Becoming Your Own Boss (BYOB, 3.2)

In the first and second articles of this series (BYOB, 1.0 and 1.1) you learned some of the facts related to the current employment picture and examined some of the choices that were available to you. In the third, fourth, and fifth articles of this series (BYOB, 2.0, 2.1, and 2.2) you answered some key question to find if starting as an independent contractor was a good idea for you.

This set of articles (BYOB, 3.x) covers a number of topics that will make it more likely that you will succeed as an independent contractor. The last article covered the important topic of maintaining your prior business and personal relationships as an independent contractor. This article goes into detail on establishing your office.

What Do You Need For An Office/Work Place?

Obviously, you need a place in which to do your work. To start, that place need not be grand. All you really need is a place that is large enough for you to work comfortably and isolated enough so that you can work without distractions.

This refers only to the transition process. Your first workplace must be adequate, but need not be more. No doubt you will want to move into a lavish penthouse suite of offices soon, but that can wait until next year when your contract workload becomes much too much to handle in your first workspace.

What To Look For In An Office Space

Look back on past experiences to determine how much space you will need to work comfortably. In your thinking, emphasize the words "work comfortably". Don't start off with a work space that is too small for the things that you will put into it. It will become full soon enough, and nothing is more tiresome than having to move something every time you want to use some item or tool to complete a task. Remember that you will have equipment to start and that you will acquire more equipment as time goes by.

Calculate how much space you will need for storage, then at least double it. "Stuff" always expands to fill available space. You will acquire reference materials as well as documentation on many samples of both your work and the work of others. Make certain that the storage space can be arranged so that you can reach the things that you need.

Where Should The Office Be Located?

Actually, this question has two parts: the first pertains to the geographic location of the office in relation to potential clients; the second pertains to the building in which the office is located.

NOTE: Both parts of this question pertain to the office in which you will actually accomplish your work, and to your accessibility to clients from that office. The actual street address of that office might not be the address that you advertise to the world. The factors involved in choosing your advertised business mailing address and purchasing the extra services for that address are described in the next set of articles (BYOB, 4.x).

Regarding the geographic location, all that is required is reasonable access. That is, can you reach the client within a reasonable time from your office, at most times of the day? Unscheduled meetings do occur. Hand-holding is sometimes necessary for good client relations. Travel to and from the client's facility is required to market your services and then simply to get the job done. And don't forget phone calls. If your office is distant from most of your clients, your telephone expenses might be higher.

A sometimes important factor is the perception of your accessibility by the client or prospective client. Even if it is incorrect, this perception is sometimes more important than the reality. For example, if your office is located near Ventura, California, a prospective client in Van Nuys might consider that a contractor in Long Beach (40 miles and a 1.5-hour drive away) is closer than you are (40 miles and a 50-minute drive away). In such an instance, an advertised business address that is in Los Angeles might improve the perception of your accessibility. If this perception is a potential problem for you with some prospective clients and a local address is not feasible, your personal selling and advertising (of whatever kind) must take the possibility into account and ameliorate its effects.

This is not to say that you should at all cost locate your office close to potential clients. Even though you research your potential client base very carefully, who is to say that it will not happen next year that most of your clients are across town, or in the next town, or even in the next state. Also, what is reasonable to one person might be unreasonable to another. We point these out merely as factors that you must consider.

Renting or otherwise acquiring office space when you start out as an independent contractor seems like a good idea at first. After all, it makes you look more businesslike, doesn't it? Well, yes, it does, and, if you are fortunate in securing contracts quickly that will provide you long-term stability, it is possibly the correct thing to do. But, it is an expense. The extra services that typically go with an office (secretarial help, answering service, mailing service, and so on) add to the expense. Dependent upon your space requirements and your taste in office fanciness, the expense might not be great, but its timing could not be worse. Start-up time is clearly not the time for high expense loads.

Also, for most people starting out as contractors, office space entails significant risk. However, the main risk is not, as you might imagine, from the possibility of failure. If you have analyzed your situation well and made good decisions, along the lines outlined in the BYOB, 2.x set of articles, failure is not the real danger. Rather, the primary risk is of an embarrassment of riches; that is, more work than you can comfortably handle in the space that you thought was just right and to which you are committed for some time to come.

