How to transition from FTE to self employed (Guide)
10 MIN
Work today looks very different than it did just a few years ago. There are many options for pursuing your passion, work is often completed in defined projects, and for many businesses it is cost and resource efficient to outsource work. 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 cataclysmic workforce shifts of the past decades 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 choose to pursue self-employment are very satisfied and plan to continue working as an independent.
GATE
While it’s exciting to take control of your career path, lifestyle and income, there are also many questions surrounding how to become a consultant. What steps should you take to prepare? What do you need to start an independent business? How do you leave your employer? Successful independent professionals come from all walks of life, but they share a common trait of being planners. They are savvy professionals who do their research, ask good questions and work towards their goals. Deciding to go independent involves thinking through many aspects of how self-employment will affect your life from preparing financially to considering how you will handle benefits, retirement savings, and childcare management. Look for real-life advice and references before taking the leap.
How to determine if you are ready to be self employed
AM I READY?
Whether inspired by a life change, or a lifelong entrepreneurial calling, you want to take control of your destiny and strike 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 emerge. Use the following list of traits associated with successful independents to help you assess your readiness and identifyareas where you may need help.
DO YOU HAVE:
- An identifiable, sellable talent?
- Tenacity and resiliency?
- Confidence in abilities?
- Focus on what’s important?
- Integrity?
- Networking savvy?
FIRST AND FOREMOST…
An identifiable, sellable talent – It is 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 expertise is engineering, you will need to package a specific skill that allows you to take advantage of the 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 eliminate geography as a factor.
COMMON TRAITS OF INDEPENDENT CONSULTANTS:
1. RESILIENCE & CONFIDENCE
Tenacity and resiliency: As an independent, the work you perform will be familiar, but the process will be new territory. You must both perform the work and find it. This will require the fortitude to hold fast and be persistent to open doors of opportunity, and work 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. Without being obnoxious, you need to be willing to stay in the game even when the rewards are not immediate.
Confidence in abilities: Independents are confident in their skills and experience and have the ability to 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 the problems that they can solve in day to day surroundings, and are confident in discussing how they can help.
2. INTENSITY & INTEGRITY
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. Clients are hiring you to minimize risk and gets results. You need to prove that you can be counted on to deliver on your promise. 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 affect your reputation. You must also have the integrity to clearly communicate with your clients. If issues arise, don’t sugarcoat bad news; be straightforward.
3. CREATING CONNECTIONS
Networking savvy – Successful independents are connected and positioned. Your network will be your best source of ongoing work, so it is important to develop and nurture those relationships. Equally important is a willingness to establish yourself as an expert and position 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 participate on panels and in webinars or contribute 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 person who knows best what 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 have determined your mental readiness, it is time to begin to prepare for your transition. In this section, we will discuss steps that you can take to prepare for your independent career.
FINANCIAL PREPARATION
Before you make the transition, it is critical to have a plan for your finances.
You should either:
1. Have a project you will be able to start, that will bring immediate cash flow, or
2. Have a 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. Be realistic about when you can 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.
Assess how you will protect yourself, your family, your business, and your retirement. Find out the costs associated with health, life, and business insurances. You can use COBRA as a base for your medical cost comparisons, or use the benefits available through a spouse if possible. Shop around and go through the underwriting process, but only with well known, reputable insurance companies. Talk with brokers about the types of business insurance you may need, like General Liability and possibly Errors and Omissions and Workers Compensation.
FINANCIAL PLANNING: SPEND WISELY
Be conservative with your spending. There is no need to make investments in office space, logos, or branding at the beginning. Reputation, your network, a services brochure, and maybe a white paper are all you will need to get started. As much as you can, remove the obstacle of a business structure from the initial launch until you have a project; this will help you preserve cash. In the beginning, conserve energy, dollars, 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. Find someone who has taken the journey with whom you feel comfortable speaking. 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 of the areas that can be discussed with your mentor(s) include:
- Your planned offering. What will you offer to your clients – what will they be buying from you? Your mentor can help you to refine how you articulate your services and even adjust with a different approach if necessary.
- Marketing. How do you plan to find clients? Do you have an anchor client to launch your independent career? How will you keep a pipeline of work? It is critical to have a plan for how you are going to obtain business. Getting feedback from an experienced independent can help you identify tasks that you can do even before you make the leap.
- Resources. How long can you go without a paycheck? Is your timeline realistic? What is your start-up budget? A mentor can help you prioritize your spending to maximize your budget.
START PART-TIME
The optimal situation is to test independence while still employed. If your schedule allows consulting on the side, and you are not 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 your confidence and your portfolio. Because you still have a paycheck, you are not reliant on your side income and can even use it to build up reserves.
Your network is a good source of moonlighting projects. You may find opportunities with groups you volunteer for, friends, associations, or even former colleagues. Be careful not to compromise your employer relationship if you choose the moonlighting 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 a 12-month and 3-year plan for both a short term and longer term perspective that answers the following:
- What services will you offer?
