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Business Class

June 16, 2009

The Challenges of Independence

Business Etiquette Rules
Marc Tracy

bizbox.slate.com

Summary

To someone who simply can't stand the thought of working for someone else anymore, striking out on your own is the most obvious and easy dec

To someone who simply can't stand the thought of working for someone else anymore, striking out on your own is the most obvious and easy decision to make in the world. But the fact remains that in many practical ways, owning your own small business is much more difficult, trying, and challenging than working for someone else. Which is not to say it isn't worth it! But it is to say you should be wary of the full implications of opening your own shop.

The Wall Street Journal does an admirable job today laying out those implications--admirable both for its thoroughness and also for its tone, which points out, "higher expenses and other costs come along with your newfound liberty," while acknowledging, "That doesn't mean you shouldn't try. There are few more gratifying accomplishments than making it on your own."

Briefly, the Journal says owning your own business could mean:

  • Higher taxes. The self-employment tax essentially sees you paying both sides of the payroll tax.
  • 401(k) mishaps. The bevy of deductions you'll be inclined to take could lower your taxable income to the point that you are unduly restricted in what you can contribute to a retirement plan.
  • Mortgage obstacles. Since lenders will look at your earnings after expenses, you could find yourself turned down for mortgages you know you can handle.
  • Insurance costs. You'll need to purchase insurance for your business and health insurance for yourself.
And this is all before we even talk about the logistical nightmare that is known as having employees.

All in all, the article estimates that if you want to end up as an independent businessman with the same amount you take in as a wage-earning employee, you should plan to gross 20% more. But maybe that's not discouraging--maybe you see that as a challenge. In which case, you're probably a natural entrepreneur anyway.


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