I have been contracting part time for ages but decided to take the plunge and go full time in feb of 2006. It is an interesting switch and I thought I would share a few points about it that seem to get contractors into trouble:

1. As you are your own boss it is easy to slack off (hence me blogging / golfing this afternoon but hey... it's Friday!). I use the time sheet functionality in simply accounting that has a start and stop button to record the hours I actually work. Whenever I slack off I hit stop and when I start working I hit start again. By the end of the "work day" you will see how many actuall hours you have put in and usually have to make some time up. Granted you could say that you worked 8 hours when you actually worked 4 but time theft can be considered fraud and that could (not likeley but could) end you up in jail (but most likeley unemployed)

2. Pay yourself a set salary that is a portion of your billables. I pay myself about half what I bill which makes my personall bank account tiny and corporate account large. The reason for this is that contracting is a feast or famine business. Sometimes invoices or cheques get lost but if you start to build a corporate bankroll you will be confident that you can pay yourself every month. Also contracts run out or don't get renewed so it is nice to have some money to fund you while you look for new work as it is quite hard to get e.i. when you are self-employeed.

3. Bill more than you want to personally make. This goes hand in hand with the previous rule. Remember as a contractor you have no benifits, no gaurantees of work, and a lot more responsibility. Bill accordingly

4. Incorporation. By incorporating your company you make your company a seperate entitiy. This gives you a lot more legal protection than having a trade name (when you are a trade name you and the company are the same entitiy and hence if you get sued for whatever reason they can take everything you own personally). Being incorpoarted adds a sense of professionalism to on your cards, letterhead, etc. There are some disadvantages though. The main one is having to charge GST and do source deductions on your payroll (i.e. CPP, EI, Income tax). If you get an accountant (and I really recommend that you do) they can help you out with all of this.

5. Write-Offs. Your company needs things so why should you pay for them personally. By having a company purchase items you save yourself the personal expense and the company has a lower income so it has to pay less tax.

6. Diversify your clients. Most contractors work for one client which could lead to some issues. Technically as you are working for one company they are your employer and are therefore responsible for your income tax. I have never heard of this actually happening but it is a good idea to have a few different sources of income anyways incase one goes away.

7. If you are working day and night to make ends meet it is not worth it. Either bill more, or get the scope of the project changed. Your free time is invaluable and if it is being consumed by work and you are not being compensated for it that MUST be changed. Don't cut your own throat to survive is the adage I like.

8. Contracts. If it is not in writing it is not a deal. I have lost a lot of money by trusting people (My first boss had a good saying: there are two people I trust... me ... and... not you). Get a lawyer to look it over (it might cost a few dollars but could save you a few thousand by going to one).

Hope this helps for people contracting or thinking of contracting