How to Transition From FTE to Self-Employed (Guide)
10 MIN
The nature of work today looks entirely different than it did even just a few years ago, providing many opportunities for people to pursue their passions. Now, many tasks are organized around specific projects, and businesses have been discovering that outsourcing can be more cost-effective and resource efficient. This shift has intersected with the underlying revolution of American workers in search of greater control of their destiny, and the desire to do work aligned with their passion and expertise.
From our State of Independence in America study, we know that the major workforce shifts of the past decade have fueled a new kind of productivity, wealth, and personal growth opportunity for American workers and companies. We also know that the majority of those who pursue self-employment are satisfied with their choice and plan to continue working as an independent.
GATE
While you might be excited to take control of your career path, lifestyle, and income, you may also have many questions about how to become a consultant. What steps should you take to prepare for going independent? What do you need to start your business? How do you leave your employer? Successful independent professionals come from all walks of life, but they share a common trait: strong planning skills. They are savvy professionals who do their research, ask good questions, and work hard every day to achieve their goals.
Choosing to go independent involves carefully considering how self-employment will impact your life, from financial preparation to benefits, retirement savings, and childcare management. Seek real-life advice and references before making the leap.
How to Determine If You're Ready to Be Self-Employed
Am I ready?
Whether driven by a significant life change or a long-held dream of independence, you seek to take control of your future and venture out on your own. But how do you know if you’re ready? Independent consultants are a diverse group, but there are a few common traits that all of them have in common. Use the following list of traits associated with successful independents to help you assess your readiness and identify areas where you may need further support.
Do you have:
- An identifiable, sellable talent?
- Tenacity and resilience?
- Confidence in your skills and abilities?
- Initiative and a clear focus on what’s important?
- Integrity?
- Networking savvy?
First and foremost…
An identifiable, sellable talent. It’s important to ensure that your work is conducive to independence. You need a quantifiable talent; skills that can be configured into projects and results to back it up. For example: If your specialty is engineering, you will need to package a specific set of skills and expertise that allows you to take advantage of today’s project economy. What is the product and what results can clients expect? This also requires being where the work is or having the ability to leverage technology to transcend geographical limitations.
Common traits of independent consultants
1. Resilience and confidence
Tenacity and resiliency: As an independent, the work you perform will be familiar, but the processes involved will be new territory. You must both perform the work and find it. This will require the fortitude to hold fast and be persistent in uncovering opportunities, then working through the inevitable challenges that you will face. The successful independent does not shrink from conflict or defeat but is able to keep moving forward. You may lose a client or suffer a setback in a project. A prospective client may take weeks (or even months) to sign a deal. While maintaining a respectful approach, you need to be willing to stay in the game even when the rewards are not immediate.
Confidence in your skills and abilities: Independents are confident in their skills and experience and can articulate and productize their talent. You will need to get comfortable talking about what you do and why you’re good at it. Independents are opportunists. They notice problems in day-to-day surroundings and are confident in their ability to develop solutions.
2. Intensity and integrity
Initiative and a clear focus on what’s important: Successful independents stay aligned to their core expertise. They build more value by truly becoming an expert in their field. This focus also applies to being able to efficiently use your knowledge and expertise in a way that satisfies clients and allows you to make money.
Integrity: To go the distance as an independent, you must have a high degree of integrity. After all, clients are hiring you to minimize risk and get results. You must prove that you can be counted on to deliver on your promise. So, it’s important to be trustworthy and reliable and not oversell what you do. One way to do this is by setting realistic expectations with the client. If you overcommit too often, that can impact your reputation. You also need to exhibit integrity in all your communications with clients. If issues arise, don’t sugarcoat bad news; be straightforward and have a plan to overcome them.
