Going solo

Written by Chintan Rajyaguru

Wednesday, 16 November 2005 18:00

Software Development Magazine has a nice article on becoming an independent IT consultant. I think every aspiring independent consultant should read this article before jumping into this field. The article does a fantastic job of explaining the qualities you need as an independent consultant, traits of those who have been successful in this field, various costs involved in working as an independent and some things to watch out for.

But the article doesn't consider the time investment one has to make to work as an independent. As an independent, you spend time doing things that you wouldn't have done as a W-2 employee or would have gotten paid for them. Consider the following time consuming activities:

Learning new tools and technologies: Per the article, an independent should spend at least 10% of his/her time learning new tools and technologies. As a W-2, you get chunks of time at work to do this (at client's, you get fired for doing non productive work and billing the client for it). You also get to go to paid trainings as a W-2. If you are an independent, not only you have to spend money to get formal training, you also need to spend time
Recording time and expense: This could be one of the biggest time consuming activities - especially if you are traveling. You must record every hour you spend on client work, keep all the receipts, bill the client for the time and other expenses, work with the client admin (this gets worse when a receipt is missing or when there is a random audit on your expenses), make sure you get your money and more. Some clients make you use their own time and expense recording system. If you keep your own system, you have to record everything twice.
Tax: Yes. You file taxes as a W-2 but as an independent it takes more work. There are too many tax deductible items (for example, using a room in your house as an office gives you some tax benefits). You not only need to know them (more education and more time), you need to keep track of everything. For example, if you drive, you need to record mileage of your car you used for work. While a good tax advisor would know where you can save money, you are responsible for all the leg work that goes in it.

The point in case is this. If you want to become an independent consultant, estimate ALL the time you would spend on activities which you would not have done as a W-2, add 2000 (50 weeks x 40 hours per week = 2000 work hours every year) to it. Divide your estimated yearly income by that time and that's your hourly income. Is this significantly higher than your current hourly income that gives you a comfort level to leave W-2 job and go for independent consulting?

Remember, in this post, I have tried to attach a price tag to the non money making activities. If you don't care about the additional time you would have to spend as an independent, you only need to compare your yearly income as and independent with that as a W-2. Work-life balance etc. is a different story!

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