Leaving the Contracting Company for Independent Work?

Giggles of Doom asks: "I currently work for a technology contracting company (one of the ones that finds you a tech job and you work at some other company as a non-employee) and have been for the past couple years. Recently, however, I have begun to realize that for the past two years they haven't really done much for me, yet they still get a commission for every hour I work. The benefits I get from them aren't that great: non-matched 401K (that they are canceling), discounted prices on stock that has gone down for the past several years, and a few paid vacation days. I have begun looking into going independent. After all, that commission my contracting company is getting could be money I could be getting. And considering that they don't seem to be offering much in the way of benefits for that commission I don't feel obliged to have them keep on getting it. I am wondering if anyone else out there has gone through this kind of thing, leaving a contracting frim to work for themselves, and if they have any advice to give on how to get out of contracts, billing the company you're doing the work for, etc. And, biggest of all, was it worth it? Obviously it will be different with everyone and every company, but I would be interested in hearing of other peoples' experiences."

Comments

Are you sure?

[Anonymous Coward]

Are you sure they don't do much for you? Unless you're prepared to do business aquisition, paperwork and insurance yourself, you should think twice. Even if you think you're up to taking over these tasks, the company may be in a much better position than a lone ranger especially with regard to attracting business. This was and is the business model of contracting firms after all.

Re:Are you sure?

[stevew]

Hokay - this is interesting in that someone finally mentioned all the business paperwork ;-)

First my bonafides - I was self-employed for 7 years, and have worked for a contracting company as an employee for 3 years. So I've seen both scenarios described here, i.e. before and after.

The health care arguments others have used is specious. It's expensive, but if you are making that extra $15 an hour the company is getting as a commission on you -that'll take care of health care. You have several choices. One guy mentioned IEEE which would work. There are other places you can join the equivalent of a group health care plan too, you just need to look around. Even then, the cost is going to run you between $6000 and $12000 a year assuming a family of four.

Next let's look at what the contracting company "should" be doing for you. They should be taking care of taxes and sales for you. The tax situation has it's own questions you need to answer - 20 of them actually - as to whether you can get away as self-employed or not. Another issue is that many companies aren't going to want to hire 1099 because of possible tax problems. SO - you probably need to incorporate! Then you become an employee of your own company. So it comes down to - do you want to do the yearly corporate paperwork and tax filings quarterly?

Next, yet VERY important is sales. Likely you'll get a contract that lasts some number of months. What happens at the end of that? You need to constantly be selling your services to prospective clients. How do you get your name out there to them to even get the interviews? If you have an extensive personal network - maybe this isn't a concern. I lasted 7 years without a problem.

Anyway - good luck!

quitting?

[Anonymous Coward]

dude, you've got a job ... and possibly more on the way through the contracting company. some of us are still left out in the cold hoping even for that much.

Check your contract

[joebp]

I used to work for a contracting company similar to yours; a clause in each contract was I was not allowed to be employed by the same clients for 12 months after I stopped contracting with that company - whether with another contracting company or freelance.

You may find you're going to have to find a complete set of new clients.

save

[battjt]

Keep 6 months salary in the bank.

You'll need it to cover unexpected expenses when out of work. You will be out of work. You will be out of work more than when working for a contract house, because a contract house has full time professional sales people that are better than you and you will then be competing against.

I wouldn't worry too much about the health care. Buy some catastrophic insurance and keep that 6 months savings. Buy disability insurance. (The insurance to cover the first 6 months is the expensive stuff.)

Don't incorporate unless you must to work with particular clients. The paper work is killer.

Get an accountant that you trust.

Keep a couple customers in good standing all the time. If it is just you try to work for more than one client at once (40 hrs here, 20 there) so that if one has to drop you, you still have some cash flow.

Joe

I'm trying, & it's tougher than you might thin

[mactari]

I recently got fed up with an inefficiently-run government contracting position and decided if I wanted thinks right I was going to have to follow the proverb and do it myself. I've set up the home office about a month ago, and here are a few of the lessons/insights I got real quick.

1.) Getting started takes a LONG time. Even if you hack at home now in your free time, you're going to need a few days to get your office right. Getting your workstation to exactly mimic the productive suite you were used to at work will take a while. Getting a website to feature past experience and show off your new wares is going to take a while too (but will pay off in the long run). Now add overhead for buying office supplies and, much more importantly, registering your company with your local gov't to reduce liability, and you'll see you're not going into business immediately. Plan for at least a month of downtime at the start (or sprinkled around your first code) for you to get the infrastructure to *start* ready to go. (aka, "MAKE SURE YOU HAVE SOME MONEY SAVED FOR FOOD AND RENT!!!" :^D)

2.) You're doing it *all* now. I'm able to finish bits of code much more quickly without the distractions of the water cooler (and intrusions into my cube), but once I'm done, now what? Marketing is no longer "the communications department's job". Nor is tech support someone else's responsibility. Nor polling the customer to see if I've hit the mark. Nor is handling the overhead if a customer is upset. All docs, all testing, all support, all "everything you didn't worry about when you were coding" is your responsibility. It's all you. Note that the side lesson is that if you can bring anyone with you -- or if you can use past contacts as subcontractors, that's a huge help while landing and when you finally land a big fish.