3. Ability to create connections
Networking savvy: Successful independents are well-connected and strategically positioned to deliver results. Your network will be your best source of ongoing work, so developing and nurturing those relationships is crucial. Equally important is establishing yourself as an expert and positioning yourself as the “go-to” in your network. When potential clients Google your name, your value increases when they find your credentials. You should be willing to expand your presence by participating on panels and in webinars or contributing content to blogs and articles. Independent work life is not an abstract concept; it’s a human concept and it begins within. So, remember these are just examples. You are the only person who knows best all that you are capable of.
“Perfect is the enemy of good.” — Voltaire
Confidence is also integral to being an elite salesperson. Learn more in the MBO Partners blog, “How to Become a Better Salesperson.”
How to Plan for a Career As an Independent
Now that you’ve determined your mental readiness, it’s time to begin to prepare for your transition. In this section, we’ll discuss steps that you can take to prepare for your independent career.
Financial Preparation
Before you make the transition to become an independent contractor, it’s critical to have a plan for your finances.
You should either:
- Have a project that will bring immediate cash flow, or
- Have a financial cushion that will cover you until you begin to generate income.
You should have at least a three-month cushion but may require more depending on your industry. Try to be realistic about when you might expect income. Even after you have your first project, you may not be paid immediately—60-day terms are common, although your MBO Business Manager may be able to help you negotiate 30- or even 15-day payment terms.
Also take time to assess how you will protect yourself, your family, your business, and your retirement. A critical step is to determine the costs associated with health, life, and business insurances. You can use COBRA as a base for your medical cost comparisons or review the benefits available through a spouse if possible. Shop around and go through the underwriting process, but only with well-known, reputable insurance companies. You can also talk with brokers about the types of business insurance you may need, such as General Liability and possibly Errors and Omissions and Workers’ Compensation.
Spend wisely
Be conservative with your spending. At the start, there is no need to invest in office space, or elaborate branding. All you need to get started are your reputation, your resume and services brochure, and your network. As much as you can, remove the obstacle of establishing a business structure from the initial launch until you have your first project. In the beginning, conserve energy and resources better used to get out there and start working.
Meet with mentors
Trusted advisors or mentors can provide valuable guidance and feedback on your plan. Seek out someone who has experience in your journey and with whom you feel comfortable discussing your ideas. A mentor can help you test and refine your plan, practice your messaging, and give you the confidence you need to move forward in your independent career.
Some key areas that can be discussed with your mentor(s) include:
Your planned offerings
Questions to consider: What will you offer to your clients—or, more specifically, what will they be obtaining from you?
Marketing
Questions to consider: How do you plan to attract clients? Do you have an anchor client to help you launch your independent career? How will you maintain a pipeline of work? It’s crucial to have a plan for how you will obtain business. Getting feedback from an experienced independent can help you identify tasks that you can do even before you make the leap.
Resources
Questions to consider: How long can you go without a paycheck? Is your timeline realistic? What is your start-up budget?
Start part-time
The ideal situation is to test independence while still employed. If your schedule permits and you aren’t violating your employment contract, moonlighting or working on a part-time basis can help smooth your transition to an independent career. Taking on side projects can build both your confidence and your portfolio. Since you still have a paycheck, you won’t be as reliant on your side income and can even use it to build up much-needed reserves.
Your network is a good source of moonlighting projects. You may find opportunities with friends, former colleagues, or any groups or associations you participate in. Be careful not to compromise your employer relationship if you choose this path.
Have a plan
A formal business plan is always a good idea, but at the very least you should have a roadmap that will help you navigate the journey. Have both a 12-month and a 3-year plan for both a short-term and long-term perspective that answers the following:
- What services will you offer to clients?
- What types of clients will you be targeting and how will you reach them?
- How will you get your first contract? What about future contracts? Do you have ideas for whom you can approach?
- How will you price your services?
- When do you want to work?
- Where do you want to work?
- What is your ideal number of clients?
- What are your income goals?
- What are your personal development skills goals?
- Will you attend conferences or workshops, take a class, or pursue other learning opportunities?