A good interim solution is a home office. If you have a separate space in your home or apartment that is large enough and in which you can be isolated from family distractions, using it will give you a chance to test, and get familiar with, the contracting waters without having committed to a lease or other somewhat permanent obligation. Even if your home is in a less-than-ideal location and you will have to spend a bit more time in travel and a bit more on telephone expenses, a temporary home office will allow you the time to make an unhurried decision that is based on at least some experience in your business. After this experience, you will know more of what you will actually need for office space. As a serendipity, during the time that you are gathering this experience, your expenses will be lower than if you had rented an office.

After a while, you might well decide that your home office meets your long-term needs. Many contractors do. Many independent contractors work for many years from home offices, doing much out-of-town work and quite a bit of out-of-state work. They spend significant time on the road, but it is not all time lost. Traveling time can be used for planning, solving problems, etc. Small transcription tape recorders can be used for notes, and cell phones make it easy to stay in touch. The advantages of being near your family and not having to make that daily commute are irresistible. The lower overhead is nice too.

The primary disadvantage of a home office is that rather rigid self-discipline is an absolute requirement. You must have the discipline to closet yourself in your office and get the job done. If you cannot separate yourself from family matters or you are easily distracted by those family matters, you run a serious risk of poor performance.

Bear in mind that you might get away with poor performance once, but actions that even appear to indicate such a pattern are sure death to an independent contractor.

Another factor to consider is zoning. It is possible that local zoning rules, or perhaps your home-owners association covenants, prohibit operating a business from your home. Most such rules pertain to retail sales or other high-traffic businesses that would be irritants to neighbors. As an independent contractor, unless you will have many associates or will hold numerous large meetings, it is likely that no one will even know of your business. Thus, you will meet the spirit if not the letter of the law. However, it is best to investigate the zoning requirements (and covenants, if you are in a homeowner's association) beforehand so that there are no surprises later.

How Important Are Appearances?

The appearance of your office is of relatively less importance than your personal appearance because client visits to the independent contractor who works essentially alone are relatively rare. However, if a visit from a client or prospective client is to occur, the office must exhibit a business-like appearance. In this regard, a home office is not necessarily a disadvantage. If you have presented yourself as what you are - a competent professional individual offering services at a fair price - your office need exhibit only efficiency and the capability to allow you to get the job done. The client will almost certainly understand and appreciate the fact that your low overhead affects your hourly rate.

NOTE: Personal appearance will be covered in excruciating detail in a later article.

In general, as the operator of a business, you must present the public view that you are a substantial person of unquestioned competence, professionalism, and integrity in all aspects of your business. This appearance must be created if it does not already exist, it must be maintained and even improved if possible, and it must be apparent to all.

This is not to say, however, that an act or shallow facade is either appropriate or suggested. What you offer to the public must be genuine, just as your capabilities must be genuine. What is required of you personally is that you make these things known as a part of your normal business practices, and without appearing to do so. If you are genuine, it will show. What is required of your office is that it reinforce all of these perceptions.

Tax Consequences

If you elect to locate your office in your home, you will probably be able to deduct some of the expenses for its business use when you file your tax return. However, recent tax law and rule changes have added substantial restrictions on these deductions. The deduction, at best, is limited to no more than the gross income received from the home business use, and the expenses must be limited to those parts of your home used exclusively for business purposes. A rather complete description of the rules for the home office are contained in the booklet Business Use of Your Home, Internal Revenue Service Publication 587. You may obtain a copy of this publication by calling 1-800-829-3676 or searching for the publication on the IRS web site.

Most of your tax deductions will involve utilities charges. In general, the rules for utilities charges are that you may write off that percentage of your heating, electrical power, and basic telephone service expenses equal to the percentage of the floor space area of the dwelling represented by the area of the space that you actually use exclusively for your office. In addition, you may write off the actual telephone toll charges of your business calls.

Refer to the booklet Starting a Business and Keeping Records, Internal Revenue Service Publication 583 information on record keeping. The topics of "Keeping a Log Book" and "Expense Records" are also covered in detail in later articles in this series.

If you elect to locate your office away from your home, record keeping is much more straight forward in that there is no co-mingling of personal and business use. Because the office away from home is presumably used entirely and exclusively for business purposes, all expenses are business expenses and are therefore deductible. Similarly, all capital expenditures are depreciable.

The next article in this series (BYOB, 3.3) addresses the important topic of equipment that you need for your business.

To read the rest of the series click here