Free to Succeed

It's never too late to be your own boss. Here's how to do it.

ILLUSTRATIONS BY KALI CIESEMIER

Whether motivated by the dream of being self-employed or as a result of downsizing, many people are leaving corporate America to go it alone. "Free agents now make up almost 30% of the workforce, and it's expected to grow to about 50% by 2014," says Linda Stewart, CEO and founder of Boston-based Epoch, which places professionals in project-based jobs. Here's what you need to know before you set yourself free.

SAVE SOME FUNDS.
Even with low overhead, there are still bills. Before leaving his job as a software salesman, Ed Gandia, a freelance copywriter in Marietta, GA, and author of The Profitable Freelancer e-newsletter, stashed a year's worth of living expenses. Avoid dipping into your 401K without consulting a financial planner or accountant; you could face penalties for early withdrawals.

CHOOSE A BUSINESS STRUCTURE.
You'll want to consult a tax accountant to determine the best structure for you. One is sole proprietorship, where you and your business are one entity.

You report losses and income on your personal income tax return, but your personal assets are at risk if you're sued.

An S corporation, on the other hand, stems from Subchapter S of the IRS code and offers limited owners' liability. The corporation is not taxed. Instead, income flows to shareholders, who report it on their returns.

Finally, a limited liability corporation (LLC) offers personal liability features. However, owners are taxed as if they were sole proprietors.

LEARN THE IMPACT ON YOUR TAXES.
If you don't pay yourself a salary - if you're a sole proprietor, for instance - you're responsible for paying self-employment tax (Social Security and Medicare). Unlike salaried workers, you have no employee tax withheld throughout the year, so set aside a certain percentage of each paycheck. Some contractors elect to pay taxes quarterly, based on anticipated revenue or last year's revenue. If you do pay yourself a salary, it is subject to employment tax.

Taxpayers who use a portion of their home for work purposes may take a deduction if they meet certain criteria, the most important of which is that it must be used exclusively for business. The IRS publication "Business Use of Your Home" provides a lot of helpful information.

WRITE A BUSINESS PLAN.
"It's important to know what your product is and who you're marketing to," says Kate Lister, coauthor of Undress for Success: The Naked Truth About Making Money at Home. "The process of writing it forces you to think about things more thoroughly than you might otherwise. Don't torture yourself with words and form."

Local Small Business Administrations hold classes on business plans, which should describe the business in detail, including how you'll manage it, finance it and market it. If not, the SBA website offers advice.

While you can simply write your plan in a notebook, Lister says a well-presented plan will make a lender's job easier if you're seeking financing. (A good software program to try is Business Plan Pro.) Ultimately, however, it's the idea that counts. "Bank lenders make decisions on numbers, not fancy business plans," she says.

DETERMINE YOUR PRICING.
As part of your plan, you'll need to value your services. "It should be part of your income statement/cash flow assumptions," Lister says. Visit job boards, such as Elance.com, to learn what others charge. Or, using Freelanceswitch.com's calculator, input your expenses and it will compute an hourly rate. Charging by the service? Multiply the rate by the number of hours the project will take.

APPLY FOR LICENSE(S).
You may need multiple licenses (from the state, city and/or county) or a specific business license required for professions like doctors, lawyers, hairdressers, Realtors and building contractors. If you're selling a product, you may require a sales tax license.

GET INSURED.
Health insurance is a must if you can't get on a spouse's plan. Some industry trade groups, such as the National Writers Union, have plans, as do chambers of commerce. Also consider business insurance, which will protect you in case of a lawsuit or accident, and disability insurance.

CHOOSE ACCOUNTING SOFTWARE.
Most accountants recommend keeping business records for at least seven years and tax returns indefinitely.

Quickbooks is a popular line that ranges from the basic Simple Start to Premier, which lets users generate sales forecasts and track back orders, but even Microsoft Excel may suffice. So, how do you decide?

First, determine your needs. Most basic programs can handle routine tasks like invoicing, check-printing and recording expenses. If you anticipate a payroll and inventory, you'll need something more sophisticated. And ask your bank which programs are compatible with their system.

Also check how the program handles tax records. "Tax record capability means that you can import data from the accounting software into the tax software without having to type the data in again," says Joseph L. Rosenberg, a CPA from Floram Park, NJ. Finally, compare prices. Programs range from $30 (for Bookkeeper) to $399 (for Bottom Line Accounting).

GET YOUR NAME OUT THERE.
Selling your services is often the hardest part of starting a business. "When you're focused on your work, you don't want to think about where your next job is coming from," Stewart says. "But you need to."

First, create a website. "A powerful website communicates your value clearly, so when people contact you, they're 70% sold," Gandia says. E-newsletters and blasts can augment your marketing campaign, particularly if you develop a subscriber list.

Join organizations, such as industry groups and the chamber of commerce, and tap into personal relationships. If your new business is an extension of what you did for an employer, contact the competitors.

Also network via the web. "LinkedIn is a favorite destination of mine," says Samu-ella Becker, a PR consultant in Manhattan. "I've reconnected with former colleagues and clients, and have been approached with new business."

MANAGE YOUR TIME.
Executive coach Marsha Egan says time-management skills can "make or break you." Write down weekly goals, setting aside time for specific tasks such as marketing, customer service or accounting. Schedule time for routine activities such as bill paying, and don't answer the phone or send email until they're done. Make sure to include breaks.

If you find yourself struggling to get everything done, consider hiring a virtual assistant to provide remote administrative support; some even have special niches, such as web development or bookkeeping. "I'd rather pay someone than learn to do something. I make more money doing what I do than learning," says Jane Gold-ner, an Atlanta-based executive consultant.

STAY MOTIVATED.
To avoid feeling isolated in your home office, go out to lunch with friends, potential clients and colleagues. Industry trade groups or unions can be places where you can pose questions and concerns to others. Also consider creating or joining a professional support group. Goldner, who belongs to a group of 10 women in related fields, says, "It's a networking and learning opportunity."

JUST BECAUSE YOU WORK ALONE…
doesn't mean you have to work alone.

When independent contractors refer to a coworker, they usually mean the dog or a child crying in the background. But there are groups of freelancers giving new meaning to the word. In these circles, coworking is a movement to create a community of café-like collaborative spaces for independents.

"It's sort of like a cross between an internet café and a business club," says Sasha Vasilyuk, who, with her husband Roman Gelfer, owns Sandbox Suites in San Francisco.

So what are the benefits of sharing space with other freelancers? David Troy, organizer of the coworking space Beehive Baltimore, says, "It's about sharing, building relationships and collaboration. It's people working together in a community of mutual respect."

And according to Heather O'Sullivan Canney, co-creator of SoCo Studio, a coworking space and start-up incubator in Apex, NC, such offices can also help spark creativity.

The concept varies: Some spaces have conference rooms; some don't. Some people work there full-time; others use whatever desk is available and drop in for a few hours. Some are nonprofits; some are businesses that charge monthly fees. At SoCo Studio, for example, members pay $69 to $179 to use open space. "They bring their laptop, plug in and work," Canney says. (SoCo provides the Wi-Fi and coffee.)

Membership typically includes a mix of industries, ranging from IT/internet workers like programmers to writers, salespeople and lawyers. (Sandbox Suites even has the owner of a girls' dance camp.)

And the diversity can pay off. "A journalist is now editing the website of an internet marketer, who is helping out an online flower retailer, while contracting another member to write a piece of software for his site," Gelfer says.

Canney agrees that networking is inherent: "Many do business together and refer each other. It's kind of like 'real life social network' while you work."