business.
- Set up how to get paid.
You can just accept checks. I encourage you to also accept credit cards and online payments. I have a small section about that below.
- Client agreements.
I think it’s important to have clear written communication about what will happen. Open communication is just a nice thing for everyone. I recommend asking someone in your same field for guidance or samples. I would seek legal review for any new or special contracts.
Lower Priorities for Home-based Service Professionals, but Still Worth a Look:
- Business name?
For solo service professionals, it’s common to simply use your personal name.
If you want a separate business name, I would wait until you’re clear on your business niche, and use your own name in the meantime.
- A business plan?
A business plan is firstly for you, to clarify your goals and the path to get there.
A formal business plan can be used to seek outside funding.
For solo service professionals, a 1-page summary sheet is usually enough information for you, and you want to keep it fresh. A business coach can help.
For formal business plans, ask your business counselor for a template. A business accountant can help.
- Register your business?
If you are home-based and using just your name as your business name, you probably don’t need to do this. If you have a business location and/or a business name, talk to your free business counselor for guidance on what to do in your area. This is a local issue.
- Register as a particular legal entity like an LLC?
Ask your tax accountant or business counselor for guidance. In some states, registering as an LLC or other entity is a considerable expense, annually. But there are benefits to consider.
- Business lawyer?
You might want to know of a business lawyer to call on, for things like LLC questions, consulting agreements, trademarks, or questions that might arise. A business counselor can suggest when to call on one. A local law school might have free options.
- “Self-employment tax”?
When you have an employer, they pay taxes into the Social Security system for you. Now it’s up to you as the owner to pay into it for yourself. It’s paid when you file taxes so you don’t need to think about until then. This is just to answer a common confusion.
Some people call this “self-employment tax.” It just means you’re paying into a system that will pay you later, in retirement or if disabled. It’s a reason not to hide any income, because that amount could affect your future income as long as you live.
- Disability insurance?
Employers sometimes provide disability insurance and/or paid sick time. Getting disability insurance for yourself is not a small expense but might be worth a look. The value of it depends on your personal financial situation and responsibilities. It usually fills a gap before Social Security Disability Income (SSDI) would kick in.
What I’ve Done in My Case
It looks like a long list, but this happened over years!
- Business accountant.
Originally I hired a bookkeeper to help me set up my books. Later I hired a business accountant to help me understand more and choose various systems. Each time it was definitely a great investment in time and money and it wasn’t that much.
- Tax accountant.
I always pay a tax accountant to do my taxes and it’s a great use of money. And not as much as I would have expected.
- Home office.
I have continually maintained a home office that I use as a business expense when filing taxes, even when I also had a part-time office for seeing clients in person. My tax accountant has helped me follow the law and track what’s needed.
- Separate financial accounts.
I have a separate accounts for my business, including a separate credit card. It makes accounting and reconciling so easy.
- Business liability insurance.
I have business liability insurance through a company with a special package for coaches. It was recommended to me by other coaches.
- Health insurance.
When I first began, I used income-based health insurance through the state and it was a blessing. Then when I earned too much to qualify, I got a business insurance specialist to help me set up my own health insurance plan. Big expense, yes, but worth it. Now my husband’s employer provides coverage for both of us.
- Free business counselor.
I have at times met with the free business counselors at the small business development center near me, to understand some business setup basics. And I’ve attended their workshops. They have also sent me referrals.
- Payment systems.
At first, to keep things simple, people paid me by check. I soon learned how simple it was to also allow payments with apps like Square and Paypal, so I started that.
Later I added a shopping cart on my client portal to streamline things.
- Client agreements.
I use an agreement that is visible before someone pays, in my shopping cart system. I have had professional help over the years to develop and refine those agreements, starting with asking other coaches. When I was offered a writing contract, I had a lawyer review and request revisions before I signed.
- Business name.
I personally found no need for a business name. I just use my name. I thought about it early on, and registered a name with the city, but then decided not to bother with it and I let it go.
- A business plan.
I have never sought a business loan or investor so I have never created a formal business plan like they require. But I like having a 1-page business plan for myself to show me how it all adds up to meet my income needs. It has been so calming to get that clear on the math and to see my goals visually on one page.
- Register your business?
I did that with the city when I had a business name and location outside my home, but I don’t anymore and they told me not to bother in that case.
- Register as a legal entity like an LLC?
Years ago, someone at a business law clinic advised me that in my case liability insurance provided more protection than the LLC, for less money. So I stayed as a sole proprietor, which is the default and no registration is required for that. However, I need to revisit this and see if things have changed.
- Business lawyer?
I have occasionally gotten legal advice such as with consulting agreements and trademarks. The first time was for no cost through a local law school. Later I paid for help with a trademark. This hasn’t been a big expense for me.
- “Self-employment tax”
I feel great about paying into Social Security so I never think about this as a problem. I will need that money later. (I also get huge self-employment benefits, like Freedom.)
- Disability insurance?
I have looked into this and didn’t choose it at that time, but my family income needs have changed and I need to review this again.
How To Get Paid
Here are some basic things I recommend:
- Allow credit card or online payments and let go of the expense (usually about 3% of the sale). It’s a cost of doing business that will most likely help you make more than you could without it. Plus you usually only pay when you use it, which is a nice arrangement.
- Choose a credit card merchant system (e.g., Paypal, Square) that works for your needs. Ask people in your field what they find best. Also when you have a website, the host will have certain payment systems they integrate with and that can narrow your options.
- When possible, have people pay in advance to hold a spot in your calendar. It’s clear and simple for everyone and you’re not stuck trying to track loose ends after the fact.
- Have clear written agreements with clients on how payment, cancellations, and refunds work. Everyone’s happier that way.
- Keep your eyes out for an annual tax document from your credit card merchant, such as Paypal. You’ll need that for filing taxes.
How To Get Your First Clients, Even “Practice Clients.”
I mentioned above that I recommend you get “practice clients” before firming up your decisions for what you’ll be doing.
In any case, once you’re ready to attract your first few clients, here’s a simple way to begin:
I am not a lawyer or tax accountant. None of this should be taken as legal advice. Please consult the appropriate professional for your particular case.