The needs of the workplace are changing constantly and there is an increasing desire to achieve a better work / life balance. This has resulted in more of us moving into contracting as a career choice. I have been approached several times over the past six months for advice on how to start the contracting journey. Here are my hints and tips.
First of all, WHO are you and WHAT are you selling to potential employers?
Have you crafted your CV / Resume to ensure it covers your skill sets and highlights recent experiences and achievements? Does it include a professional title, and does it include a skills or competency matrix (if that is relevant to the role that you are applying for)?
You only have a few seconds to impress someone with your CV. Make sure you include key words from the job description and demonstrate how and where in your professional history you meet the requirements. Many of us are modest by nature and selling ourselves can be difficult – give me a call if you would like help to market your skills and experience.
So – HOW to proceed?
To start with, you need to decide how to structure your contracting business, whether as a sole trader, partnership, or Limited Liability Company. The Ministry of Building, Innovation and Employment (MBIE) provides awesome information on how to make the right choice and how to proceed. Here is a good one to get you started http://www.business.govt.nz/getting-started/taking-the-first-steps/choosing-the-right-business-structure.
Once you have decided on the structure for your new business, you need to sort out practical things like:
- Taxes – when contractors first start out, they often forget to put aside enough money to pay for both GST and (provisional) Income Tax. While we all know we have to pay tax, GST often gets overlooked. GST registration is a requirement if your income reaches $60k in a 12 month period. MBIE covers all this and more at https://www.business.govt.nz/tax-and-accounting/basic-tax-types/introduction-to-taxes-and-levies/. And here is a great one from IRD http://www.ird.govt.nz/yoursituation-bus/starting/business-starting-index.html. Take advantage of the free and reliable information on offer and make sure you go in with your eyes open.
AFTER NOTE: A new Tax Bill has just been passed with the changes for employers of contract resources taking effect from 1 April 2017. The new legislation could mean that tax is deducted at source so as a contractor you may not have to pay provisional tax from 1/4/2017. IRD is currently updating its website so keep an eye on it and what the changes could mean for you as a contractor: http://www.ird.govt.nz/campaigns/2017/changes-schedular-payments.html.
- ACC Levies – these can also be overlooked and it can be a shock to get an unexpected invoice in the mail. All businesses – big and small – are required to pay ACC levies to cover the cost of treating work-related injuries. The MBIE link in the previous paragraph provides the information you need. Among other things, the levies are based on your business classification, claims history and earnings. To find out more, check out the ACC website: http://www.acc.co.nz/for-business/index.htm. Take the opportunity to talk to an ACC Business Representative upfront and provide details about your business including the appropriate classification to ensure that you are charged the correct levies from the outset. The ACC Levy Guidebook is available to download from ACC for 2016/17 from this link http://www.acc.co.nz/publications/index.htm?ssBrowseSubCategory=Business%20descriptions%20and%20industry%20codes.
- Accounting Tools – A number of accounting tools offering simple solutions that are easy to use (Xero or MYOB for example), but equally there are some really great accountants out there who specialise in small businesses and don’t charge an arm and a leg. I prefer manual invoicing (although that might change soon) and having an accountant. It’s worth talking to other contractors to see who they use – a referral is a great way to find a good accountant.
- Invoicing – If you are going through a recruitment agency you probably won’t need to prepare invoices; generally you will provide a signed-off timesheet to the agency who will bill the employer and pay you. However, if you are contracted directly to the employer, YOU are responsible for getting your timesheets signed off and submitting an invoice (usually monthly). A basic invoice needs to include at a minimum:
- Your company name / your name
- Your address and contact details
- Unique invoice number
- GST number
- Who is being billed (quote a purchase order number or specific cost centre if supplied)
- Description of services delivered
- The number of hours being billed (as per approved timesheets)
- Itemised disbursements that you have approval to charge
- Your bank account details (most important!).
- Business Banking – at the very least a separate bank account is a good idea to keep your earnings separate from your savings or cheque account. It also means that if your sums are correct you should have the required tax payments on hand and on time.
