Self employment...Advice Please!

[VK3DRB]

And what are they going to do if they find out? fire you? 
Unless you form a rival corporation that is a threat to them, they aren't going to bother suing you.
Employment contracts are just designed to:
a) Intimidate
b) Give them an out to sack you easily and legally

Once place where I worked the employment contract says "I cannot run any business privately whilst employed there." I told them it is not worth the paper it is written on. What I do in my own private time has nothing to do with them providing it is not a conflict of interest.

A previous place, a Japanese electronics company operating in Australia made you sign a contract stating they own ALL intellectual property you develop - even privately. In other words, if I wrote a best seller called Harry Pothead that earned me a fortune, they would own the rights to it.

Another place, IBM, stated a condition of employment was that you were not allowed to invest in anything that IBM was involved in. This was contained spelled out in the employee handbook book called "About Your Company". In the 80's I had to get written permission to fix video recorders on the side because they contained microprocessors (I got the permission). In 1987 I wanted to buy $1000 shares in Microsoft. If IBM found out I would be sacked. So I didn't, forever being loyal to the hand that fed me. Bad move. That $1000 would have been worth about $500K by 1998, the year when IBM confiscated $40,000 of my superannuation as they sold me and hundreds of colleagues off to another company against our will. Ironically, "About Your Company" implied you had ownership in it, when in fact they owned you.

The IBM lesson taught me a good lesson: Look after yourself first. I was so bitter from the IBM experience I vowed never to work with any large multinational again that exists for shareholder value as their number one goal. You work hard with thousands of unpaid extra hours to help put hundreds of millions of dollars into some CEO's bank account, whose job it is to find out ways to screw you. IBM =  .

[EEVblog]

Really! Is that true?

It can be, yes. When I worked for a big defense contractor we had high-falutin' lawyers come in to advise all technical staff of their personal responsibility in many areas.
Even overall product design that has been checked by the company etc. If you did something deliberate that you know was against best practice or you knew was risky etc, you can be held criminally liable if someone dies or gets injured.
Bottom line was:
a) Always use "best practice"
b) Always document your work and show that you used "best practice".

How does the company avoid responsibility. Surely the company made the product and had some say in the design and testing. Besides companies generally have more money. Lawsuits tend to follow the money.

Yes, true, but this was more about criminal liability in terms of someone being killed or injured etc.
Sure they'll sue the companies insurer for the money, but that doesn't stop criminal liability in cases of manslaughter etc.

And also, this is another thing many people are not aware of. Even having personal liability/indemnity insurance cover does not protect you in criminal cases (manslaughter etc), it only protects you financially. It won't stop you going to jail if you did something reckless that kills someone.

[EEVblog]

My employment contract says "I cannot run any business privately whilst employed there." I told them it is not worth the paper it is written on. What I do in my own private time has nothing to do with them providing it is not a conflict of interest.

But even then, what can they do? Fire you is pretty much it.

[dannyf]

we had high-falutin' lawyers come in to advise all technical staff of their personal responsibility in many areas.

In the US, those lawyers would be disbarred quickly.

[VK3DRB]

In Oz there is practically no financial benefit to it until you hit maybe $200K profit a year.
Becoming a company just adds lots of accountant expense and paperwork that wastes your time.
My accountant has employees and is still a sole trader.

$200K profit? No electronics engineers in Australia earn anywhere near that sort of money if they are an employee.  If you ran a business with $120K profit doing what you like doing, you should be happy. And you get the tax perks that come with it that employees don't get, like writing off your commuting costs as an expense item.

Plus if you are successful in building a business up, you have something to show for it on retirement. Employees in general often end up with sweet f*** all, especially those on lower incomes.

But I agree the paperwork is immense, partly thanks to endless government bureaucracy and never ending tax legislation changes. And that puts a lot of people off. And like you said it is a lot of work, and sometimes you don't get the 4 weeks leave employees get. But in many places you don't get the 4 weeks leave you are promised anyway. Fortunately we actually do get our 4 weeks per year where I work.

[VK3DRB]

My employment contract says "I cannot run any business privately whilst employed there." I told them it is not worth the paper it is written on. What I do in my own private time has nothing to do with them providing it is not a conflict of interest.

But even then, what can they do? Fire you is pretty much it.

Actually they could not fire me... that clause violates the law in this state. And they are not the type to use it as an excuse to fire someone.

However, if an employee was running a business that affected his employment work during hours, then that is a problem and it should not be tolerated. Other than that, you should be able to do whatever you want out of hours if it is within the law.

[AndyC_772]

Some companies use an IP claim as a way to ensure that any bright ideas employees actually do have during office hours are - quite rightly - owned by the company. They don't want employees to claim valuable, patentable technology as their own, on the (dishonest) grounds that they "had the idea while working for another company", 5 minutes after walking out the door at the end of the day. Where someone is employed full-time, I see their point.

