CAD Manager's Newsletter #96

CAD Outsourcing Trends--Part 4b

* Continuing the Discussion

* Finding Customers

* What Should I Charge?

* Insurance and Retirement

* Taxes and Paperwork

* Summing Up

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CONTINUING THE DISCUSSION

Author's Note: If you haven't had a chance to read through the first three installments of this series please take a few moments to do so now at http://cadence.advanstar.com/newsletter/index.html so you'll understand the context of the following discussion.

In the last issue of the CAD Manager's Newsletter I made the case for using the current trend toward outsourcing to your advantage by becoming an outsourced provider of CAD services yourself. I've heard from many readers who seem ready to get their businesses going.

The most frequently asked questions are:

* How do I find customers?

* How much should I charge for my services?

* How do I handle benefits such as insurance and retirement?

* How do I handle the tax aspect of working for myself?

To answer these questions, I'll simply share some strategies that have worked for me and let you adapt the approach to your own circumstances.

FINDING CUSTOMERS

This is, of course, the primary topic for anyone starting out in business. Here are some ideas that I think everyone can use:

Idea 1: If you need at least one customer to start out on your own, why not make your first customer your current employer? Don't laugh at this approach! If you have a good relationship with your current employer, but they don't need a full time CAD manager any more, why wouldn't they do business with you part time? If you're about to become outsourced, talk with your employer right away to see if you can work out a "sweetheart deal" to keep you around part time.

Idea 2: Next, talk to people you've worked with in the past to see if their current companies might need your services. This approach works well because you'll have a built-in reference who knows you, making you a known commodity rather than an unknown business entity. Do whatever you can to make these deals work, even if you have to work cheap. When you're just starting out, it's more important to work and build references than it is to have ego about how much you charge.

Idea 3: Try working through temporary agencies on short assignments. Many times temporary agencies need people for limited-duration jobs but have trouble finding good people willing to work on short notice. If you use these sorts of jobs to fill in your schedule, you'll get to meet companies who need your services while you make some money. I used this strategy with great success when I started out. Just make sure you do good work and build references everywhere you go.

WHAT SHOULD I CHARGE?

That's a great question, but one I can't answer for you. I can, however, give you some guidelines you can use to triangulate and arrive at a good estimate for your market value.

Call some temporary agencies and send them your resume of qualifications so you can become registered to work for them (this is in line with Idea 3 above). Ask them what they'd be willing to pay you. When the agency gives you a pay rate, multiply that number by 1.5 to get a decent idea of what they'll be charging a client company for your time.

Example: If the agency pays you $20 per hour, it bills 1.5 X $20, or $30 per hour, to make a profit and pay taxes and fees.

Continuing with our example above, if you market your services directly to companies, you can use the $30 per hour rate as a basis for comparison. This approach will get you pretty close to your market worth for longer-term contracting assignments.

If you want to perform hourly services such as training, programming, and software configuration, you should contact software resellers to see what they charge. You may even want to ask if they'd be interested in hiring you part time!

The basic rule of thumb I use when I'm trying to learn something is to find people who know more than I do and ask for help. The worst that can happen is you won't get an answer. In most cases, though, you'll learn a lot. So don't be bashful--ask!

INSURANCE AND RETIREMENT

I've been in business for 13 years and it still amazes me how many people won't go into business for themselves because they think they can't get insurance or retirement programs without an employer. The fact is that you can purchase insurance for yourself or your family on your own and set up your own tax-deferred retirement accounts. Here are some of the resources I've found:

For insurance: If you are eligible to join a professional society (such as AIA, ASME, or IEEE) you may want to do so, because most of these societies have group insurance plans. Also consider joining you local Chamber of Commerce because many also offer group insurance incentives. HMO plans such as Blue Cross and Kaiser Permanente let you buy into their plans directly. Finally, check out http://www.msahealthplans.com for information on Medical Savings Accounts that let you buy insurance using tax-deferred dollars.

For retirement: Look into brokerage institutions like Charles Schwab (http://www.schwab.com) or do an Internet search on 403B SEP accounts, which function just like 401K accounts. These accounts allow you to put away around 15% of your annual self-employment income as a deduction and follow the same withdrawal rules as a 401K does. If you use a brokerage firm such as Charles Schwab, your 403B SEP account is entirely under your control, so you can invest in whatever you want without any program rules like those imposed by your employer's 401K plan.

TAXES AND PAPERWORK

The first thing you'll want to do is to visit the IRS Web site (http://www.irs.gov) and file for a Federal Taxpayer Identification Number (frequently called an FID number) so you can treat all your self-employment income as business income rather than as personal income. Using an FID number makes your tax returns look more formal and tends to legitimize your business dealings with prospective employers. Be aware that as a self-employed person you'll need to file estimated tax payments four times per year, in addition to filing all the other tax forms you normally would as an employee!

I recommend that you make an appointment with an accountant so you understand all the applicable rules for your state (or country), as codes vary greatly from locale to locale. Note: I know too many people who did everything else right yet got into tax troubles because they didn't talk to an accountant. Don't let this happen to you!

SUMMING UP

I've certainly enjoyed writing this series on the CAD outsourcing phenomenon, and I hope you've gained some career insight by reading it. CAD managers are in a unique position to take control of their careers, no matter how outsourcing may affect the business environment. Even if you never go into business on your own, you owe it to yourself to check out the possibilities.

For the remainder of 2003 I'll concentrate on the CAD industry from a business perspective and will provide a detailed look at Autodesk University 2003. As always, please feel free to e-mail me at rgreen@cad-manager.com.