- Who will you be targeting and how will you reach them?
- How will you gain your first contract, and beyond? 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?
- How many clients do you want?
- What are your income goals?
- What are your personal development skills goals? Will you attend conferences or workshops, take a class?
NAVIGATE THE JOURNEY
Research your industry to discover what’s in demand. This will help you to develop a service menu that meets the needs of your market. Learn market rates – both bill and pay rates to gain an understanding of the potential for compensation. Keep in mind that you may need to lower rates to gain your first assignment. You can always adjust your rates on future assignments.
At this point you can also begin to work on your marketing materials. Start to develop marketing materials that present your skills and credentials. You will need both a resume and a services brochure. The services brochure can be a simple one-pager or a trifold. Keep it simple initially, as your offerings could evolve once you begin to serve clients.
MARKETING MATERIALS
√ Attractive Resume
√ Website and Appropriate Online Profiles
√ Bill Rate
√ 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 have made the decision. After assessing the pros and cons and careful planning you are ready to take the next step of leaving your job and becoming independent. Now that you have a clear vision of where you want to go, all that is left is your exit strategy. How do you leave your current employer and preserve the relationship?
Make sure that you are mentally and financially able to leave, and have an alternative plan ready to go. Do not risk 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 or dig for information to validate your decision.
How much information do you divulge when you resign? It depends. You always want to work as ethically as possible. Disclose where you’ll be going and the services you’ll be providing. You can share your goals for independent consultancy in the next year, and longer term in the next 5 years. 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 first check if you have legal restrictions (in your current contract[s]), and you must abide by those and be “upfront” about them. Additionally, you risk burning bridges and isolating yourself from people and resources that could help you. Be open and honest with your employer about your reasons for leaving and your plans.
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 when you leave. Customize your departure based on open projects and time it will take to complete or replace you. Making the investment of extra time can be very beneficial; your former employer could either become a client or a pipeline to new business.
If you have a bad relationship with your employer and/or are unhappy, review your employment paperwork to find out how much notice you are required to give. Even in the worst of circumstances, it is always best to exit with grace and on good terms.
FINDING THE RIGHT WORDS
In your resignation conversation, 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.
Talking to your employer in a direct and honest manner about your services and prices may lead to them helping you provide similar services back to them.
As an independent consultant your integrity will be your most valuable asset. You do not want to do things that will present your employer in a negative light or that will be bad for their business. Do not publicize that you are leaving because you disagree with the company direction, or believe management is unqualified.
Keep 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 at the forefront of your actions.
There are some of you who may be in tough situations with a difficult employer. If that is the case, spend more of your time and energy moonlighting, finding projects, networking, and letting those you trust in your natural market know that you want to become an independent consultant. Build out your next step as best as you can before going to your employer to resign. Before you go in to have that conversation, put yourself in an empathetic view. Write down any potential concerns that may arise and have a response prepared.
HOW TO SAY “GOODBYE” TO EMPLOYMENT AND “HELLO” TO INDEPENDENCE
Before you resign, do your legal and policy research. It’s important to know what documents you signed and how they impact your transition. For example, non-competes are very common in employment contracts. Noncompete agreements are often non- enforceable for a number of reasons, including specific state law. It is important to know your position, but also openly address the non-compete with your employer.
The example and story below serve as a way to help you formally begin the transition.
You will want to be clear about what you will be doing as a consultant and why. Let your employer know that you will not solicit your employer’s clients or do or say anything that would be perceived as unethical. If you approach it openly and without confrontation, there is a good chance that even if you have a non-compete, your employer will merely treat it like a piece of paper.
If you plan to work for your employer as an independent, research your company’s policy. Some organizations may have a restriction on how soon you can transition from W2 employee to consultant. Read any documentation that you signed so that you can be compliant in honoring 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 made a decision 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 often times is their former employer. This can vary based on industry, client, and culture. It will be much easier if you work for a company that uses a lot of subcontractors and engage people to get projects done versus a company that rarely uses those resources.
You will need 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? Assuming that your work is conducive, and your employer uses consultants, it makes the conversation much easier. 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 onsite 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 (reclassification). Do your 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. More often than not, your employer will retain you for at least a transition period if not for an ongoing engagement. The knowledge you have about the organization and relationships within the company 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 most new consultants, the best source of new business will be your network from your former employer. Most people applaud entrepreneurial pursuits, so don’t be shy about telling colleagues that you’re striking out on your own. Make it a point to develop a special relationship with those you feel can help you in your new business.
Remember that networking is a two-way street, so look for ways to give back. Most importantly, be sure to keep in touch with your network. There are many tools you can use to keep yourself visible such as LinkedIn, an e-newsletter, or a regular schedule of contact with key influencers. Keep your online profiles up to date and look for ways to position yourself as an expert. Consider participating in panels or in webinars in your area of expertise. Develop a platform of thought leadership by contributing content to articles, blogs, and industry newsletters.
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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