What this does mean that if you want to work somewhere else doing creative things, it may be a really good idea to ensure your (previous / main) employer knows that you genuinely do invent things and create IP for other people. Crucially, they need to be made aware that they have no claim whatsoever over any IP you generate while doing so.

It could get very messy indeed if you invent something cool, make a load of money out of it, and then find an employer claiming ownership of your product based on the terms in your contract. Don't risk getting into this situation.

If they won't agree that the IP you generate outside of office hours is yours to do with as you wish, then you need to be prepared to walk away from one job or the other.

[JGE_Engineer]

Wow!

First of all, thank you, to all who commented and gave advice, there are a lot of points that I already knew in the back of my mind, but it is 100% better when several people confirm.

I have designed a website, I have business plans already written, albeit they need  updating and reviewing, I never fixed on a name but that's trivial for the paperwork and website / logo.

I guess with regards to repairs, I am frequently repairing electronic gadgets and computers for friends and family and friends of, I guess the advice I can take is not to go seeking repair work, but not turn it down if I can and it comes my way.

Suppliers, yes, I can see how that can get messy, however, due to the nature of the work I do, I am in contact with a lot of decent suppliers, but yes, you still have to be careful who you go with just in case they mention to someone else and things escalate where I don't want them to.

I have family who do book keeping and family who are sole traders and they are willing to help, I have family who are home all day willing to take delivery of goods for me, I am very lucky in these respects, I can get a fully qualified accountant to do the necessary for a bit less than the £1k advised figure.

I am under no false illusion that I will forever be able to manage both, I wouldn't want to, I would quite like to start small, and grow, rather than try and "explode" onto the scene, advertising would be difficult in any case whilst still employed.

With regards to the employer, I have a full copy of my contract, which I have gone over by myself and with several others looking for anything that will potentially stand in my way.

There is no clause in there that states an form of IP will be retained whilst being employed, the contract was not written by the HR manager but in fact by the QA manager, over the many years I have been at this company I have seen people come and go and start their own businesses in similar fields as it turns out, but not one of them has had any comeback, one employee asked about going P/T to run a business and the MD said no, either stay employed or go fully on your own, so this is one reason I don't want to tell him, as it would then put me in the spotlight.
The only clause written is that "I will not run a competing business within a 25 mile radius whilst being employed by the company", that is it.

I can see the point about everything costing 2 x what is expected (money and time wise), and I am aware that I will need some kind of liability insurance, I have had a look at this and it seems that for £150 a year you can get fairly decent cover for what I would need.

I was going for the do whatever comes my way approach, but wanted to double check as sometimes there are ways that worked better for others, so it's pro's and con's for both as each situation is different.

I read a business case study where a ltd company director was working for a company, and his own company grew so rapidly that he had to employ staff, and when he handed his notice in he already had 50 or so people working for him, crazy!

One thought that led me to the sole trader vs ltd company route question was that I don't know if it is such an issue these days, but some suppliers or customers would deal with you unless you were ltd, apart from the up front vs 30 days on account benefit for a ltd company you have now I am not sure there is much in the way of difference from that point of view.

[Corporate666]

Really! Is that true?

It can be, yes. When I worked for a big defense contractor we had high-falutin' lawyers come in to advise all technical staff of their personal responsibility in many areas.
Even overall product design that has been checked by the company etc. If you did something deliberate that you know was against best practice or you knew was risky etc, you can be held criminally liable if someone dies or gets injured.
Bottom line was:
a) Always use "best practice"
b) Always document your work and show that you used "best practice".

How does the company avoid responsibility. Surely the company made the product and had some say in the design and testing. Besides companies generally have more money. Lawsuits tend to follow the money.

Yes, true, but this was more about criminal liability in terms of someone being killed or injured etc.
Sure they'll sue the companies insurer for the money, but that doesn't stop criminal liability in cases of manslaughter etc.

And also, this is another thing many people are not aware of. Even having personal liability/indemnity insurance cover does not protect you in criminal cases (manslaughter etc), it only protects you financially. It won't stop you going to jail if you did something reckless that kills someone.

This varies by country - it makes sense to talk to a lawyer if the OP is serious about branching out on their own.  It's always surprising how much people often misunderstand liability and insurance.  Having insurance doesn't mean the OP won't get sued or that he will be protected if he's sued and loses... if he has $1mm of insurance and loses a suit for $2mm, he has to pay the other $1mm if a sole proprietor or his business must if he's incorporated. 

