Tips for Contracting/Consulting

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vulcannz

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#233723 30-Apr-2018 09:55

I am dipping my toe into the Contract/Consulting market for the first time. Last year work decided to retrench back to Aussie and I was made redundant. I got a really nice payout so I've had some nice 'fishing' time and am not bitter in any way.

For the last few months I've been looking at jobs, and to be honest a lot of positions seem to be wanting qualifications up the wazoo and for relatively small $$$ (paying ~$120k but wanting deep experience across a dozen advanced products). It appears to me I can make far more working for myself.

So far I've registered for GST, set up a basic invoicing/billing system (cloud based) and have started doing my invoices/expenditures already. I am looking at insurance options for liability etc (my field is security so I think it's prudent). Next step is to look at income tax/ACC stuff.

To the experienced contractors is there anything you'd recommend I get myself across that I may have missed?

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#2004890 30-Apr-2018 10:02

Good luck! I've hardly ever had a salaried job and am within sight of retirement!

Not quite sure how it works now but when I started there was no provisional tax to pay for over a year as no prior year tax to base it on, so at the start of the second FY I had a *huge* tax bill of the prior year's tax plus the current year's first provisional. So my main tip is to set aside 25% minimum of your revenue into a call account and don't touch it until you have tax to pay.

I see you have an accounting package already. I use Xero and find it really really good. Basically does your GST return with a press of a button.

Don't worry too much about ACC you'll just get a bill from them in due course as an outcome of your income tax return. ACC is quite a small expense.

Try not to give up your current job until you have a contract in the bag.

Get a good accountant who knows about IT contracting, or even better, specialises in it. A one man band accountant will be less expensive that a large firm.

xpd

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#2004893 30-Apr-2018 10:06

I worked for myself for a while a number of years back, on paper looked brilliant, had a contract with my old employer covering x amount of hours a week, and figured I only had to work another 10hrs to make things comfortable.

Getting those extra 10 hours regularly though was tough. And then the previous employer lost some large clients and he had to shut down. So lost the hours there as well....

If you can gain enough clients, its all good, but otherwise, expect it to be a tough going.

Especially with uni students finishing computing papers but have no practical experience, selling themselves for $10 an hour.... :( On the plus side, if you can prove yourself, you can do the cleanup of the uni students stuff ups and gain that way ;)

Good luck!

Gavin / xpd / FastRaccoon / Geek of Coastguard New Zealand

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dfnt

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#2004898 30-Apr-2018 10:10

You've pretty much covered most things.

Some recruiters, if you go through them, cover liability so that negates the need to get it yourself.

I've been contracting for about 6 years, I'm at the point of returning to full time employment if possible to make it easier for us to buy a house. We also have a 10 month old so stable income is becoming a priority at this stage.

Once that all settles down I'll return to contracting.

I don't know about other contractors but the last year has been really quiet in terms of IT contracting work in Wellington.

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#2004910 30-Apr-2018 10:23

Building client base and getting good word-of-mouth is both the hardest and most important thing IME.

Bear in mind you might get some awesome initial leads, but even SMEs can take a while to make a decision or secure budget for your services and larger corporates can string you along on a promise for a looong time before you eventually get boots on the ground.

Reputation is critical and that can sometimes mean taking the behavior of bad employers on the chin in the early days - New Zealand is a small market and whilst after a problematic contract you might be technically "in the right", a few (even unwarranted) negative words floated into to the ether can have a big negative impact on future engagement opportunities.

Also if you are targeting SME, be well prepared to justify your costs and the real value you bring to them again and again and be very clear up front about your fees and time. Whilst we all know our market value, it will still come as a shock to many employers in the SME space, as they often don't understand what experience and expertise in the IT/IS field should be costing them or the benefit it brings them.

kryptonjohn

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#2004911 30-Apr-2018 10:24

Good points @nas.

If you are a countractor then getting a mortgage is a bit more difficult especially if you have been in business for < 3 years as you have to show the bank you have a steady income.

The other bugger is that when you take a 2 week holiday you get zero income followed by a big credit card bill!

So I think for contracting to break even you need to factor in only billing say, 35 weeks a year and therefore your horly rate needs to reflect this when comparing to a salary.

networkn

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#2004926 30-Apr-2018 10:57

Unless you are incredibly vigilant and disciplined, I would recommend paying tax your first year, or at least putting it into another account at the time. Lots of small businesses end up in trouble because they underestimate their tax requirements.

Also learn about Cashflow vs Profit.

antoniosk

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#2004956 30-Apr-2018 11:02

vulcannz:

I am dipping my toe into the Contract/Consulting market for the first time. Last year work decided to retrench back to Aussie and I was made redundant. I got a really nice payout so I've had some nice 'fishing' time and am not bitter in any way.

For the last few months I've been looking at jobs, and to be honest a lot of positions seem to be wanting qualifications up the wazoo and for relatively small $$$ (paying ~$120k but wanting deep experience across a dozen advanced products). It appears to me I can make far more working for myself.

