It is important that you know the difference between hiring an independent contractor vs. an employee so that you can determine which is best for you and your business. Before reviewing the pros and cons of each, start by gaining an understanding of the differences between the two:
- Operates under a business name other than your own
- Operates as an employee under that business name and therefore limits your ability to control the contractors tools, processes, hours, etc
- Maintains a separate business checking accounts
- Represents the contractor’s business name and advertises his/her services as such
- Invoices for work completed
- Likely has more than one client
- Keeps separate business records
- Performs duties and responsibilities as dictated by you and your company
- Requires added responsibility such as training, support, health benefits, management, etc.
- Works for only one employer, your business
With a brief understanding of the differences between independent contractors and employees, you can begin to think of the benefits that each present.
- Often cheaper in terms of associated labor costs and overhead
- No health benefits are required
- Flexibility in regard to only hiring when works is demanded of your company, especially for businesses that are seasonal or experience fluctuating streams of business
- Reduction in liability
- More flexibility in regard to hiring and firing
- Stronger sense of loyalty and dedication
- Employees can perform a variety of roles
- Improved work flow, especially for businesses that experience a steady stream of business
It is important that you take the proper legal steps when hiring an employee or independent contractor and ensure that you hire them under the correct legal classification in order to avoid costly legal consequences down the road.
Critical to your success, cash flow.
Create an effective plan for positive cash flow with five basic rules. Every business owner should have an understanding of his or her cash flow situation – sales minus expenses. Positive cash flow is critical to continuing business operations.
- Forecast realistic monthly sales. It is very important that you don’t optimistically estimate sales figures. Base these numbers around historical data or worse-case scenario figures. The estimates set should be easily attainable. This is necessary to ensure the business creates enough revenue to continue to operate.
- Plan for timing of receivables. Sales made with payment terms can take weeks or months to become available cash for operations, while cash and credit card sales are immediately accessible. Depending on your business, payment terms should be set and plans should be made so that operations will not be negatively impacted by this fluctuation in timing.
- Consolidate base operating expenses. Your business will have a set of predictable monthly operating expenses, often including rent, payroll, and utilities. These should be consolidated into one operating expense to be the baseline for the amount of cash that must come in to keep the business running.
- Keep cash available for growth. Businesses often fail because they can’t afford the capital necessary to support growth when the opportunity arises. Project the expenses that will be required when an increase in sales occurs. This could include equipment or additional employees. Cash from the new sales will unlikely be available before costs are incurred for expenses, so be sure to have this on hand.
- Recognize and plan for the known unknowns. Scenarios may develop for your company when cash is needed in order to capitalize on an unusual opportunity. Create a comprehensive list of possible unknowns and their associated expenses. Every cash flow forecast should include a contingency plan with funds to cover an unexpected situation.