Going Solo - What You Need to Know to Protect Your Financial Security

Before you become a Solo-E there are several financial questions you need to consider:

1. Will you have adequate health insurance? Individual health insurance can be very expensive, and a key benefit you will give up when becoming a solo-e. For the first year you may be able to COBRA benefits, extend your benefits from your current employer at full cost. There are long term options as well: Industry associations some times offer group health insurance and health insurance can be purchased directly through a provider. This could be a major expense, be sure to have a plan before going solo.

2. Do you have an adequate cash reserve? Many small businesses fail in the first or second year because they run out of funds. Before going solo, be sure you have a large enough cash reserve to meet your needs and to fund the business if your cash flow projections are too optimistic. The size of your cash reserve will depend on monthly expenses

3. Will you lose your Life and Disability insurance? Many employers provide disability insurance and life insurance to employees. This will terminate when leaving. Investigate the possibility of getting supplemental disability insurance while still employed that is portable. Life insurance (permanent or term) should be in force prior to leaving your employer so that you will have continuous coverage.

4. Will you continue to save for your retirement? If you currently have a 401k through your employer with a company match, the match will end as well as any pension. You can, however, continue to save for your retirement in a Roth IRA if eligible and in a SEP IRA or another small business owner -retirement savings plan with higher contribution limits than IRAs. You may also be able to rollover your current 401k or retirement savings into a self directed IRA.

5. Do you know the costs of self -employment? In addition the costs of insurance you will have higher taxes. Discuss self -employment taxes with your tax advisor including social security tax and sales tax for your business. Nearly half of what you earn could go to taxes, keep this in mind in the pricing of your services.

A financial advisor can help you answer these question, or use other Solo-Es here on Solo-E.com to get help, but do protect your financial future.