11 August 2020

From a salaried to self-employed

Inge Muijshondt
Content Markteer | MyOnlineStore

Many webshop owners have the dream of eventually being able to make a living out of their webshop. The freedom to organize your own time, to be busy with what you really like and to make your own decisions. Is this your dream, but do you not (yet) dare to take the step to a self-employed life? This article is perfect for you! We discuss the pros and cons, help you create a realistic financial picture and tell you more about insurance, tax and retirement.

We have already mentioned the most important advantages of fully running your own online store: being able to organize your own time, decide for yourself which tasks you do (and which tasks you outsource) and choose who you work with. But there are also disadvantages to independent entrepeneurship, such as financial uncertainty, missing colleagues and liability. It is important to list these for yourself, so you can make a conscious choice.

List all the pros and cons and take stock. Do the advantages outweigh the disadvantages? Then chances are that fulltime entrepreneurship is a decision for you!

Perhaps the biggest barrier to quitting your job is the financial uncertainty that self-employment entails. That is why it is wise to first get a good picture of your current financial situation and of the income that you would have to get from your webshop to be able to live on it.

Identify the following matters:

  • Your current financial situation: not only fixed costs, but also expenses such as clothing and meals and what you want to set aside to save.
  • Costs that will soon change: who knows, you may soon have less transport costs because you no longer have to go to the office every day. On the other hand, you may want to professionalize your webshop and you need a more expensive package.
  • Operating costs: Not all income in your webshop is profit. Costs are deducted from every euro that comes in. This includes VAT, the purchase of your product and shipping costs. But you also have to take into account operating costs such as your webshop subscription, bookkeeper and office supplies.

Expected net sales and profit
Now you know what costs you have personally and in your company each month, you can calculate how much income you need from your webshop to make ends meet. To begin with, it is good to make a realistic expectation of the revenue growth for the coming period. You can do this by looking at the turnover of the past months/years. And by calculating how much growth there was. If you apply this growth factor to your current revenue and profit, you can calculate how much the expected revenue and profit growth of your webshop is.

If you know this, you can calculate how much income you need from your online store to make ends meet. And how many orders and visitors you need for that to happen.

Not enough income yet
If you do not generate enough income from your shop yet, it does not mean that you cannot quit your job. Because you currently have to divide your time and attention between your webshop and your salaried job, it may be that your webshop is reaching its maximum. If you currently spend most of your time packing orders and maintaining stock, you can't really work on the growth of your business. Simply because, for example, you do not have time to do good marketing activities or to develop new products. Your online store can grow much more if you can devote more time and attention to it. That is why it is good to look at your expected profit for the coming months and how much you might be short of to be able to live on it. That way you can calculate how much savings you need to bridge this period.

Financial buffer: As a self-employed person you do not have the certainty of a monthly salary. That is why it is wise to have a financial buffer on hand to absorb any less favorable months or a period of illness. Many entrepreneurs maintain a buffer to live for at least 6 months.

You can eliminate some of the risks with insurance. As a self-employed person you are not in every country (search the obliged insurances of your country) obliged to take out insurance, but a number of insurance policies are recommended for a webshop:

  • Business Liability Insurance: Business liability insurance covers damage/injury that you or your product cause to others. If you make products yourself (or import them from outside the EU), good liability insurance is important. The liability of a product lies with the company that imports the product into the EU.
  • Legal expenses insurance: As an entrepreneur, you may end up in a legal conflict. The legal expenses insurance then covers the costs of a legal process.
  • Inventory and stock insurance: Don't worry about losing your stock due to fire, theft or leakage. Inventory and stock insurance covers this risk. Please note: if you have stored your stock in your own home, this is usually not covered by your private household insurance. 
  • Disability insurance: As an entrepreneur you are not automatically insured against disability. You can take out insurance for this, but there are also other options. There are more insurance policies that you could take out as an entrepreneur, such as professional liability insurance or business interruption insurance, but these are less applicable if you run a webshop.

For all the above insurances, you must carefully consider which ones are really necessary for your situation and which risks you want to run yourself. If you could bear the costs of, for example, a lawyer yourself in the event of a conflict, you do not need to take out insurance for this.

