DISCLAIMER: EVERYTHING HERE IS NOT TAX OR LEGAL ADVICE. TALK TO PROFESSIONALS IN YOUR AREA FOR INFO AS IT PERTAINS TO YOU.
Earlier this year some events happened and, at the time, some I was hoping would happen soon that I decided it would be best if I started my own corporation. I was approached by a gentleman who found me through github and liked some of my work there and the other (which has yet to happen) was a local company looking to expand their software product.
So I contacted a lawyer friend of mine to ask about which type of corporation I should do. With the research I had already done, I had figured I'd best be served by registering a Limited Liability Company. It would allow me a lot of flexibility for taxes in that I could basically treat the company's money as my own in the eyes of the IRS. This type of corporation is sometimes called Single Member LLC (SMLLC). He thought so too and agreed to get the Articles of Incorporation I needed to file with the state (Minnesota). Basically the documents outline things like voting and who or what can make decisions. In my case, it seems pretty boiler plate language. So I forked over 250 something dollars (~$150 for the registration, $100 for his time, and lunch on me), I had my license by the end of the day.
Now that I had these papers in hand I went to the bank to open an account. I had planned on using my own Social Security Number to open accounts and for taxes (in my case SMLLC's can do this). However the banker I met with advised that it would be better to have an EIN (something like a SSN for corporations). By doing so, he said that it would make for a better case should there be financial troubles, my family's assets wouldn't be in as much risk. I had considered getting one for these reasons, but since it's the IRS, I figured it would be weeks before I had the number and I wanted to get the ball rolling. These were dispelled by my banker. He told me that you could call and the most amount of time Id probably spend on the phone would be about 20-30 minutes, most of which would be waiting to talk with someone.
So I went to the IRS site and looked for phone numbers and what information I'd need to an EIN. It turns out, you can do so online. Within minutes I had an EIN. So I called up my banker and arranged another meeting to open an account.
Meanwhile I needed to find a bill rate. I know, probably an elephant in the room, money usually is. To get me started I did a google search which unfortunately, really only turned up "how to calculate your bill rate", not what others actually are charging. So I started working it out.
First I took some information from a gig I interviewed for several years ago. The target minimum billable time percentage I was expected to do was 60%. Roughly this is 1200 hours a year or almost 5 hours a day. Since this is my own business, I'm figuring that I'll need to spend more time on customer relations than I would otherwise, I put this down to 50%.
Using the percentage, my current take home as a base and some rough percentage to figure taxes and benefits (30%) I worked out that just to pay myself the same take home wage, I'd need to charge ~$65/hr. This doesn't take into account general monthly expenses like internet and hosting, conferences, hardware, or other things.
The things I know about and could find costs for:
- Build and Node.js conferences spec'd out: 15K (priced at bringing wife & kids along and w/o per diem)
- General office expenses: ~7.5K/yr. (cell phone, internet, hosting, email, MS licensing, etc.)
- Hardware: 12K/3yr or 4k/yr. (laptop, 2xNAS for redundant storage, the like, all on 3 year replacement cycles)
- Savings/slack: roughly 20% of revenue
This is an extra 24K a year. While things like conferences are nice, they aren't utterly necessary so they could be chopped. But I still want to go and so I still am going to budget for it. This stuff minus the savings brings us to about $90 an hour.
Calculating savings gets a little tricky. Besides that by adding 20% of $90 doesn't doesn't equal 20% of $108, I'm pretty sure savings are not considered an expense that can be written off come tax time. This I figure would mean about $125-130k total would be necessary.
So, taking the 1000 hours I figure I could realistically bill, that means I have to charge $125-130/hr to satisfy the budget I've set...and I've not really given myself a raise. Though I suppose one could argue about the conferences and taking the family along could be a raise of sorts.
While I've spoken to a some folk about this, half don't have an issue and the other think the amount is crazy (not in a I'm overestimating skill or experience, as far as I call tell).
TL;DR: I'm looking at charging $140/hr. Am I off my rocker?
This post has been edited by snoj: 25 July 2013 - 08:55 AM