- Filing system – Believe it or not, this is a biggie! You would be surprised how quickly you are invoiced for goods and services as a business and / or purchase items (e.g. stationery, software, mobile phone). Keep all invoice records for tax and GST purposes. I have a basic cash-flow sheet that keeps track of all expenses to provide to my accountant each year.
- Insurance – You will need to consider both professional and personal indemnity. Some organisations ask for no less than $1m professional and up to $5m Public Liability insurance. Shop around, talk to other contractors, and get a good understanding of what your market’s expectations are.
- Contacts – Who do you know? Do you have a Linked In profile? Have you worked with people in the past whom you would like to work with again? It’s worth the price of a coffee to catch up and see if they know of any contracts in your area of expertise. Advertise your availability on Linked In, email ex-workmates, approach hiring managers. Make sure you have referees lined up and a CV that outlines your skills and highlights key experiences.
- Networking – What professional organisations do you belong to? Do you attend and support their events? Are there any local organisations that match your skill set and have the kind of roles you prefer? Which organisations do you relate to and can add value to, and include members that may be able to help you get your next role? How could you contribute (volunteer; join the committee; sponsor an event; provide a meeting place; become a speaker) to the organisation and make it a win/win?
- Professional Image – When you set yourself up as a contractor, pay heed to your professional identity and image. The way you present yourself at interviews and at work, to the state of your invoicing (layout, spelling, and use of company name) says a lot about YOU. It’s not unusual for contractors to work with a graphic designer (GD) to establish a corporate identity – business cards to use at networking events and graphics for invoicing and emails are a good way to establish a consistent image. My GD is a very good one and has covered several iterations of my business cards, stationery and email design, as well as website design and build, all at very reasonable prices. If you are interested, let me know and I will pass on his contact details.
- Recruitment Agencies – I have purposely left this one till last. There are great advantages in working with a recruitment agency – at the very least, and probably most importantly, they have access to the ‘good oil’. They work within their sphere of expertise and have all the contacts you don’t. They know of jobs coming up and they work closely with hiring managers to understand the role requirements and the type of person they are looking for. There are a number of perks including (but not limited to):
- Certainty of payment / invoicing (you usually get paid fortnightly even when their invoice hasn’t been paid)
- Advice and leverage from a group of peers
- Social / peer networking (most agencies provide an opportunity for networking within their contractor pool)
- Negotiating on your behalf (don’t underestimate the value of having agency support if issues are raised about your pay rate, deliverables, hours, products, or invoicing)
- Working with someone that fully understands the scope and breadth of your skills and strengths and can target specific roles and clients on your behalf
- Help to identify marketable skill sets you may not realise you have
- Sales – contacts
- Pipeline maintenance – once you have worked with a recruiter (and proven your skills and trustworthiness) they will be proactive in getting new work lined up to minimise your downtime.
It can be hard work finding the ‘right’ agency – both from a hiring manager AND a contractor perspective, but there is gold out there. If you choose to go with an agency (as opposed to going it alone via your existing network), have a look around and talk to a few first. Buy them a coffee and have a chat to find one that you feel will work best for you. Sometimes that choice is taken out of our hands when we find an advertised role and end up with an agency by default. But if you have a choice, look around, talk to other contractors to see who they use, and get feedback. If you are stuck – drop me a line. I’m happy to pass on referrals for specific agencies that have ‘passed the test of time’ with my requirements as a hiring manager.
Just one thing I will add here – for the sake of all agencies and hiring managers please DON’T go to numerous agencies and cast your CV around like confetti at a wedding – it is counter-productive. If you find yourself in a position where you are being considered for the same role through different agencies, OR if you have approached a different agency to your primary one – be upfront and let all parties know what you are doing. There is nothing worse than a hiring manager receiving a CV for the same contractor from different agencies. At best it is confusing and at worst it is seen as disingenuous, and may well be the death knell for you with that role AND the agencies.
If you would like help to prepare your CV for contracting, message me with your email address. NOTE: CV work for the first two responders will be provided FREE of charge.
I can also send you a FREE copy of my simple-to-use cash-flow or invoice tracking spreadsheet(s), and an invoice template. Just get in touch.
Is there anything else you want to know about contracting? Let me know in the comments below.