The true cost of being your own boss

NEW YORK (CNNMoney.com) -- Millions of Americans are out of work despite a long, dedicated job search. And some of those job hunters are choosing to go freelance -- essentially becoming their own bosses. About one in nine American workers are self-employed, according to Bureau of Labor statistics from 2009 and the trend is rising.

In taking that first step to go out on their own, many choose to start their businesses in their own home. But "free office space," has costs -- often hidden -- and it's important to understand these costs before you decide to start out on your own.

Some of the obvious costs of working from home include:

• Longer hours. If your home is your office, you never really leave work.
• No paid vacation days.
• No paid sick days.
• Paying for your own health insurance.
• Funding your retirement plan.
• Paying the half of the Social Security tax that your employer paid for.
• Paying for office equipment, perhaps upgrading your computer, printer and smartphone.
• Buying office supplies.
• Membership in industry organizations.

"The biggest costs are personal. It's very difficult to separate your life especially if you are working from home. Every minute you are not working you could be," said Carmen Wong Ulrich, author of "The Real Cost of Living," to be published in December. "You need to make 20% more, if not more than that, to have the same comfort level you had when on a salary."

And you will have marketing expenses beyond the cost of printing business cards and setting up your website.

One of hardest choices is determining where to put your energy.

"Learn how to price yourself. Know that you have to both do the work and develop the work. Honor your energy stream but never rest on your laurels," said David Holloway, career development coach. "Over time, costs steady and drop a bit. You learn what you need to do. You may not need to belong to all the organizations you need to. But education expenses are ongoing. A freelancer by definition is an expert and you need to maintain your expertise."

You won't have an infrastructure of support personnel and you just might need someone else to fix broken technology. You will need to do your own bill collection, which can be difficult. Your utility bills might increase; certainly look into calling plans. If you are selling goods, and not services, you will need to build inventory.

"Do a constant analysis of where you're at in the short term and keeping cash flow up. Use your contacts to find out what are the new markets, demographics, segments, products," said Tim Haft, president of Punk Rope.

And once you've landed the assignment, don't take a breather. "Go to three to four coffees or lunches a week. If you aren't, you are not creating a pipeline," said Beth Temple, digital business consultant freelancer since 1998. If you don't know who you should be asking to meet you for coffee, ask your existing contacts 'who I should talk to get to know me.'

"If you make it through the first two years, you can make it full time," Temple added.

Tips on starting your own business:

• The best way to develop your own business is to do it while you still have a job.
• Build up as much as you can in cash savings.
• Live below your means -- you will have good months and bad months.
• Always get deals in writing -- contracts are better. Include a payment schedule and try to get an upfront payment to start the project.
• Remember, to maintain the same lifestyle as you had with your last salary you will need to earn 33% more.
• Get medical coverage ASAP. The national option doesn't go into effect until 2013.
• Don't go longer than six months without starting your retirement benefits.
• Hire a lawyer to look into a LLC, S-Corp or a sole proprietorship to protect your personal assets.
• Hire an accountant.
• Keep track of your customer contact with a spreadsheet.
• Use LinkedIn actively for marketing. Get past testimonials on your LinkedIn profile.

"You need to be prepared to be independent at any time; you need to take a fresh approach to each job, whether full-time or freelance," said Allison Hemming, president of the Hired Guns. "Ask yourself, what skills am I putting into my skills bank? Are there any that I am taking with me so that when I am more valuable when I leave?"

Talkback: If you've gone freelance, what unexpected costs have you encountered?