Unlike most business, IT contractors let too much money get through the cracks. If they filled in those cracks then they would be a lot, lot better off. Rich contractors are few and far between.
Contractors spend a lot of mental effort and time making sure that they get the best rate that they can – and so they should. However, that can sometimes be counterproductive. What‘s the point of having the best rate of all the contractors at a company if you‘re the one to get whizzed at renewal time.
Full Time Rich Contractors
No, the most crucial thing for a rich contractor is to be in work all of the time. He or she should do nothing jeopardise that. However, once that is taken on board, as the major factor in making a contractor wealthy, you can then judge whether you should try for rate rises as well.
Too many contractors ignore the fact that when their contract ends, they‘re going to damn well need another contract straight away. In fact, sometimes the pressures of work mean that they don‘t have enough time to look for a new contract for themselves.
The work seems so important at the time. Once you‘re gone from the company for a month it seems less important. In a year‘s time you will be struggling to remember exactly what you did there. In three years time you may even have forgotten the name of the Project that you worked on.
No, the most important thing for rich contractors is to have no gaps in their annual work. This is the money that falls between the cracks. It’s the reason so many contractors don‘t ever really manage to get out.
Let‘s look at someone who has three 3-month contracts during the year. At the end of each contract he takes a month to find another one and get started on it. Also, he is not fully working for the other 9 months of the year either as there is Christmas, days sick, bank holidays, summer and winter holidays, doctor and dentist visits etc.
It’s reckoned that contractors only work around 45 weeks a year even when supposedly working full-time. Let‘s say then, that during the months he is working that the contractor will have 25 days, or 5 weeks, off. That means that the contractor is working for only 34 weeks of the year in total (39 weeks for 9 months – 5 weeks). Rich contractors avoid this.
Let‘s say that the IT contractor is earning 2 grand a week. When contractors work out how much they are likely to make they tend to multiply the weekly figure by 50. That would give him 100K in this case. Well this guy is working pretty fully throughout the year, he thinks, except for a few weeks between contracts.
However, his real income is only 68K. If he had been working for 45 weeks of the year it would have been 90K. And he thought he‘d been working most of the year, except for the short breaks between contracts. And the thing about the extra 22K is that all of it, except for tax, is free money.
If someone has expenses of 45K a year, then when earning 68K a year, he doesn‘t have so much left after the tax comes out. Perhaps he might have 5K to 10K left. That‘s not going to make him rich quick after a year spent mostly working.
However, if he had that extra 22K, he might be able to keep 15K of that and would have 20K to 25K left over to use for investment purposes, which is quite a difference. So what can the contractor do to stop this leakage?
Put Yourself First
Remember at all times that the client‘s business is most important to the client, but that your business is most important to you. Therefore, don‘t let the client‘s important project get in the way of you looking for a new contract whilst you are still working for the client.
Too many contractors let the time slip away here and suddenly find that they are out of the door with no income coming in and no real prospects. They will suddenly have to put a lot of hard work into getting a contract. This is hard work that they should have done while they were still in work
2. Rich Contractors Don‘t Overcharge
I was always a very good negotiator as a contractor. I remember one boss telling my agent to give me a 6-month contract rather than the standard 3-month one that everybody else had, as he didn‘t want to go through that (my contract re-negotiation) again in 3 months time.
If I remember correctly, I got a rise of nearly 30% – taken from both the client and the agency. At most places I was usually near the top of the league of contractor pay rates. That was good! And that was also bad! So often, when they are looking to cut back on contractors, say in the 2nd phase of a project, they simply look at the most expensive ones and lop them off.
That, too often, was me!
Rich contractors don’t make that mistake.
Ad – Contractor Services
If you do need an umbrella company you could try one of the following:-
All-inclusive contractor accountancy service. Best value in the UK for a personal service, no tie in periods and an accounting package tailored to you – Aardvark Accounting.