So far I've registered for GST, set up a basic invoicing/billing system (cloud based) and have started doing my invoices/expenditures already. I am looking at insurance options for liability etc (my field is security so I think it's prudent). Next step is to look at income tax/ACC stuff.

To the experienced contractors is there anything you'd recommend I get myself across that I may have missed?

Try GSI Direct for contractor insurance.

Re IRD, it depends how you're going to pay yourself. Have a look at this - http://www.ird.govt.nz/contractors/about/understanding-schedular-payments-contractors.html - as it will impact your pay.... it's basically withholding tax at source. If you go through an agency like AbsoluteIT, they are required to collect it and pay IR direct. If you were going to take drawings, shareholder dividends or fees, you fall into this category. AIM is also an updated method for Prov Tax, but it may be overkill if youre just getting started.

Re ACC, you should investigate the CoverPlus Extra product - https://www.acc.co.nz/for-business/choosing-the-best-cover-option/types-of-cover-for-self-employed/#how-coverplus-extra-works - it's better than the standard product people get and works out nearly identical to the standard fees you will pay. I would also make sure you update your declarations for industry type at ACC as soon as, because the default is set at manufacturing and can result in a hefty invoice, which comes as a real shock and takes a wee bit of time to correct (it's easy but surprising)

Check the market for rates too, AKLD/WLG are busy.... don't underprice yourself.

________

Antoniosk

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kryptonjohn

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#2004957 30-Apr-2018 11:03

Yep I had to sell my car to pay my very first terminal tax bill after having no provisional tax payments in first year!

That was a lesson learned for a young fella who was pissing away his income on beer, cars and failed attempts at chasing girls!

networkn

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#2004961 30-Apr-2018 11:09

kryptonjohn:

Yep I had to sell my car to pay my very first terminal tax bill after having no provisional tax payments in first year!

That was a lesson learned for a young fella who was pissing away his income on beer, cars and failed attempts at chasing girls!

I was smart enough to hire an accountant before I actually went into business. The first year we made a lot of money, more than I'd ever seen working as a technician before, he called me up and said. "you don't have to legally, but if you work with me, you will pay tax in year one" and asked me to write the biggest cheque I'd ever written. I am eternally grateful for that gruff and strict man to this day.

It's one of the many reasons businesses fail in their first 2 years.

Also, I'd say, working for yourself can seem romantic. People don't tend to talk about the stress, long hours and all the things you have to do and take care of that your prior employer likely shielded you from. Compliance cost in terms of time and money is huge in NZ for Small Business.

Don't forget to take care of your ACC.

Delphinus

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#2004971 30-Apr-2018 11:15

I would highly recommend getting ACC CoverPlus Extra. Makes life much simpler if you ever need to claim. Basically you just choose your level of ACC insurance.

https://hnry.co.nz/ might be worth looking at to ease the tax complexity too.

amanzi

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#2004972 30-Apr-2018 11:15

As others have mentioned, get your tax situation sorted out early on by engaging with a good accountant and by getting in touch with the IRD. The IRD is actually really easy to deal with and they offer lots of business advice if you ask for it. You're better off engaging with them early and often rather than trying to avoid contact with them.

kryptonjohn

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#2004994 30-Apr-2018 11:28

Delphinus:

https://hnry.co.nz/ might be worth looking at to ease the tax complexity too.

Interesting. I pay about double that to my accountant. But I do get really good, *personalised* service from someone who knows me and my peculiar business habits and paperwork aversion.

Delphinus

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#2005001 30-Apr-2018 11:32

kryptonjohn:

Interesting. I pay about double that to my accountant. But I do get really good, *personalised* service from someone who knows me and my peculiar business habits and paperwork aversion.

Agreed, I don't use it either, I like my accountant. But in hindsight I wish I used it in my first few years of business. Might be good for the OP who is starting out, one less thing to worry about. Then switch to doing it yourself in year 3-4 when you understand the system a bit more.

kryptonjohn

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#2005003 30-Apr-2018 11:37

Delphinus:

kryptonjohn:

Interesting. I pay about double that to my accountant. But I do get really good, *personalised* service from someone who knows me and my peculiar business habits and paperwork aversion.

Agreed, I don't use it either, I like my accountant. But in hindsight I wish I used it in my first few years of business. Might be good for the OP who is starting out, one less thing to worry about. Then switch to doing it yourself in year 3-4 when you understand the system a bit more.

Totally agree it looks perfect for starting out.

My accountant actually does quite a bit more than just the company IR4 - my personal tax return, my wife's (employed by me) tax return, the family trust's return etc.

dfnt

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#2005008 30-Apr-2018 11:51

I got an accountant before I started contracting as well, so I didn't have the shock of terminal and provisional tax

We have no problem getting a pre approval given the length of time I've been contracting, but I don't want to get into a situation where I can't pickup another contract whilst having a mortgage.

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