Navigate the journey
Next, research your industry to discover what’s in demand. This will help you to develop a service menu that meets the needs of your specific market. Be sure to research market rates—both bill and pay rates—to get a better understanding of the potential for compensation. Keep in mind that you may need to lower rates to score your first assignment. You can always adjust your rates on future assignments.
At this point you can also start working on your marketing strategy. Start to develop marketing materials that present your skills and credentials. For example, you‘ll need a resume and a services brochure, which can be a simple one-pager or a trifold. Keep it simple at first, as your offerings could evolve once you begin to serve clients.
Marketing materials
√ Attractive resume
√ Website and appropriate online profiles
√ Bill rates
√ List of services offered
√ Business cards
MBO Partners makes a number of group benefits available to its independent workers who bill through us, including health and retirement savings.
Looking to give moonlighting a try? Read “Testing the Waters: Moonlighting as a Part-time Consultant” to explore benefits and preferred approaches
How to Leave Your Full-Time Job
You’ve made the decision to become an independent consultant. Great! After assessing the pros and cons and creating a plan, you are ready to take the next step of leaving your job and becoming independent. Now that you have a clear vision for your future, all that’s left is creating an exit strategy. How do you leave your current employer while maintaining the relationship?
Ensure that you are mentally and financially prepared to leave and have an alternative plan ready to go. Avoid risking your current employment by having the conversation too early. Go into the exit conversation committed to your decision to leave. This time should not be used to ask for information to validate your decision.
How much information should you divulge when you resign from your role? It depends. You always want to act as ethically as possible. Disclose what you’ll be doing and the services you’ll be providing. You can share your goals for independent consultancy in the next year and in the next five years. Feel free to talk about the types of clients you plan to work with, especially if you have a good relationship with your employer.
Beware of burning bridges
If you’re starting a business that will offer a competing project or service—or going to work for a remote competitor—you must check if you have legal restrictions (in your current contract[s]) abide by them. Be open and honest with your employer about your reasons for leaving and your future plans. Otherwise, you risk burning bridges and isolating yourself from people and resources that could help you.
The amount of notice that you give your employer will depend on the work you are doing and the situation your employer will be in upon your departure. Make your decision based on open projects and the time it will take to complete or replace you. Making the investment of extra time can be extremely beneficial— your former employer could either become a client or a pipeline to new business.
If you have a strained relationship with your employer or are unhappy in your role, review your employment paperwork to determine the notice period required. Even in the worst of circumstances, it’s always best to exit with grace and on good terms.
Finding the right words
In the conversation about your resignation, communicate your appreciation for your current employer and the skills they helped you develop. Let them know of your intent to maintain a good relationship and be open to their assistance.
Having an open and honest conversation with your employer about your services and pricing could encourage them to seek similar services from you in return. As an independent consultant, your integrity is always your greatest asset. You do not want to engage in actions that will present your employer in a negative light or harm their business. Avoid publicizing your departure by expressing disagreement with the company direction or management style.
Make your transition low-key and free of drama. You can always say that you are leaving for “personal reasons.” Treat your employer like a client by keeping their best interests in mind.
If you find yourself in a tough situation with a difficult employer, spend more of your time and energy moonlighting, finding projects, networking, and informed trusted contact in your network that you’re looking to transition to independent consulting. Outline your next steps as best as you can before approaching your employer to resign. Write down any potential concerns that may arise and have a response prepared for them.
How to say “Goodbye” to employment and “Hello” to independence
Before you resign from your current position, do your research so you know what documents you signed and how they impact your transition. For example, non-compete agreements are very common in employment contracts. However, noncompetes are often non- enforceable for a number of reasons, including specific state law. It’s important to understand your position, but also openly address the non-compete with your employer.
The example and story below serve to help you formally begin the transition.
You should clearly communicate your desire to become an independent consultant and the reasons behind it. Inform your employer that you will never solicit your employer’s clients or engage in any actions that might be perceived as unethical. If you approach this conversation openly and without confrontation, there’s a good chance that even if you have a non-compete agreement, your employer will disregard it.
