Contractor Road to Riches
Start off on the contractor road to riches.
The IT Contractor Steps to Riches is the first part of a series.
Most people go contracting to make a load of money. Some do, many do not. However there are some key decisions that can be made to help you get there.
Many contractors take the decision to go contracting thinking, ‘A few years of this and I can get out of it entirely, having made my pile’.
However, very few seem to be able to achieve this. The reasons are varied, e.g.
1) Time out not between contracts soaking up excess money
2) The inevitable downturns that come along but are not planned for
3) The fact that contractors start spending more once their incomes go up
4) Poor investments, e.g. in the Stock Market, property, or, God help us, in something they know nothing about, like a wine bar
Contractor’s Limited Companies
The main problem for contractors is that most of them are building something of little value, i.e. a limited company where they are the only income generating employee, which can‘t be sold on, and which is worth only the cash balance in the company.
Unlike IT contractors, their accountants ARE actually building something of value. They are building a client base of contractors and other clients. This is a business that doesn‘t need the owner to survive and can generate income or be sold on without them.
IT Contractors On the Bench
I suppose the first thing that IT contractors must do is to ensure that they are working for as much of the time as possible. It is the time ‘on the bench‘ that sucks most of the money away.
Most IT contractors try to get the best rate possible. That may not always be wise.
I was always quite a good negotiator when contracting, and was almost always on one of the best rates at any site. However, when it came to contract renewals, and when the company weren‘t going to renew all their contractors, I was often one of the first to go.
Often they just lopped off the highest paid will nilly.
If you are on the highest rate make sure that you are also well worth it.
Being a good negotiator and an average contractor means that you can spend a lot of time off between contracts (believe me). This means that you will be stuck contracting for many, many years.
Of course, there are even those who have to sit on the bench longer than expected, spending the cash they‘ve built up in the company, and then don‘t have enough to pay the taxman at the end of the year.
Lower than Normal Contracting Rate
My brother took the opposite approach. Anywhere he went on contract he didn‘t bother negotiating much. This meant, usually, that he was on a slightly lower than the normal rate at any given site.
It didn‘t annoy him as much as it did me. He just accepted it.
However, he was constantly in work, and usually got renewed. They don‘t lop off the cheaper ones when it comes to a bean count, even if the difference is only 20 or 30 quid a week.
It always annoyed me when I got paid less than others. I also always felt that I had to extract as much money as I could form the agency and the client.
However, in the longer term, by accident or chance, my brother‘s strategy was better than mine.
Be in Contract
So, rule number one then is that the crucial thing is to be in contract, and that if you have to stay on a slightly lower rate to do that, it is well worthwhile in the end.
We will continue with further articles on the subject of The Contractor Road to Riches, looking at how contractors should invest and how they can overcome the fact that their businesses are pretty much useless as saleable commodities without them working for the companies.
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