Capital is surplus: something you won’t need yourself for the amount of time it is invested.
Employees don’t generally have to think about capital because the time delay between when the work is done and when the employee receives a paycheck is typically one to two weeks. For free agents, however, the delay can be much longer.
As an independent consultant, you spend significant amounts of both time and money in advance, and it may be months before you get it back. This delay is what makes capital necessary.
Although money is what most people think of when they hear the word “capital,” capital comes in other forms as well. In this article, we’ll look at money, time, information, and space and cover some strategies for accumulating this capital while you still have a regular job.
Third in a series
This article is part of a series that examines how employees must prepare before becoming independent consultants. The first installment in this series explored the risks and reasons involved with going out on your own, while the second discussed building the free agent’s infrastructure. The fourth and final installment will focus on recognizing good business opportunities.
How much money should you save before going full-time as a free agent?
In his book, MCSE Consulting Bible, author Harry Brelsford recommends you have an entire year’s living expenses in the bank before leaving your job. Why so much?
Brelsford says that the sales cycle for IT projects can easily take six months. However, you still have to do the work, bill the client, and wait to get paid. Brelsford suggests that “from the first sales call to the first satisfied invoice...it’s not uncommon for nine to twelve months to have passed.”
While all this is going on, you still have to pay your salary as well as airfare, hotels, rental cars, and office expenses. Until your invoices are paid, that money has to come from somewhere—like your savings account.
But how can you accumulate that much money? There are several basic approaches: Get more money coming in, reduce your level of expenses, or borrow. Here are some means to those ends:
- Moonlight: Brelsford recommends taking on evening jobs that will build your skills and/or contacts. Teaching evening courses at a local college, for example, can lead to consulting opportunities, and working the swing shift for a company’s help desk exposes you to a wide variety of real-world problems and their solutions.
- Budget: Reducing your living expenses will make your war chest go farther. Can you refinance your mortgage while interest rates are low? The difference in monthly payments can go directly into savings. Look at your lifestyle: Do you buy pricey coffee drinks every morning? Your habits may not be putting you into debt, but they’re not generating a surplus for you either.
- Borrow: You could borrow the capital to get started, but do you really want the added pressure? One strategy is paying down personal debts as much as possible while you are still employed, said Gregg Shipler, a Seattle-based SQL Server consultant.
“The fears that you want to be managing have to do with your knowledge base and ... customers, not the fact that you’re up to your eyebrows in debt,” he said.
Paying down your debt could also help you establish a good credit rating—something that you would need in an emergency if you did need to borrow money.
Unfortunately, you can’t moonlight to earn more time. Until you leave your job, you’ll need to make time for your free-agent business by being more effective in using what you have. Here are some tips I learned as a consultant:
- Manage your energy level. Do creative or demanding tasks at times of the day when you’re at your best and save routine tasks for low-energy times.
- Sleep when you need rest. Zoning out in front of the TV or mindlessly surfing the Web is a signal that you need rest. Heed the signal and get some real sleep instead.
- Exercise. It may seem to be taking away time, but a regular, half-hour aerobic workout three or more days a week gives you back time because your energy level is higher. You can get more done.
- Take time for yourself. Pick one evening of the week to do something fun instead of building the business or doing chores around the house. Make an appointment with yourself and keep it. It will keep you sane and help you avoid burnout.
Intellectual capital consists of the knowledge and skills you possess. They are, more than anything else, the product you sell as an IT consultant.
What makes you valuable to clients as an independent, however, may be different from what makes you valuable as an employee. Here too, you may need to create a surplus above what you need for your current job.
I had a rude awakening when I inventoried my intellectual capital. I had assumed that as a free agent, I could just do the same thing I was doing as an employee.
But it turned out that I occupied a niche: It would have been difficult to sell those particular services if I was on my own. When my employer asked me to teach classes on Microsoft SQL Server, I recognized that this could help me break out of my niche. So I mapped out a crash-course study program to pick up those skills. Six months later, I am now a Microsoft Certified Trainer (MCT) and Database Administrator (MCDBA). My employer isn't complaining about the switch: Just this week, I was able to substitute for one of the other Microsoft instructors on short notice. Once again, preparing to be a free agent has made me a better employee as well.
Don’t underestimate the effort required in keeping yourself current, advises Paul Turley, a free-agent IT trainer in Seattle. “You have to be up on the latest tools, and then [your edge] only lasts for three months. You’re paying for your own training and lining up consulting assignments while you’re on the road so you can actually use this stuff. It’s tough.”
Finding some dedicated space for your free-agent work will pay for itself many times in greater efficiency. You’ll be able to focus on the project at hand instead of cursing the clutter. (It also saves you the trouble of reprinting a report because it has Cheerios stuck on it from being on the kitchen table.)
Can you convert a spare bedroom into an office? A desk and shelves can be built into a closet, so that when you’re not working, you can close the doors and the office disappears. You don’t have to go the dot-com route and buy mahogany desks and Aeron chairs. Just make sure the desk is the right height and the chair adjusts so that you can work comfortably with good lower back support. Check the want ads, office surplus stores, and auctions in your area for bargains on office furniture and equipment.
Newer houses are already wired for multiple phone lines, and if DSL is available in your area, you can have high-speed Internet access without giving up your voice line.
How did you build capital?
If you are an independent consultant or are planning on making the leap, what steps are you taking to build capital? Are there tax deductions, for example, that you can claim for setting up a home office? Are there reliable methods to clear the way for a small-business loan? Do you have any tips for effective time management? Share your strategies with us: Post a comment in the discussion below or send us an e-mail.