From: ed@titipu.meta.com (Edward Reid)
Newsgroups: misc.jobs.contract
Subject: Re: Becoming a software contractor
Date: 8 Apr 92 14:06:09 GMT
Reply-To: ed@titipu.meta.com (Edward Reid)
Distribution: usa
Organization: Metalogic
X-Mailer: uAccess - Macintosh Release: 1.9b1

In article <59@steiny.UUCP>, steiny@steiny.UUCP (Don Steiny) writes:

All good advice.  I'll add a few bits.

> In article <4914@tekig7.PEN.TEK.COM>, randys@focus.PEN.TEK.COM (Randy Schafer) writes:
> > 
> >  - Should I get a business license for tax purposes?
> 
> 	Whose tax?   The only thing a business license will get you is
> a bigger tax bill, you will pay taxes to the city/county in which you 
> do business.

Varies enormously by locality.  Registering your name also protects you against
someone else using your name in competition.

> >  - What is the structure of a software contract?
> 
> 	The companies always have a form.   If it is person to person, you
> should be able to just write down in plain English what you have agreed to
> so that you will remember. 

A letter of understanding and a purchase order is often enough, especially on a
per-hour job with no deliverables.  Ask them for a letter saying what they
expect, send them a letter saying what you expect and listing pertinent
arrangements (rates, terms, etc), then ask them for a PO.  If you have any
doubts, or if you are contracting for deliverables, consult an attorney.  It
doesn't need to be expensive, and they don't mind your asking how much a
consultation will cost.  Just find an attorney who prefers preventing problems
over taking them to court after they happen.

There are also books of legal forms, and collections on disk.

> >  - How do you determine how much to charge?
> 
> 	I always ask my friends how much they are getting.

Depending on the nature of your contracts, you will need anywhere from 50% to
200% more per hour than you made at regular employment, for the same usable
pay.  Self-employment tax, health and life insurance, vacation, sick leave,
disability coverage, pension -- you are taking over those responsibilities at a
minimum.  Depending on the situation, you may also have marketing, office space
and equipment, telephone, education time and expense, periodical subscriptions,
professional organization membership.  It's easy to underestimate your
expenses, especially since the rate you quote is going to sound so exorbitant
compared to your previous salary.  Companies that deal with contractors,
though, understand the difference.  If they don't understand, they will be very
difficult to deal with in other ways also.  The low end of the range I gave is
for long-term contracts with reliable clients who provide all office space and
equipment and who expect you to keep up with the field on their time.

Realize that your pay is going to be delayed relative to what you are
accustomed to.  Instead of getting paid for January on 31 Jan, you will submit
an invoice in February for January work, as soon as you get around to it.  If
you are lucky, they will pay in under 30 days without hassle.  Make sure to
include late fees in your terms.  If you afford the float, 1.5% per month is
great interest.  If you can't afford the float, quote a stiff penalty, since it
will cost you more than 1.5% if you must suddenly find ways to cover your
expenses.  These terms are only examples, of course; you can set the terms as
you both wish.  Government agencies will probably insist on 90-120 days to pay.
 In a large company, the person you are dealing with may be very understanding
about the terms yet have no knowledge of how the accounts payable department in
his own company actually operates.

> >  - What legalities do I need to watch out for?
> 
> 	Actually, independent software consultants do not have much liability.

If you have any doubts, consult an attorney.  (One who doesn't like going
to court.)  Also consult a CPA.

> >  - What are the common pitfalls to avoid?
> 
> 	Be VERY careful with you taxes.    Find an accountant and a bookkeeper.
> I pay about $60 per month for a bookkeeper and $300 per year or so for 
> an accountant.    I throw my receipts into a coffee can and every month 
> my bookkeeper comes over and enters them into books (I use a hard copy
> general ledger because I do not have to turn it on to see it and I never
> worry about it crashing).

I do my own bookkeeping, but then I have very little of it to do.  I like
doing it on the computer.  Doing reports is faster.  Personal preference.

> About
> 21% or so of it will eventually get taken away by uncle sugar.   Be 
> sure and save that money as they year goes on or you could get in BIG 
> trouble.

YES!  This a major pitfall.  And 21% is very optimistic: I paid 26% for last
year, and I don't have state income tax to worry about.

Other pitfalls mentioned above: charging too little; insurance; failing to get
professional advice when needed; not saving money for tax payments; not making
the quarterly payments.  Allowing unreliable clients to delay payment -- don't
allow payment to be delayed unless you own part of the company; if the client
isn't paying, cut your losses.  Not allowing for the fact that pay will be
delayed anywhere from a few weeks to a few months.  Not invoicing promptly.

Edward Reid  (8-}>
  eel:   ed@titipu.meta.com  or  nosc.mil!titipu.meta.com!ed
  snail: PO Box 378/Greensboro FL 32330
Xref: sparky misc.jobs.contract:1422 misc.jobs.offered:5270