5 signs you are ready to become a contractor
The transition from permanent employment to contracting can be both exciting and rewarding, but it comes with its own set of challenges and uncertainties.
If you're contemplating this move from ‘perm to contract,’ it's crucial to evaluate your readiness for this entrepreneurial path, writes IT recruitment specialist Matt Collingwood, boss of VIQU IT Recruitment.
In an ideal world, you want to see at least five signs you are ready to become a contractor; and they are:
1. You’re financially stable…
One of the most vital aspects of your preparation is financial planning.
In a traditional permanent role, you can count on a steady pay cheque landing in your bank account at the end of each month.
However, as a contractor, your income is directly tied to your current or last project / assignment. This means that your financial stability can ebb and flow, depending on your project pipeline and contract lengths.
Even the most successful contractors may find themselves between assignments, and those who haven't adequately planned their finances can struggle to meet their financial commitments.
So, ensure you have a substantial financial cushion to keep the lights at home on for at least four months.
You might encounter periods where you're actively seeking new assignments, or your current project could experience delays to its start date. Additionally, clients or recruitment agencies will probably pay you on 28-day payment terms, so having savings in place can act as a financial safety net.
2. You’re confident your skills are in demand…
In the contracting world, your skills are your most valuable asset.
If you find that your expertise is in high demand and that there is a significant market for your skills, it may be a clear sign that you're ready to become a contractor.
High demand often translates into more assignments and the potential to charge higher rates, which can significantly boost your income.
To excel as a contractor, you need to think ahead (starting when you’re in permanent employment) and continuously develop your skillset.
So, identify the skills that are in demand within your industry and consider acquiring or honing them. At the same time remember; being proactive about staying relevant and adaptable is key to your success as a contractor.
One simple way to gauge the demand for your skills is to post your CV online. Pay attention to the volume of enquiries and potential roles you receive from IT recruitment specialists. This can provide you with valuable insights into the market demand for your expertise and help you decide if you're ready to make the leap into contracting.
Why not take it one step further by contacting a couple of IT recruitment specialists to get their take on your CV? Ask what rate you should expect based on your skillset/experience, and enquire how you can increase that rate through training, sector-specific exposure and the like.
3. You have a ‘purpose’…
One of the most important signs that you’re ready for contracting is to have a compelling reason or purpose for becoming a contractor. It's not just about a job change; it's a strategic move!
Successful contractors often have a strong and clear motive for the shift to working for themselves. They might want to optimise their take-home pay or escape the corporate politics that sometimes engulf permanent employees Or the move to contracting might be because you seek the freedom and flexibility to live life more on your own terms.
Usually, in our experience, if your purpose for getting into contracting is to gain more control over your time and lifestyle, it's the most likely sign that you're ready to make the jump!
4. You’re ‘in the know’…
It’s important to recognise the move to contracting very often comes with a set of responsibilities and obligations that demand careful consideration.
Significantly, you will likely establish your own limited company (a Personal Service Company). This transition and taking on of your own company means acquiring new, statutory responsibilities as a director.
So familiarising yourself with the basics of the Companies Act is paramount, as is how to compliantly run your company in the UK. Failure to abide by the rules laid down by the authorities, including HMRC, can result in legal issues and complications.
Lack of awareness regarding the legal aspects of contracting is one of the most common missteps of new contractors. We’d therefore go so far as to say that it's essential to have a working knowledge of contract law, because you'll need to be protected in your agreements with agencies and clients. Additionally, if you have a basic understanding of accountancy, like VAT and filing accounts, it’s a strong indicator that you’ll be able to operate compliantly meaning you’ll avoid penalties.
But before making the leap into contracting, it's crucial to invest time into thoroughly researching your new role and responsibilities. This should include understanding the legal requirements of contracting, as well as the specific industry norms and practices that apply to your field, niche or sector.
Adequate research will equip you with the knowledge and confidence needed to navigate the contractor landscape effectively, whereas ignorance of the legal and financial aspects of contracting can expose you to unnecessary risks.
Being aware of these obligations and meeting them diligently is a key sign of readiness. This awareness will not only protect you from potential legal troubles but also enable you to maintain a strong financial foundation.
Don’t just take my word for it! Reach out to any of your peers or current colleagues who work as contractors and ask:
How do you keep on the right side of HMRC and Companies House?
Did you make any mistakes as a new contractor?
What can I learn from you, or, put another way; what would you do differently as a newcomer to contracting if you had your time all over again?
When you contact a couple of IT recruitment specialists to understand how in demand your skillset is, likewise; ask them what issues they’ve seen first-timer contractors come up against. There are some dodgy agents out there, but a good recruiter will give you an honest outlook of the market and what to expect when starting off!
5. You’ve planned for the worst…
It’s vital that you have a clear understanding of the challenges that may lie ahead by working independently, including knowing how you’ll adapt if things don’t go your way as a contractor.
One of the signs of readiness for contracting is having realistic expectations. If you're transitioning from a permanent position to freelance contracting, you must be prepared for a change in your daily work life.
For instance, consider the case of John, an experienced AWS Architect. As a permanent employee, John was used to a short 20-minute commute to his workplace, and this convenience helped him achieve an optimal work-life balance.
When John decided to embark on a contract back in 2019, he was fully aware that the landscape would differ. He was willing to extend his daily commute to an hour, on the basis that his high-demand and premium rate would (for him) outweigh this commuting downside.
However, in mid-2020, John found himself in a situation where he had been without work for three months and had to accept an assignment that required him to live away from home for up to three days a week. Staying overnight in a different city wasn't originally in John’s plans, and such an unforeseen adjustment was not without its challenges.
For many contractors, family support and understanding are paramount. Contracting can impact your family-life, and open communication with loved ones is essential. John's experience is a prime example of how family dynamics can be affected at the turn of a contract. For example, John’s ‘decision’ to live away from home for work meant his partner had to make a significant career sacrifice by reducing her working hours, to care for their children. Family discussions and planning are vital to navigating these situations successfully. Contracting may not go your way so plan for the unexpected, and for the worse.
This might all sound a bit ‘doom and gloom’! And yes, the realities of contracting are not as glamorous as they might first appear -- believe me, as an IT recruitment specialist who has spent 26 years focused on the contract market, I know at times it can be tough for these skilled technologists who’ve gone it alone!
However, individuals who thrive on being prepared for all eventualities will likely find contracting (as a way of working) a fulfilling move to make. I’ve heard many a contractor utter the phrase “Wild horses couldn’t drag me back,” when asked about their old nine-to-five job. And that’s because contracting is unparalleled in its ability to offer work assignments which truly interest, excite and inspire, in addition to the significant financial benefits, and the freedom to live a professional life largely as you alone see fit. Just check, though, that these five signs above are all showing before you wade out into these freelance waters alone!