If you plan to work for your current employer as an independent, you’d be wise to research your company’s policy. Some organizations may have a restriction on how soon you can transition from W2 employee to independent consultant. Read any documentation that you signed so that you can honor your contract or negotiate any provision that could prevent you from moving forward as an independent.
Taking the time to be proactive before you resign can help you exit even the most difficult situation with integrity.
Expert Tip:
Sample Conversation Starter
I have decided to open my own business because I want more flexibility in how I work and the types of projects I work on. I am at a point where I need to make this happen or I will regret not taking the chance. I hope I can count on your support in my endeavors.
Expert Tip:
See Ya? What do you say to an employer when leaving? A little more than “See ya!” When I moved from Virginia to Georgia, I was going to work for one of our customers. They offered me a deal I could hardly refuse, roughly a 40% increase in pay. Once I moved, my old company started offering me many opportunities to work for them as an independent (and paid very well). I know that this was a result of how I left the company. I gave a two-month notice before the move so I could help train the two people they hired to replace me. It really does pay to take the high road. —David Hall
How to Transition From Employee to Consultant
Most successful independents start out working on projects with people they know well, which may even be their former employer. This can vary based on industry, client, and company culture. It’s generally easier if you work for a company that frequently uses subcontractors, rather than one that rarely uses those resources.
You’ll want to ensure that the type of work you do is conducive to consulting. Are there parts of your job that can be pulled out and made into a proposal? If your work fits a particular need, and if your employer currently uses consultants, it makes the conversation much easier. In any case, approach the conversation with confidence and honesty—clearly articulate what you want to do as a consultant for the company and how you plan to do it.
For example, “I want to provide X, Y, Z services and I’d like to provide them to you should you still have a need.” Be clear about the details and outline them to your employer. Will you work a fixed number of hours per week or month? Will you work on-site or remotely? Will your work be for a specific client or project?
Drawing a line of security and comfort
Larger companies may have a policy that prohibits moving to a consulting status immediately after terminating as a full-time employee—in other words, reclassification. Do some research in advance to determine if your organization is one of those companies.
Be positive about your experience with the company and keep the discussion focused on how your employer will benefit. Often, your employer will retain you for a transition period if not for an ongoing engagement. The knowledge you have about the organization and its internal relationships are valuable assets—and could lead to additional work in other business units as you establish your reputation as an independent trusted advisor.
"You need to not burn bridges. You need to realize that you are about to change the relationship from one of “Employer” to that of “Potential Client.” Tell your boss and colleagues that you want to go off and pursue your passion. Most reasonable people would understand that, and perhaps even encourage it. Thank them for the time you have spent and all that you have experienced. Offer to continue working on projects as a consultant for a very reasonable rate. Whatever you do, maintain a positive, professional relationship" - Gene Zaino, Founder, MBO Partners
Writing a first proposal can be a challenge. Read the MBO Partners article “How to Write a Proposal: The Guide to Success” for more information and guidance in your proposal writing.
Next Steps
For many new consultants, the best source of new business will be their network from their former employer. Since most people applaud entrepreneurial pursuits, so don’t be afraid to share with colleagues that you’re striking out on your own. Make it a point to build strong connections with those you feel can help with growing your new business.
Remember that networking is a two-way street, so look for opportunities to give back. Most importantly, keep in touch with your network. Use tools like LinkedIn, an e-newsletter, or regular contacts with key influencers to maintain visibility. Also, keep your online profiles up to date and look for ways to position yourself as an expert. You might consider participating in panels or in webinars in your area of expertise—or developing a platform of thought leadership by contributing content to articles, blogs, and industry newsletters. The possibilities are endless.
Using thought leadership to expand your network is essential to your success as an independent consultant. We recommend downloading “Thought Leadership for Independent Consultants” for more insights, information, and action steps.
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