Hope you're having a great Sunday.
This week: we demystify the admin part of working for yourself!
When I talk to other developers who are thinking about working for themselves, one common objection is this:
“I don’t want to deal with that admin crap; I just want to code!”
And when consulting agencies and contract brokers ask you to join them, they will use this as a selling point as well. “We take care of all the admin and overhead, so you don’t have to!” (in return for a small-to-large chunk of what the end client pays for your work).
The admin aspect should not block you.
Let’s walk through it together so it becomes less of a scary unknown.
The initial setup
Some tasks are one-shots; you won’t have to worry about these after you’re up and running. Here are the most common ones, regardless of where in the world you are:
Find a good accountant to guide you (at least in the beginning). I’ve already written about how you do this, but I’ll reiterate the reason you want to do this early on:
It may be tempting to figure everything out yourself. “I’ve learned multiple programming languages. I’ve even figured out how git works. How hard could this be?”
No, it’s not that hard. And yes, you can cobble everything together from government websites and other self-employed people—but I highly recommend you buy time from a professional who can educate you and walk you through the setup process.
Many accountants help not just with basic accounting; they can also assist with the company setup, tax rules, regional regulations for small businesses, and so on.
Once you find an accountant who fits, book a two-hour meeting to discuss everything you see in this article.
I told my first accountant: “I’m new to this. I will run a single-person company that sells consulting services to other companies. With this in mind, please break down the steps I need to take and what I need to be aware of. Assume I know nothing and explain it like I’m a child.”
By the end of your chat with them, you should understand employment tax, VAT, pension savings, etc.
Create your business entity. Company structures differ from country to country, and I’m trying to be as general as possible here.
Still, there’s a common rule of thumb: when you work as an independent freelancer, contractor, or consultant, it’s a good idea to form a proper corporation utterly separate from your personal finances. There should be a clear divide between A) you as company selling services and B) you as a person employed by that company.
Company bank account(s). You need at least one bank account for the company: somewhere the client can pay you.
Creating one or more additional accounts for earmarked money is also a good idea. I have a dedicated bank account for owed VAT: when a client pays an invoice, I transfer the VAT part to a separate account, so it’s always ready to roll when the government comes to collect.
Get health insurance set up. The cost and work involved in setting up health insurance for you as an employee in your company will vary significantly from region to region. I’m lucky to live in a country with publicly funded healthcare: this step is more brutal in the United States, for instance. Your mileage may vary.
Get legal/liability insurance set up. Just in case!
Prepare a standard contract. You should always, always have a formal contract when you work for clients. Both parties should have clear expectations of each other during the engagement, with steps laid out in writing in case something goes wrong. Good contract templates are likely available for your region if you look for them.
The ongoing systems
Now let’s look at tasks and processes that must happen continuously in your business.
First, a tip for you: one way of making these tasks more straightforward and less likely to stress you out is to create standard operating procedures (SOP) for yourself, just like larger companies do for their employees.
Think of this as writing the README file for a project you’re working on: if you take the time to standardize, document, and automate how you do each common task, it becomes faster, less stressful, and less error-prone for you.
What are you likely to be doing every month? Here are the typical tasks:
Track your time. Lots of ways to do this, but you should be able to find software that makes this easy. Do it at least daily while the work is fresh in your mind so you can annotate your tracked time with what was done for the client.
Invoice your client(s). Sum up billable time spent on the client, and create and send an invoice for it. There’s software that makes this easy for you. Document a standard routine for this.
Handle incoming payments. When a client pays an invoice, you can do some standard tasks: mark it as paid in your accounting system, earmark the VAT portion of the amount, and so on. Document a fixed routine for this.
Pay your monthly salary. One standard amount each month, with pension paid, employee and income tax, et cetera. Again, document a fixed routine for this.
Pay your company bills and expenses. Whenever money goes out of your company, archive the corresponding receipt or invoice digitally at once. You want to avoid the headache of correlating all outgoing payments for a year with their related receipts right at the end of the company’s financial year during the annual accounting.
Annual accounting. The company has to do this task once a year. It can be a headache if you do it yourself, but again: this is what you have an accountant for.
How much work is this?
Ok, we’ve done our walkthrough. Not that intimidating, is it?
For example: I spend perhaps an hour each week on average on the recurring tasks described above. Note: my context is that I have one long-running client at a time. If you juggle multiple short projects and client engagements, you’ll likely have more admin overhead than me.
Still on the fence? Consider trying this exercise:
Create a new text file or just a sheet of paper. Write down each task I’ve laid out above. For each one, try to find out how much of a hassle that is in your region.
Talk to someone in your local network who already works for themselves. Ask them how they handle each thing (and if anything is missing from the list for your country)
When you have that mapped out yourself, ask yourself: isn’t more flexibility, autonomy, and compensation worth tackling those tasks yourself?