In terms of criminal liability, that varies by country as well.  In the USA, you are well protected by being a corporation even if you don't have liability insurance.  They can't successfully sue personally unless the corporation was run fraudulently.  For anything to be a crime, there must be "mens rea" - "a guilty mind".  And in criminal negligence, there also has to be a specific act that was "guilty".  That guilty act can be such extreme recklessness that it was foreseeable to a reasonable person that something bad could happen.  So a manager letting his high school kid design a power supply for use in medical equipment would be so reckless and likely to lead to harm that to do so would be evidence of a guilty mind and criminal liability.  But just doing something like a bad ground method on a plug-in device wouldn't rise to that level.

I'm guessing the lawyers wanted to put some fear into the engineers to help reduce the company's liability.  It's a pretty shitty thing to do - telling people they are responsible for things they aren't, but I can see why they do it. 

[Corporate666]

As far as the original question, Dannyf and the guy in Spokane pretty well hit the nail on the head.

It is *extremely* difficult to find a business/niche that produces enough revenue to satisfy the salary of a single person, let alone that of a corporation full of people.

Imagine someone earns $75,000 a year (a reasonable salary for an EE).  There is easily 25% overhead for a regular worker (costs of payroll and accounting, benefits, etc), so you need $100k in profit to be able to earn $75k in salary.  A business might be considered to be doing very well if gross profits were 50%... and if half your time is spent earning money with customers and the other half in finding business and handling administrative work - that means you need to have $200k in sales to be able to pay yourself that $75k.

$200k in sales per year is $4,000 each week - every week - for a whole year.  That's $800 per day, or $100 per hour just to take home $75k.  And if half your time is spend developing business/sales/administrative, you need to be able to bill $200/hr for time spent working.

That is a tough nut to crack... and in reality, if you're just going to get $75k/yr out of it... you're better off just going to work for someone else and having job security and a much more stable and less stressful job.  So to make it worth it, you need the potential to earn a lot more than $75k, meaning a lot more than $200k/yr or $200/hr in billable time. 

It is exceptionally hard to do that in a business like repairing stuff.  I'd say it's virtually impossible.  The only folks you see doing such work around here are the small TV repair shop type places that have been in business for 30 years and the guy is known for miles around and works out of his home with no mortgage and low expenses.  Or you get places like Geek Squad where they bill out people at $30/hr (or whatever) and pay them $20/hr and make (a little) money on the spread - then just have a TON of people doing it so they make money on the spread of hundreds instead of just a few.

As dannyf said... if you're going to do it - make SURE you have the customers lined up before you go fulltime. 

[ajb]

My employment contract says "I cannot run any business privately whilst employed there." I told them it is not worth the paper it is written on. What I do in my own private time has nothing to do with them providing it is not a conflict of interest.

But even then, what can they do? Fire you is pretty much it.

In the US at least, it's not uncommon for more savvy employers to specify liquidated damages in non-compete and non-disclosure agreements, which means they can claim that amount from you in case of breach of contract.  Without a contractually specified amount, the employer would have to prove the actual amount of money you cost them by, say, luring customers from their company to yours in order for them to make a legal claim for damages, which is extremely hard to do.  Of course claiming damages and being awarded damages are two different things, and offhand I'm not sure how enforceable liquidated damage clauses are in employment contracts.

[nctnico]

I can see the point about everything costing 2 x what is expected (money and time wise), and I am aware that I will need some kind of liability insurance, I have had a look at this and it seems that for £150 a year you can get fairly decent cover for what I would need.

I'd be carefull with spending that money. I have been looking for a real liability insurance for my electronics consulting business but I have not been able to find one which actually covers something. I have limited the risk by limiting the damages to no more than what a contract is worth. Even if you have insurance then it is wise to put such a clause in contracts or your 'terms of sale'.

[KJDS]

I had an interesting conversation a few years ago with a liability insurance broker. The were going through their standard set of questions and asked, "if the product goes wrong could it kill someone."

They declined cover when my reply was "I hope so, that's what it's designed to do."

[nctnico]

And setting up an Ltd (or equivalent) isn't going to help much either. At least in the NL they can still get to the owner in certain cases.

[mikeselectricstuff]

One thought that led me to the sole trader vs ltd company route question was that I don't know if it is such an issue these days, but some suppliers or customers would deal with you unless you were ltd, apart from the up front vs 30 days on account benefit for a ltd company you have now I am not sure there is much in the way of difference from that point of view.

Probably not a big issue, specially if you choose a company name that is sufficently vague that people assume it's more than a 1-man band.
e.g. MegaWidgets is better than Fred Bloggs Gadgets
As regards 30 day credit - Credit cards are often a viable option to achieve nearly the same thing without the hassle of applying for accounts. IME companies (e.g. PCB shops) will offer some credit after an intial pre-paid or paid on delivery order

[mikeselectricstuff]

Oh and another thing, as nobody uses cheques nowadays, unless you actively need "business" facilities, there isn't a need to get a "business" bank account in the company name, which is vary hard to find without charges nowadays - a seperate (free) personal account will often do fine.

