How to Take the Fear Out of Self-Employment

Just kidding—you can't. It’s terrifying. But it is also very liberating and empowering. Small businesses live and die by cash flow, and if the bank balance descends below your comfort zone, it can cause some sleepless nights. On the other hand, your income is no longer contingent on salary increases and bonuses that are mostly out of your control. You can run your business however you see fit and create a commensurate income based on your success.

I bought a CPA firm when I was 25 and never looked back. I enjoy the independence and find that the fear fades in comparison to opportunities self-employment provides. Granted, my professional background does gives me a leg up on most small business owners. My two firms (LeFleur Financial and Corkern & Norris) are centered around helping others manage their financial lives, which includes individuals and the small businesses they run. So let me level the playing field and give my top four suggestions when making the move to work for yourself.

Watch Your Cash

Before you take the plunge and start your own business, make sure you have enough money saved to support your basic living expenses for at least six months. This amount may include rent or mortgage payments, car note, groceries, utilities, gas, etc. Or if you are married and your spouse has sufficient income, it’s even better to budget and live on their income exclusively. Expenses come up unexpectedly when you are starting out, so even if you are generating revenue, it may be going right back out to cover the costs of doing business.

Also, it is always better to use cash over credit, but if you are going to get a loan or line of credit, it is much better to ask for cash before you actually need it. You are more likely to get the loan and receive more favorable terms. I’m not advocating starting a business on credit, but there is a right way to go about financing your operation.

Get Set Up Right

No legitimate business should be a sole proprietorship, which is essentially a business run without any legal structure. The business is you, and you are the business. So if the business gets sued, then you get sued. It is way too easy to set up an LLC or corporation that creates a legal separation between you and your business not to. While they are sometimes a hassle to have prepared, these documents are extremely important to shield you from unnecessary liability.

You may also want to consult your tax professional to help you choose which kind of entity. By far the most common is an LLC, but there are economic and tax effects that should be considered in making this decision, especially if you are in business with one or more other individuals. And don’t forget about your insurance needs. If you are offering professional services like I do, you will need errors and omissions coverage. Other types of coverage are general liability, property, and workers' compensation.

Consider Taxes and Retirement

Depending on the structure and type of business you run, you will probably have to pay self-employment taxes on top of federal income taxes when you start working for yourself. This fact takes many people by surprise because while you may currently see the FICA and Social Security amounts that are taken from each of your paychecks, what you don’t see is the matching amount that your employer pays. So this tax is essentially doubled when you work for yourself because you have to match your own contributions.

However, when you own a business, many things you used to pay for personally can now be justifiably paid by the business. You should consult your tax professional on specific cases, but generally you can deduct your cell phone, many meals, mileage or even depreciation on a vehicle, trips that are partially business but also some vacation, etc.  If justified and documented, these types of expenses can be paid by your company to decrease your tax liability.

When you start a company, you also have to say goodbye to your employer-sponsored retirement plan that may even make matching contributions on your behalf. But if you are profitable, you can set up a retirement account for your company that could allow you to contribute much more than you were previously allowed. Especially if you are the only “employee” of the company, you can take advantage of a SEP or SIMPLE plan that has low administrative hurdles and allows you to sock away a large amount for retirement and further reduce your tax liability.

Evaluate an Existing Business

There are two primary reasons it would make sense to buy an existing business:  First, the current owner is getting older and no longer needs the money. The sale would help fund retirement, and he is ready to get out of the business. Second, the business is not currently making nearly as much money as it should because the current owner has poor management skills. So you either know the company is doing well and are willing to pay for it, or you see specific areas for improvement that would quickly turn the business around and know you’re getting a bargain.

Either way, you want to see the last three-to-five years of financial statements, bank statements, and tax returns to make sure you fully understand the company’s financial position. You should also have knowledge of business and industry trends, what is happening locally and globally as well as if there is any seasonality to revenue streams.


Working for yourself is scary, and it is not something everyone should pursue. But if the freedom and empowerment appeal to you more than the fear of failure, then you should absolutely give it a shot, and these suggestions should save you some trouble and money along the way.


Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at