Can You Handle the Impact on Your Life?

 

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Being self-employed is fundamentally different than being an employee. The distinction between work time and personal time blurs. If a problem arises with the business, it's your problem, and it won't go away merely because you've closed the doors for the day. Decisions you make regarding the business will have a direct and immediate impact on your personal life. For example, if you're in retail and decide to remain open evenings, it's your time that's affected. And you're likely to be on call 24 hours a day in the event an emergency arises regarding your business.

The impact is even greater if your business involves working out of your home. You may experience conflicts over the use of space for business or personal purposes. The distinction between your personal life and business life is even further attenuated. Even when you're at home, you're also physically at work. On the upside, there's no commute and you can eat cheaper at home.

If you have a family, it's important to measure the impact opening a new business will have on them. It's best to discuss this as soon as you seriously start to consider the idea. Both you and your family must be willing to put up with the changes in your lives owning a business will bring. Some people experience emotional and physical strain from being on their own and working the hours it takes to make it.

These aspects of day-to-day living will be seriously affected by your decision to open your own business:

Certainty and source of income. One of the biggest differences between being self-employed and being an employee is the source of your income. Employees can generally expect to receive a paycheck at fixed intervals and for a known amount. (Those working on commission or receiving tips have less certainty regarding the amount.)

As the owner of a new small business, you'll be paid only when and if the business generates enough money. Even successful businesses rarely generate a profit in the beginning stages of operation. You'll have to be prepared for a period during which your expenses will exceed any income derived from the new business.

Health insurance. Although employees are being called upon to pay an increasingly larger share of health insurance costs, it's even tougher for a small business owner. There is no employer to pick up some portion of the premium cost. There's no pool of employees that would allow you to negotiate a more favorable rate than you can get on an individual policy. On the other hand, you may be able to join an association of other small businesses so you can take advantage of cheaper group insurance rates.

For those covered under employer-provided health care plans who leave to start a business, there's the option of continuing coverage through the former employer's plan under the COBRA law. However, you're responsible for the full cost of premiums: The former employer generally won't be contributing anything for you. Also, you're entitled to continued coverage for a limited period of time: as little as 18 months or as long as 36 months, depending on the circumstances. You might be able to get better coverage for the same cost elsewhere. If your spouse has insurance through an employer plan, consider coverage through that plan.

Retirement savings. Retirement savings are a little different than health insurance. If you don't have health insurance and experience a catastrophic injury or disease, you may be wiped out. The impact of failing to save for your retirement can be even more damaging, but people tend to minimize the risk because "retirement is such a long way off."

It's no surprise the saving rate is higher among employees than small business owners. Employer-sponsored plans provide a convenient and painless way to set aside a portion of each paycheck. A small business owner has to make a conscious decision to save, outside the framework of a plan administered by someone else. That decision often can be deferred or forgotten when you feel the cash coming in has to be put right back into the business.