One of the most common questions I’m asked from potential contractors is “How do I get started?” When looking at the jump from the relative security and predictablity of a full time position to the unknown stress of a contractor, the first step is very often the hardest.

The two big variables for anyone starting contracting are financial stability and contacts. Financial stability determines how important your first few contracts will be, and your network of contacts will likely be the mitigating factor for how quickly you get your first couple of jobs.

Every potential freelancer will have different variables affecting his or her financial stability. A guy with a high burn rate and a familiy to take care of is going to be at the opposite end of the spectrum from a single guy living in a cheap apartment off the savings from a hit game he just worked on. The former guy will need a dependable, high paying gig before he ever thinks about turning in his walking papers, whereas the second guy can go months between contracts if necessary.

The reality is that if you have a high burn rate, dependents, and minimal savings (or savings you’re unwilling to dip into) then the transition to freelancer may not be the best course for you. You simply may not be able to weather gaps between contracts or even a missed payment. This path is fraught with danger.

That said, you still may make it if you have a good set of contacts or already have an offer on the table before you leave the safety of your existing employment. That’s the safest bet for everyone, but it’s not very practical since there are conflict of interest issues, not to mention that there’s no such thing as a sure thing — someone might say they’ll hire you immediately when you’re available, but then you find that the paperwork and waffling period lasts a month before you start getting steady work.

Another option is to leave and go back to your current employer as a contractor. Some employers are hip to this, in particular if you’re a valuable worker, but many simply won’t entertain the option because they don’t like contractors, don’t want to set a precedent, or don’t want to pay a premium for the same services. You’ll need to evaluate your current employer’s willingness before pursuing this direction, but if they’re amenable then this will greatly reduce your risk. As you continue working for your current employer then you can start branching out looking for new contracts in a more relaxed state.

Once you’re on your own and you have your first gig, always be on the lookout for your next couple of jobs. It’s very difficult to make a living if you’re working three months on then two months off as you look for more work. Even if it means working overtime during a period of overlap between contracts, that’s much better than scraping by through a dry spell.

This brings up the issue of finding new jobs, but that’s enough material for another article.

In summary: contracting isn’t easy, and there are long stretches of no work as you build up a client base. Either you need to be able to survive with no income or you need to have some dependable work from the get go. If you lack both you’re in for a rough time.

Freelancers, as a group, are paid to “do stuff”. Sometimes we’re paid by the hour, other times we’re paid by the project, but we’re almost always paid once and then forgotten about. This is what we do, this is how we operate, and this what we like…right?

The problem with this model is that we’re “earning a wage”. What this means is that when we work, we get paid, and when we don’t work…we don’t. This means that if want to take a month off or, eventually, retire, we need to squirrel away some cash every year. Sure, regular employees have to face the same things, but good ones are often eligible for stock options, royalties, and other passive revenue streams that linger long after they quit their jobs.

As a long term goal, most of us would like to build wealth instead of just earning a wage. Now that’s a curious phrase: “building wealth.” What do I mean by that?

By accruing “wealth” we create passive income streams that are the result of work done once but which provide revenue for an extended period of time. Common examples include proft sharing, stock option plans, and royalties. By participating in the creation of a product or company, you reap the rewards for far longer than your initial work period.

This is a serious dilemma for contractors, because we don’t want to be in our retirement years chasing gigs and very rarely are we offered profit sharing, equity, or royalties. So what are our options?

First, we can develop products independently on the side while working for others, which is an ideal situation. Unfortunately the two interests tend to compete, and you may find yourself lacking commitment to one or the other and short of funds to complete your own work. Musicians and artists can build stock work that they license (instead of making work-for-hire), programmers can work on software packages that they sell, and designers can…well, not quite sure what a designer can do for this to be honest.

The second option is to accept deferred long-term payment, usually in the form of stock grants or royalty payments. These are high risk vehicles, and I wouldn’t recommend them as a primary form of income, however if you’re paying your bills with other sources and have high confidence that the client will succeed then the risk reward may be favorable. I had one client ten years ago offer to pay me in stock options, but I insisted on cash ($5000 I believe) since they seemed like they were close to bankruptcy. Today those stock options would have been worth about $500K…oops.

Of course, you can hedge your bets by doing all of the above. Accept 30 hours/week of hourly work; 10 hours/week in high risk/reward projects; and then work evenings on your own projects. This would theoretically allow you to pay your bills and have some long term upside, but of course it’s easier said than done. Not everyone has the high risk/reward opportunities. Hell, not everyone has 40 hours/week of work. And not everyone has it in them to work on their own side projects.

And then there’s the tried and true: take a good chunk of your earnings and invest them in long term retirement plans, however that tends to be a low return on investment (albeit with much less risk) and takes a long time to reach a critical mass where you can relax.

No matter what, you have to think ahead and adopt an entrepreneurial bent to complement your mercenary one. Cash money up front is very important, but having checks show up after you’ve stopped sending out invoices on a regular basis is a safety blanket we will all eventually need.