Self-Employment 101

So you want to be your own boss.  Tired of someone else telling you what you have to do?  Ready to break-free and do it YOUR way?  Good for you!  Congratulations!  It's an awesome experience!  Let me give you a couple of beginner's tips:  Find a good lawyer and a good accountant.

"WHAT?!", I can hear you say, "Those cost money!"  OK, here's another tip, now that you're a business owner, learn the difference between spending money and investing it.  No, I'm not talking about the stock market.  I'm talking about the money you put towards good professional help, especially in the legal and accounting areas, is an investment, not just an expense.  OK, don't get all goofy on me, yes it's an expense when it comes to doing your taxes, and that good accountant you hired will tell you so.  But more importantly, it's an investment in that those two people can save you a lot of money, headaches, and time in the future.  Ever heard of somebody getting audited by the IRS?  (For those outside the United States, the IRS is the federal tax authority in the USA.)  How much time, headache, and money do you think an audit can cost you?  Invest the money to get good help up-front and minimize the chance of that happening.

Why a lawyer?  Well, hopefully you won't ever get sued over the work you do, but you very likely will be entering into contracts for that work.  A good lawyer will look out for your best interests and advise you about the terms found in the contracts BEFORE you sign them.  Many companies have their "standard" contract they use.  Don't be fooled into thinking that just because they have a template that they like to use, that it's not negotiable.  I always have my lawyer review a contract before I sign it, and oftentimes I ask for (and get) changes in the wording, or special addendums added to protect me.  What sort of protection?  Well, the most common topics are:

  • Wording that clearly establishes that I am an independent contractor and not an employee.  This is for both our benefit come tax time, and my clients are always willing to add this if it's not already there.
  • Who owns the work I do?  Who retains rights to the source code?  Who has the authority to re-sell it or a service based on it?
  • Non-compete clauses.  Is there any wording in there that might prevent me from going to do work for another company?  What if my current client's competition hears that I built them a cool piece of software, and they want to contract with me to build something even better?  Can I?
  • Escape clause.  I believe every contract should have an escape clause.  Things change, life happens, I don't want to be stuck in a contract that I have no way out of.  What if a family member becomes deathly ill and needs me?  I need some way to get out of my contract without causing a lawsuit.  Sure there might be financial penalties tied with the escape clause, but at least it's there and you know you've got the flexibility if you have to use it.
I know, I know... these are good people I'm contracting with, we're on great terms, we're friends, I don't want to rock the boat by bringing up a bunch of legal mumbo-jumbo.  Hey, that's the way most contracts start out.  But people get funny when money (and maybe the future of their business) is at stake.  Hammer out all the details up-front while everyone is friendly and wanting to make it work, then get it in writing.

posted @ Sunday, November 23, 2003 11:26 PM


Comments on this entry:

# IRS: Friend or Foe?

Left by Ajarn's SQL Corner at 11/24/2003 12:19 AM

# re: Self-Employment 101

Left by AjarnMark at 1/27/2004 12:02 PM
You were spot on with your comment that it all comes down to the paperwork. My perspective is that if it's not in writing, it doesn't exist.

I've added my own post to that link. But that's an excellent example of when you do work for someone you'd better establish in the contract who owns the work. And if you're selling a package, you'd better establish in your EULA what rights the buyer has to customize your product. And if you're the customer, you'd better read those EULAs or just realize that you're probably waiving all legal rights.

There are plenty of good lawyer jokes, and the lawyers know and laugh at them all. But there are good lawyers out there, and trust me, you really want one on your side from the beginning.

# More Contracting Tips

Left by Ajarn's SQL Corner at 11/18/2004 2:55 AM
In my Self Employment 101 post, I emphasized the need to have a lawyer look over contracts before you sign them. Dave Taylor brings this point home clearly with examples.
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