My finances, my projects, my life
August 5, 2020

Seven common mistakes when becoming self-employed

So you’ve decided to take the plunge and become self-employed. That’s great! You’ll have total control over your time, your customers, your rates and your workload. This is a dream scenario for many people, but this new freedom also comes with its fair share of obstacles and constraints. To help you navigate this exciting time, myLIFE has listed seven common mistakes to avoid when going self-employed.

1. Choosing the wrong legal form

Be careful when choosing how to set up your company. The legal form defines your responsibilities as an entrepreneur and influences your administrative procedures, accounting and taxation. For example, you will have different legal obligations based on whether you operate under your own name or through a société à responsabilité limitée (limited liability company).

On the other hand, if you live across the border, you can choose to become self-employed either in your country of residence or in Luxembourg, provided you have an address in the country in question (home, office, co-working space, etc.). This determines where you will pay your taxes and your social security contributions.

For advice on which legal form is best suited to your needs, you can contact the House of Entrepreneurship at the Chamber of Commerce or the Business Contact department  at the Chamber of Trades. There you can get information on the legal, social and tax aspects of the different forms, as well as the steps and formalities involved in becoming self-employed. This is important, so take some time to consider all your options.

If you need a change of scenery, you can always join a co-working space where you can meet other entrepreneurs to discuss and share skills with.

2. Going it alone

One common mistake people make is working from home without any colleagues or co-workers, where your computer becomes your link to outside world. Aside from loneliness affecting your mental health, isolation is also detrimental to your business.

If you need a change of scenery, you can always bring your work to your local library, park or café, or join a co-working space where you can meet other entrepreneurs to discuss and share skills with. This allows you to work more efficiently while developing your network at the same time. Co-working spaces also make your life easier by providing you with equipment and facilities that you may not necessarily have at home. However, note that they are not free to use.

⇒ Luxembourg boasts a number co-working spaces, such as The Office, Silversquare, Urban Office, Paladium, Bamhaus, Wishbox and Luxembourg City Incubator.

Don’t forget to keep an eye out for events or conferences happening in your sector, as well as trade shows, training opportunities and after-work activities. Networking is a great way to enrich and diversify your address book, unlock new professional opportunities and find prospective clients!

You will appreciate these good habits as you take on more responsibilities and juggle multiple projects.

3. Poor organisation

Being your own boss gives you freedom and flexibility, but it also requires discipline and organisational skills. It’s important to develop good habits from the very beginning.

First of all, plan your days. Set a schedule and stick to it. Divide your time into different tasks: handling emails, customer no. 1, prospecting, customer no. 2, administration, customer no. 3, etc. Don’t forget to budget for breaks, leisure activities and unforeseen emergencies!

If you work from home, there’s always the risk of losing concentration (browsing social networks, playing with your children, flicking through news sites, etc.). You’d be surprised how much time you can waste that way! By structuring your day, you’ll be more productive and will have a better work-life balance.

Secondly, organise your work. List and prioritise your tasks. Estimate how long they will take and set deadlines for yourself. Don’t hesitate to take notes after your appointments, phone calls or emails to help you remember details and to update your work schedule. Avoid always prioritising the urgent over the merely important, otherwise you’ll find that tasks pile up and suddenly everything is urgent.

Lastly, make sure you sort and file your administrative documents regularly, even if it seems tedious. If something takes less than five minutes to complete, there’s no point in putting it off. As a self-employed person, you have to do the jobs of several people and paperwork will accumulate very quickly: documents related to the creation of your company, social security, taxes, VAT, quotes, invoices, credit card receipts, etc.

Solid organisational skills will make your day-to-day life much easier, and you will appreciate these good habits as you take on more responsibilities and juggle multiple projects. Don’t wait until you’re overwhelmed to start changing things!

You don’t have to do everything yourself: you can delegate certain tasks, for example by hiring an accountant to manage your tax and VAT obligations.

While some people are naturally at ease when prospecting and aren’t afraid to sell themselves, others are riddled with anxiety at the mere thought of negotiating with a customer.

4. Forgetting the sales aspect

Unless you can make your business work through word of mouth, you’re going to have to use sales tactics in order to find customers. While some people are naturally at ease when prospecting and aren’t afraid to (over)sell themselves, others are riddled with anxiety at the mere thought of negotiating with a customer. Either way, sales tactics are essential to growing your business.

If you are not comfortable as a salesperson, maximise your chances of success by being as prepared as possible for meetings. Work on how you present yourself and anticipate your customers’ questions and concerns. Ask them for details, listen carefully and take notes in order to tailor your message to their needs. Practice as much as necessary to make sure you sound natural. And above all, believe in yourself! Confidence is the best way to win people over.

If you reach a point where you feel you have enough customers, don’t rest on your laurels. You don’t know what tomorrow will bring, and it’s entirely possible that a major customer will terminate their contract overnight. You want to avoid putting yourself in difficult situations like these.

5. Setting the wrong prices

How are you pricing your services? Every entrepreneur has asked themselves this question, and there’s no easy answer. If you are too cheap, you risk undermining the credibility of your work and your reputation among your peers will suffer. Too expensive, and you might not attract any customers.

To set appropriate rates, start by finding out what your competitors charge and adjust your prices accordingly, taking into account the nature of your work (time and cost investment required), your experience, your technical skills (specific job-related expertise) and your market (demand for skills in your area, number of competitors). Using these variables, you can adapt your prices to your professional situation.

Also think about your price strategy: are you offering reductions for large orders? What about discounts for loyal customers?

Avoid combining special discounts, otherwise you will never be able to offer services at the going rate. Word of mouth can also hurt your business here, as nobody likes hearing that they’ve paid more money than someone else for the same service.

Don’t spend everything just because you’ve secured your first contract! Think about the months when you’ll have less money coming in and save regularly.

6. Neglecting your finances

Starting out as a self-employed person can be difficult from a financial point of view. Before you get started, make sure you can cover your expenses until you score your first customers. If you need time to develop your customer base, you have several options: take out a loan, use your savings, rely on friends or family, or get a salaried job. Under certain conditions you could even be eligible for unemployment benefits while working on a self-employed basis.

Next, separate your personal and business finances and estimate your monthly expenses: rent and utilities, social security payments, taxes, miscellaneous expenses, VAT, etc. This will give you an overview of your finances and allow you to anticipate your costs.

Don’t spend everything just because you’ve secured your first contract! It’s tempting to want to reward your hard work, but think about the months when you’ll have less money coming in, and save regularly.

Be rigorous in following up your invoices. Don’t be shy about chasing a customer who is yet to pay you. Even if you have a full order book, missing payments could jeopardise the survival of your business.

7. Giving up too quickly

The path to becoming self-employed is fraught with difficulties: setting up your business, filing VAT returns, paying social security contributions and taxes, finding customers, managing your budget… not to mention actually doing the job you set out to do! It can be overwhelming at times.

You will have doubts, you will have quiet periods, and you may question your abilities or your skills. But that doesn’t mean you should give up! Ask for help. Talking to other entrepreneurs who have been in your shoes can give you some perspective on challenging situations.

Becoming self-employed is a challenge and takes a great deal of discipline and perseverance. Whatever happens, you will learn a lot about yourself and you can take pride in stepping up to the plate. So make the most out of this exciting adventure!