How to make money without a job

By Deborah L. Jacobs

Before joining the staff of Forbes in July, I was happily self-employed for 23 years. For much of this time my husband and I ran two mostly unrelated home-based businesses. He worked in his office in the front of the house, while I was in mine across the hall. Our office doors were usually closed and we knocked before interrupting each other. Until our son was old enough to go to school, we had a full-time babysitter to take care of him downstairs while we worked upstairs. Our only break during the workday was to eat lunch with our child.
Upon observing our traffic patterns, our house painter once said, "It's like you're in an office!" Others remarked about our discipline. We didn't have a choice. If we didn't produce, we didn't get paid, and we needed that money to live on. So for all the flexibility about setting our own hours and balancing work and family, we didn't vary much from the routine. If we took time off to see the class play or take our son to the pediatrician, we made up for it in the evening or on weekends. Come to think of it, we worked a lot of evenings and weekends anyway.
With widespread layoffs pushing many people into business for themselves, we hear from a lot of folks who are wondering how to set up shop and structure their new work life. We tell them that self employment can be a bit of an emotional roller coaster, with higher highs and lower lows then you're probably used to. Whether you want to start something on the side or say goodbye to corporate life forever, here are some tips for starting your own business.
Leave yourself a financial safety net.
While creditors require you to pay promptly, most of your own clients won't rush to compensate you. Even if you write "payment due in 30 days" on your invoice, it's a rare client that sticks to that timeframe. Schedules of 60 or even 90 days are all too common. Complaining about tardy payment or imposing a late charge could drive business away. To minimize tensions while you wait for the work to come in -- and then wait to get paid -- set aside enough money to cover six months of expenses (a year is even better).
Do what you know.
Don't waste savings on buying an existing business or a franchise. Instead, get ready for what Arlington Heights, Ill. new-business consultant Jeff Williams has dubbed the "scratch startup." Williams counsels "desperation entrepreneurs" -- laid-off employees who aren't likely to get back into the corporate world. He tells them to sell a skill or a product they already know.
Ken Proskie, 59, is a Williams client who was laid off in 2004 from his job as a health and safety manager for a large manufacturer. Working from an office in his Evanston, Ill. home, he began pitching his services to a network of 300 colleagues from professional associations. After three years, Proskie says, he matched his corporate salary and today has more than enough work. "Now I wish I had made the transition five or ten years sooner,'' he says. It would have given him time to take on employees and expand.
Don't bet your savings on a long-shot new venture either. New York financial planner Karen C. Altfest says she has one 70-year-old client who can't retire yet because she sank all her money into a perfume business startup -- in her 60s. Although she worked very hard in the enterprise for two years, going from store to store, it bombed; turned out not enough people liked her scents.
Find a comfortable workspace.
It's important to choose a spot where you won't have a lot of interruptions and distractions. Working at home avoids the need to pay office rent and makes you eligible for tax write offs. But you must jealously guard your work time, which means limiting trips to the refrigerator, telling friends and family you can't chat during the workday, and explaining to the UPS guy that you won't accept packages for neighbors. If you find you are unable to be productive at home, consider working from another location.
Spend judiciously.
New technologies and social media continue to reduce the costs of starting and operating a small business. Put seed money towards equipment that can help you embrace technology: laptop, iPad and smartphone. You'll want to buy a comfortable work chair, if you don't already have one, but there's no need to pay top dollar for other furniture. With so many companies scaling back, there are plenty of good deals on secondhand equipment. Try auctions (live or online), going-out-of-business sales and used office furniture stores.
Create digital footprints.
These days if people can't find you on Google, they might decide you don't exist. Build a Web site. Then get busy online. Social media like LinkedIn and Twitter, along with the websites and Listservs of many professional associations, make low-cost networking and business-building far easier. If you're already using Facebook for your personal life, think about creating a separate page for your business. While some business owners limit their tweets to shop talk, others use Twitter to develop a broader persona.
For professionals, there are a few sites that rival LinkedIn. Write your profile, join groups in your field of interest. Then chime into the discussions. Being the boss is not a job for people who are shy about blowing their own horns, but self-promotion shouldn't be all you do. As with networking in person, helping other people is part of the game.
Present a professional image.
Answer all phone calls by stating your name or the name of your business. Avoid referring to yourself as a "freelancer." (Instead, use your company name, say you're a consultant, self-employed, or in business for yourself.) When you finally meet in person, follow these tips to make sure your body language reinforces the good impressions you've already made.
Go after more work than you can handle.
In the early stages, running your own business is a lot like being a lonely Maytag repairman who's always waiting for the phone to ring. Many of your marketing efforts won't lead to business right away, and even promising "nibbles" may not pan out. So hedge your bets by pursuing many avenues at a time. Once you've landed an assignment, you can juggle deadlines and delegate some of the work if necessary.
Charge what the market will bear.
While eager to bring in work, you don't want to sell yourself short. Yet you know that bidding too high could drive away business. If you can roughly estimate the time you'll need to spend, charge a lump-sum. Lump-sum fees are potentially more lucrative, especially if you've done the kind of work before and don't need to reinvent the wheel. Another advantage is that clients don't know exactly how long the project takes you. Therefore, they may be willing to pay more, in effect, than if you charge by the hour.
On the other hand, lump sums are risky if you don't know -- or have no control over -- how much time you must put in. Here, the risk is that the client may demand more work (like endless changes). What sounded like good money when you bid on the job can quickly turn into slave wages.
So if you're unsure about the scope of work, charge by the hour. To figure your hourly rate, take your most recent salary and divide it by 2,000 hours/year (that's 40 hours per week for 50 weeks). Increase that sum by 30% to cover your expenses -- most notably health insurance.
Once you put your price on the table, be open to negotiation. If the client objects to the fee and you really want the job, you could say, "I don't want price to prevent us from working together. What's your budget?" Meanwhile, ask yourself whether there are other advantages to the project. Your first goal, especially the beginning, is to gain experience and build relationships. Do good work that keeps clients happy and, chances are, they'll send more business your way. At that point, you'll have plenty of time to raise your rates.
Get help as you need it.
By hiring subcontractors when you don't have time to do everything yourself, and bringing in consultants if your own expertise falls short, you free yourself to go after other money-generating pursuits. Call upon extra hands (including students and hourly workers) for time-consuming chores. You can put together a virtual staff to handle everything from research to Web design.
Build a support team.
Exchange ideas and leads with other business owners in your area. Surround yourself with people who believe in your ability to be successful. Be prepared for the inevitable downswings: you will want to have an optimistic friend or family member around who can be your cheerleader during these times.
Keep in mind that there is no preset formula for success. You may need to modify your plans -- and your expectations -- until you find what works best. No matter what, though, you'll have the satisfaction of knowing that you're in charge. And when You & Co. does better than you ever dreamed, you'll have yourself to thank.