CAD Manager's Newsletter #96
12 Nov, 2003 By: Robert GreenCAD Outsourcing Trends--Part 4b * Continuing the Discussion * Finding Customers * What Should I Charge? * Insurance and Retirement * Taxes and Paperwork * Summing Up *************************************************** IMPORTANT NOTICE:
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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.