[nctnico]

When I listed my firm the tax inspector didn't like me using a personal account. He rather had me setup a seperate account for business because it is easier to seperate private and business money streams.

[mikeselectricstuff]

When I listed my firm the tax inspector didn't like me using a personal account. He rather had me setup a seperate account for business because it is easier to seperate private and business money streams.

I didn't say use your existing personal account. That would be dumb. Open a new personal type account as opposed to a business one.

YMMV in different countries of course. The only thing I ever needed a business account for was to pay in cheques made out to the company name. Now everyone pays by bank transfer, so the customer has no idea they are paying to a non-business account. Might get messy if you need bank refs for credit applications though.

[jpb]

I don't know how relevant it is but I and two friends started and ran a small business in the UK putting our specific electronic/physics expertise into software.
We did this for about 14 years.
We didn't make a lot of money though we did eventually sell out to a larger company and made some money (about the same as I would have got if I'd lived off what I lived off and put a salary aside). But it was a lot of fun most of the time.

What I would say is, if you want to go for it then go for it - don't try and do it at the same time as being employed. But you may have to go with little or no salary whilst building the business for some time (we did this for nearly two years).

Don't think working for yourself allows you more freedom than working for others - you still have to do VAT returns, Companies House returns, Director's expense forms and your personal tax returns are more complicated.

We grew our business organically - we didn't borrow loads of money (or any money) from a bank or venture capitalists. This is safe but you're less likely to get rich quick.

The other thing we learned was be flexible - we started selling software but saturated the market in the UK very quickly (it was very specialist) and switched to doing contract research work for big companies and the government using our software instead and then we developed a pulsed-measurement instrument for semiconductor devices and it was this technology that we eventually sold on.

[EEVblog]

In Oz there is practically no financial benefit to it until you hit maybe $200K profit a year.

$200K profit? No electronics engineers in Australia earn anywhere near that sort of money if they are an employee.  If you ran a business with $120K profit doing what you like doing, you should be happy. And you get the tax perks that come with it that employees don't get, like writing off your commuting costs as an expense item.

The math isn't that hard to prove it at the basic level.
Company tax rate is a fixed 30%. Over $80K income you pay 37% tax, and over $180K it's 45%. But it's a scaled tax bracket. A decent earning employye pays about 30% or less personal tax. i.e. the same level of tax as you would as a business.
Being a Pty Ltd company does not mean you pay less tax, in fact you can pay more because it's not scaled.
There is some stuff you can do with franked dividends, but it doesn't amount to much. The bottom line is you have to be earning a LOT in order to make a Pty Ltd a tax advantageous system.

And no, you cannot claim your travel expenses to and from work just because you are a Pty Ltd. Once again, it's not a magic carpet tax ride.

Plus if you are successful in building a business up, you have something to show for it on retirement.

Indeed. If it's a company you can sell.

But in many places you don't get the 4 weeks leave you are promised anyway.

Then report them, that's illegal for full time employees.

[Yago]

To reiterate what has been said about doing repairs.
Really think about this more.

It is one thing to repair for friends and people you know, outside of that is a nightmare IMHE.
Before you know it, you soon end up with the mindset of Dr House, everyone lies and everyone is out to rip you off.
Soon sucks the humanity out of you, and that is IF they don't somehow get the upper hand in an act of fiction against you and take monies and your reputation.
IE claims made a computer repair shop "the unit was ok when I brought it in" (this was said of a laptop smashed into small pieces and carried around in a paper bag, (not me accepted the job btw).

Yes a hardened cynic, but I would rather not put myself into the hands of the UK legal system, appears like roulette these days.

[dannyf]

To reiterate what has been said about doing repairs.

Agree wholeheartedly. It is increasingly difficult to make a case for electronics repair - it is either not repairable (designed that way), or so uneconomical to repair.

I would think about other services that are hard to be replaced, like cars, home repair, etc.

[mikeselectricstuff]

Repairs - run,  run far, run fast!
Unless maybe you find a small niche (e.g. some obscure industrial things, common faults on unsupported devices etc.) where you get to be the "go-to" person who has the knowledge & parts.

If you like and/or are good at repairing things, the only way I'd suggest it can be worthwhile is buying/dumpster-diving faulty stuff for peanuts, repairing and selling on. That way you can abandon the hopeless cases, don't have to deal with customers and can do stuff at your own pace .
 

[dannyf]

Having said that, a surprising niche for repair is cell phones.

It does take a special person to do that, however.

[IanB]

Having said that, a surprising niche for repair is cell phones.

It does take a special person to do that, however.

Also surprising are YouTube demo videos by "phone repair specialists" in which the clumsy oaf in the video clearly has no clue what they are doing...