Incapacity for work
If you become incapacitated for work as a self-employed person, this means that you have no or less income temporarily or for a longer period of time. You may be able to absorb a temporary situation, such as a broken leg, with your saved buffer. But in case you become permanently incapacitated for work, it is wise to look at how you could deal with this. The most obvious option is to take out disability insurance. There are many insurers that offer this insurance. The premium you pay for the disability insurance depends on several factors:

  • Waiting time: how long does it take for the insurance to pay out?
  • Period: how long does the insurance pay out?
  • Payment amount: what is the amount that the insurance pays out?

Usually you can set what best suits your situation. The costs for disability insurance are often hundreds of euros per month. Unfortunately, that does not fit in everyone's budget. Fortunately, there are also alternatives. A popular alternative are so-called "bread funds". A bread fund consists of a group of entrepreneurs, usually a maximum of 50, who save money in the bread fund every month. If one of the participants falls ill, this can be covered by donations from the fund. The advantage is that the monthly amount is relatively low, the disadvantage is that the benefit is often only 2 years.

Another option is to insure yourself with an accident insurance. These premiums are a lot lower than with a disability insurance, but the disadvantage is that in the event of an accident you will receive a one-time amount and that disability due to illness is not covered. Again, take a good look at what suits you best.

Retirement
Yes, as an entrepreneur you decide when you retire! You do not have to wait until you are 67 (or perhaps older in your country), but your retirement will only be paid from that age. You must therefore ensure that you have enough money to retire. But how much money do you actually need for that? A commonly used guideline is 70% of your income prior to retirement.
There are various options for building up (supplementary) pension:

  • Saving
  • Investing
  • Fiscal Retirement
  • Pay off on your mortgage
  • Retiremen insurance, annuity account or single-premium policy
  • Selling your business

Taxes
If you start working on your business full-time, little will actually change in terms of taxes. You should already be used to filing a turnover tax return every quarter. There does change something at the annual income tax. You will no longer receive salary from employment, but you will get income from your own company. You must pay income tax on this income.

When you are employed, social security contributions and taxes are automatically deducted from your salary. When you are a full-time entrepreneur, you will probably be eligible for entrepreneurial deduction for income tax purposes. For the deduction you must, amongst other criteria, meet te hours criterion: spend more than 1,225 hours on your company and spend more time on your company than on other activities (for example a salaried job). You are then entitled to various deductible items, such as starter's allowance and self-employed person's allowance.

As an entrepreneur, it is wise to set aside money troughout the year for VAT and income tax. As a guideluine you could choose to set aside 10% of all your income (including VAT), but a different percentage may apply to your situation. If you want to know more about this, the 'Profit first' method is recommended. By setting aside money for taxes in advance, you avoid suprises when it is time for your tax return and it makes you pay your taxes with ease.

We hope that the previous chapters have provided you with useful information and tools that can help you in your choice for a full-time business. It is useful to involve your environment in your choice and you must of course inform your employer if you decide to go for it.

Consult with your environment
If you are convinced of the feasibility of your idea, it is nice to involve your environment in your plans. Discuss your plans with your partner, family and/or friends. Maybe they still have questions about things you haven't thought of yourself. Still, you shouldn't be too guided by their opinions. As an entrepreneur you often have a very different view of work, risks and freedom than someone who chooses the comfort and safety of a paid job.

It is of course important to discuss the consequences of your decision on the life of your partner (if you have one). For example, if he/she would have to absorb the costs due to the loss of your salary, it is necessary if he/she supports you in your decision.

Quit your job / work less
You may think the step is still too big to quit your job altogether. But why not just work 1 or 2 days less? That way you can spend more time on your online store, but you still have some fixed income on hand. After a while you can find out if you can quit your job completely. If you've decided to quit your job, first of all, congratulations! What a badass decision! Now you still have to tell your employer. That can be an exciting conversation, especially if you work in a small organization. It is best for your employer to know this decision as early as possible. Take the period stated in your contract into account, but rather indicate it earlier if possible. In this way, your employer has enough time to find a replacement and you can still train the new colleague if necessary. Try to close your work as neatly as possible, especially when you operate in the same industry with your webshop. You never know when you will need each other again for a fun collaboration.

And most importantly, don't forget to celebrate this milestone! You did it!

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