So you are sick of your full time job and have decided to take the plunge and become your own boss. You may be changing career or alrready working as an electrician and need to go it alone. Either way you will need to decide how much to charge for your services. Many people thinking about contracting after working full time and will do a simple calculation; hourly rate multiplied by 35 hour week multiplied by 52. However before your set your hourly or daily rate there are a number of things you need factor in:
1. Invoicing / Cash Flow – Time spent invoicing for jobs and chasing cash up is not something most people will consider they will be doing when they start out in their new venture. However speak to any self employed contactor and they will tell you it is a major part of the job.
2. Marketing – How will you generate the customers needed to support your new venture? Many people starting a new business take the Field of Dreams approach, “If You Build It, They Will Come”. However nothing is further than the truth. Even if you are setting up as a contractor you should consider how you will market yourself and how much this will cost.
3. Skills / Training – Do you already have all the skills required in order to run the business? Do these need updating on a regular basis? Remember if you suddenly find yourself working on your own you may suddenly be disconnected from everyone else in your industry. How much time or money will you need to spend to keep up to date each year? As a sparky the good news is that once qualified very few courses need to be refreshed. The main one that you may need to re-book will be the 17th Edition Course should it get updated again!
4. Accounting / Tax – You will now be responsible for paying your own tax. In most cases you will want to employ an accountant which can be costly, however there are numerous accounting services available which are tailored specifically to the contractor, freelancer and sole trader. They have low costs and simple online interfaces to allow you to process your own accounts. Many of these are available from a low monthly fee and not only save you time and money they can also relieve you of the stress of scribbling around to do your accounts at the last minute.
5. Holidays – You will no longer be paid for your holiday time. Including bank holidays most full time employees get around 6 weeks paid leave per year. This is the equivalent to a 12% increase in your hourly or daily rate.
6. Insurance – Every business needs insurance. The cost will vary depending on the level of cover and the types of josb you do. You may need public liability insurance, business car insurance and maybe even contents insurance that is tailored to a business rather than a personal need.
7. Tools of your trade – Especially if you are planning in working in manual trade you will need to consider which tools you will require and how much will they costs? How often will they need renewing and will you need to insure these?
8. Travel – How much will it cost you to travel to clients premises to carry out work or simply meet them to discuss their needs? Will you be charging for your travel on top of your time there?
9. Quotes – You will have to pitch and quote for work in order to generate new business. These take time and often a lot of effort and often you won’t get paid a penny unless you win the business. Although you can offset the cost of providing quotes by upping your hourly rate this will be one of the biggest areas that you will find you work on with no pay whatsoever.
10. Premises – As your business grows you may need premises. Be that an office or storage for tools. The premises will need to be made fit for purpose and may also incur business rates.
So looking at the above list you may want to re-think your planned hourly rate and maybe increase your initial estimate by 30% at least. However one thing that you must also consider is what the market will pay. Essentially despite the list above your hourly rate can only be as high as the market will bear. If you happen to be in an industry where there is a skills shortage then you will find it easier to charge what you want.
This may all sound very negative but don’t be put off. In fact it is encouraging to know that the average earnings of those self employed is roughly double that of those in full time employment in the UK at £50,820 per annum and over 70% of self employed workers now earn over the national average of £26,093. Just make sure when you do your sums you take into account the various costs you may incur when starting out on your own.