2009 Small Business Guide
A cartoon man standing on top of a large dollar bill with a key in his hand and an orange background
small business
5 tips for small-business success

3. Set aside self-employment taxes

When you're an employee, your employer withholds roughly 15.3 percent of your income to fund Social Security. You pay half out of your pocket, and your employer covers the other half. When you're self-employed, you shoulder the entire amount. You don't have to make quarterly payments to cover the tax, but you can avoid getting stung at tax time by setting aside funds to cover those taxes.

4. Think hard about whether insurance is necessary

Few startups have extra capital to spend on insurance they don't really need. Can you save a buck by going without? "In general, you don't need insurance until you hire your first employee, and then you'll need a lot of insurance," says Mazzella. "If you're working out of your home and your only liability is someone tripping and falling during a visit or losing your office equipment in a fire, you can make sure your homeowners insurance covers that. If you're operating outside your home, you'll want a minimim of insurance on your office and assets."

What about liability insurance? That depends on your business. If you're a service provider who's unlikely to get sued no matter how poorly you perform, such as a proofreader or graphic designer, you probably don't need insurance. "We tell our bookkepers that every insurance agent will tell them they need errors and omissions insurance," says Mazzella. "But we've never heard of bookkeepers being sued unless they stole from the business or committed fraud, and no insurance will cover that."

If you sell products, you again have to evaluate your risk. "If you sell bottle corks, your liability would probably be limited to replacing bad bottle corks," says Williams. "If you mass-produce cherry jam, you have the liability caused by people getting sick on your jam or breaking their teeth on a cherry pit. You wouldn't want to self-insure that liability. You'd want product liabliity insurance."

5. Make sure you get paid

What good is being your own boss if you don't get paid for your work? "Wherever possible, collect 10 (percent), 15 (percent) or 25 percent of your fee upfront," says Bostrom. "Your clients' reaction to that request will tell you a lot about whether they're capable of paying you."

Always use contracts, recommends Alan Siege, president and CEO of Small Business Management Consulting in Brooklyn, N.Y. "Specify clearly what the deliverables are and what and when people will pay you -- and make people acknowledge it. By having a contract, you're saying that you play for real and that you're someone whose business people need to take seriously."

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