3.) Good luck finding the customer. Don't get the unrealistic idea that you're going to be able to spend all your time coding. As another poster pointed out, if you've already got work lined up, enjoy! But I recently spent about two and a half work-days on a 4 month job proposal which didn't get selected ("lack of previous experience" -- and I've been working in the field before this for 4 years! New companies are certainly at a disadvantage). That's time "down the drain" (though certainly I can cut and paste some of one proposal into the next), and you have to consider this as part of the cost of finding a guaranteed customer. In my "downtime" I'm writing a trialware application, but unlike contracts there's no guarantee anybody's going to want to buy. Don't underestimate how much work your current company is doing for you by finding the work.

4.) Multiply everything by three -- Time for projects, costs for supplies, costs for advertising and submitting proposals. I'm sure if you've worked more than a few years "in the real world" you've learned this one already (boy, I sure did), but it's worth keeping in mind. You're your manager now too, you know! Don't say you can name that tune in two months when it's going to take six. Having a poor experience with your first customer isn't going to help you find that second and third job.

That's the short lesson from my first month of working out of the home. It's fun, I get a ton done, all the code is done up to my personal expectations and written efficiently, but I'm still looking for my first "real" customer. Best of luck.

Be Careful, Don't Burn Bridges, but Do It!

[rkent]

Recently, however, I have begun to realize that for the past two years they haven't really done much for me, yet they still get a commission for every hour I work.

First and foremost, learn to question your assumptions. You say "they haven't done much for me" but they still get money for your work. Thing is, you HAVE work -- you seem to think that striking out on your own would also include full-time occupation, and I can tell you right off, that's almost certainly not true. The reason so many consultants ask $75 or even $100 per hour is because they're lucky, especially now, to find 6 months of full time work per year. So, have something lined up before you quit!

Also, be careful about what you decide to take. You may have signed something with your consulting firm promising not to compete or poach customers for a year after your contract; their client (where you work) almost certainly signed a similar document promising only to hire you through them. See if any friends or family can help you out with something, anything small. That's your advantage, IMO, as a completely independent dude: you can take any job, even 40 hours over 3 weeks for 2-3 grand, that a bigger firm wouldn't consider. Capitalize on this.

Don't quit even when you line something up! Try to do whatever work it is, after hours and on weekends, or scale back your day job duties by 5-10 hours per week. But your firm is a great way to make contacts, so don't dump it until you're SURE you're ready. How will you know? If you don't know, it's not time.

That said, I would seriously recommend taking steps towards being independent. I've been independent all year now, and there have been a couple of scary months, but it's been fun and I've learned a LOT. The way I work is this: I formed a LLC in my home state of Michigan at the advice of an accountant (oh yeah - get a good one of those, too) because of the way it helps with taxes. Now, since I'm a software consultant, all of my computer equipment is bought before taxes. I get to deduct car expenses for time spent driving to work. I can start my own Keough retirement plan, and my health insurance (while minimal) is 70% tax deductible. There's too many advantages to mention. Just email me if you want to talk about it.

But definitely be careful and don't piss off any connections that might do you well later. And DON'T go behind your agency's back and ask one of their clients to illegally break the agreement -- you'll just look like a slimeball who can't deal with the real world.

Re:Health Care is the Key.

[HyperbolicParabaloid]

Health Insurance seems like a major hurdle, but look at it this way: how many hours do you need to work to pay the premiume?
I am an independant contractor (but I go through agencies because they have better contacts than I do). I pay about $800-$900 dollars a month for Blue Cross. Seems like a lot? yeah, but I make that much money in one long day, so it is a no-brainer.
(BTW, get disability insurance too.)

My advice

[dubl-u]

I've been freelancing for six years now. I agree with many of the things others have said, especially about having a big savings cushion. But here's my big piece of advice: Getting work will be much harder than you think.

Once you go own your own, you go from being a technical person to a marketing person. Network relentlessly. Join user groups. Collect recommendations. Get and stay in touch with old colleagues. Write articles. Schedule plenty of time for keeping up on the latest skills and the latest buzzwords.

My tip: start out by getting part-time work. Don't quit your day job until you have so much outside work that you can't stand it anymore.

Also, I'd recommend that you read "The Computer Consultant's Handbook"; and Weinberg's "The Secrets of Consulting." The first one's a little old and the second one is focused more on consultants than contractors, but you will find both helpful.