The Revised Entrepreneurship Lifestyle

Work, work, and more work.  Add a side of worry.  But, also excitement and elation.  Work is more often invigorating, rather than taxing.  However the days and nights can be long.  I’ve been pretty much working 80+ hours per week.  That may sound bad, but it’s not.  Why?  Because, as Frank said, “I did it my way!”

The beauty of the situation is that my company, Sigma1 Financial has several big things going for it:

  1. Investors.  Sigma1 now has seed capital for growth.
  2. Good, powerful references.  I’ve made some friends in high places during the HALO beta tests.  These are good guys who apparently liked me, my software, and my work ethic.
  3. Revenue.  Sweet, sweet revenue.  This means money to plow back into marketing, technology, and, yes, legal.  Sigma1’s law firm charges $250-$350 per hour — but they can because they are worth it.
  4. Insight.  More important even than the technology, because I have been obsessed with one thing for a long time — portfolios.  How to improve them by using everything I know, can learn, and can discover.  And I’ve discovered some very useful things.
  5. Technology. The single most powerful piece of technology is the tech to robustly optimize diverse, configurable, user-defined risk models.  The other cool tech is synthetic expected-return modelling that works in concert with semi-variance optimization.  And there is more cool tech, sometimes written in less than a week based on client requests.

So, it is summer and a spend most of my waking hours “working.”   Sometimes, though, the work feels like play.  Like tinkering. I get to explore ways to mitigate financial risk for real people and  institutions.  I get to work directly with portfolios large and small (well…. large and small are relative terms, eh?)  Lets just say many, many millions.  And I work hard to help make them better.  I don’t control anything; I just provide insights, with the help of the HALO Software Suite I developed.

The difference between now and then (say last year) is this:  I learn a lot almost every day.  I am learning  sh** tons!  Then, during corporate vassalage, I learned little of value at work.  My learnings then were largely trivial. I was not given much latitude to learn; I was leashed.

The leash is severed, by my own hand.  And I work as hard, or harder than ever in my life… for me, for my company, and for my investors.  And it is a roller coaster ride.  So far, it is a thrilling and largely fun ride.  When the ride is over, I keep getting back in the queue.  Each ride is different, but so far anyway, each ride does not disappoint.

 

The Finance of Self-Employment

I have been self-employed as a consultant since 2008. I opted to go independent for a variety of reasons, primarily to afford myself more freedom in choosing  what work I do, and how I do it. I felt too restricted by corporate policies at my previous job. I worked for 11 years at a tech company on their Online Marketing department.

There were a number of financial things I had to learn after deciding to become an independent consultant. Going independent was initially daunting – this was my first venture into working independently. Thankfully I had some friends who were also working as independent consultants, who were able to share some of their experience with me. The first thing I did was to obtain an LLC in order to separate my business and personal finances. By “doing business as” my LLC instead of as myself, I reduce the likelihood of a client being able to sue me for all my personal assets; limiting the liability to just business assets.

Another financial consideration taxes – not only did I now have to think about the so-called “self-employment tax” (having to pay the full amount of the FICA / payroll tax, which previously my employer paid half of), but I also had to plan to pay quarterly estimated tax payments. Previously all my taxes were withheld from my paychecks by my employer. As an independent consultant, I now work as a 1099-contractor and my clients do not withhold taxes from what they pay me. I have to set that money aside each quarter or worry about paying a penalty during my annual tax return.

Between the federal income tax, state income tax, and FICA/payroll tax, I generally have to set aside 40% of my income to cover my quarterly estimated income tax payments.

Now after having to consider all that, the next thing I had to figure out was how much was I actually going to charge for my services, how I was going to invoice my clients and how quickly was I going to expect to receive payments. I have had to refine all these over the years  and finally have a good pricing model that all my clients seem comfortable with, along with a consistent payment model. For shorter one-time projects, I send an invoice upon completion of the project, with a net-30 payment expectation (which I’ve built into my consulting agreements with my clients). For longer-term / ongoing projects, I invoice on a regular basis – either weekly or monthly, depending on the client’s preference, with the same net-30 expectation. I prefer to have a relatively flexible invoicing model and not stick to a single, rigid model.

Finally, as I grow my business, I need to take into account how I am going to pay other people for their services. I have opted for a subcontractor model over an employee model for my business. My work and income is still too volatile to even consider hiring employees, and working with subcontractors on a per-project basis works far better with the current way my business works. I have also opted for a revenue sharing model, instead of a set hourly rate with my subcontractors. Since my current rates are still considered somewhat low for my industry, I am paying a higher revenue share (80/20) in order to get better quality subcontractors. Over time I plan to increase my rates and decrease my revenue share until I reach a revenue share that’s 60/40, but still guarantees a fair income to my subcontractors.

So as you can see, there are a lot of financial considerations with becoming self-employed. My recommendation is to find a good CPA (accountant) to help, especially with the tax side of things. If you can afford to also hire a bookkeeper (or find good software to help you keep your accounts receivable and accounts payable in order), do so. These can be critical to your success.