For many, being self-employed is job security. Not having to rely on anyone else for a paycheck means it’s sometimes a hustle, but the freedom is priceless. Though, being self-employed comes with a unique set of risks.
For example, it’s tempting to be casual about where you store your equipment, and who you let into your home. Also, there are laws every self-employed individual must follow to the letter. Ignoring these laws, or being casual about them, is perhaps the biggest risk of all.
Some self-employed individuals opt for business insurance, but that only covers you after a loss. You need simple strategies to reduce your potential risk before something happens.
As a self-employed individual, here are just some of the unique risks you might face, and what you can do to mitigate them:
1. Theft of your property
You probably use the same laptop for business as you do for personal activities. If your laptop ever gets stolen, though, this doubles your risk for loss. If you’re working from an internet café and need to run errands, consider dropping your laptop off at home first. It will be cumbersome to carry with you everywhere, and you may be tempted to leave it in the car. Leaving your laptop in the car makes it more vulnerable to theft.
Also, when you invite new people over to your home for personal time, avoid showing them your office, especially when you’ve got expensive equipment in plain view. Don’t give anyone any reason to be tempted to steal your property.
2. Damage to your home
When you’re self-employed, the way you take care of your home can directly affect your business. This is especially true when you work out of your home and rely on electricity, appliances, plumbing, and the telephone to get through the day.
Mitigating the risk of property damage through basic preparation is easy. Schedule regular maintenance, take care of your pipes, and if you live in an area prone to adverse weather, make all necessary modifications.
For example, being prepared for storms, especially during storm season, mitigates the risk of loss. The most important way to prepare for a storm is with surge protectors. Small surge protectors are important, but you need a whole house surge protector. You need to divert excess currents away at the root, or you may end up with fried appliances that will cost thousands of dollars to replace.
According to J&W Heating and Air, the average insurance claim for power surge damage is $4,329. That seems like a lot of money for a power surge, but it’s a serious situation. Large appliances like refrigerators and HVAC systems are susceptible to damage during a power surge, and they’re not cheap to replace.
3. Working with contractors
Anytime you work with contractors, make sure what you’re asking them to do falls under the legal definition of a contractor and not an employee. Before allowing them to work, obtain a W-9 from so you can properly report your payments to the IRS under their social security or taxpayer ID.
Hiring contractors comes with a few risks. For instance, if you hired them online, they might disappear without completing the project. You can easily mitigate this risk by paying them only upon completion of the project. Some industry professionals require a 50% deposit up front, so be sure to get an iron-clad contract in place before making that deposit.
4. Being a middleman for your clients’ expenses
Filing and paying taxes isn’t difficult, but if you don’t itemize expenses, you should never front money for your clients’ bills. In some cases, this can be considered assignment of income, and can complicate your tax situation.
Your client should have their own accounts connected to their own credit cards to pay for their recurring bills for services you’re not providing for them. Services like domain name registration, hosting, and other monthly service fees should always be billed directly to your client, even if you set up the account for them.
It’s hard to say no when a client wants to get an account going immediately, and offers to send you a reimbursement check. The whole thing sounds innocent enough, until you get a 1099-MISC in the mail and realize you need to claim their payments as income, even though it wasn’t income. And then you realize you can’t itemize your expenses, and are now stuck paying extra taxes.
Mitigate – don’t run from risk
Risks are an inherent part of life. There’s no way to avoid risk. The only question is which rewards are worth the risk?