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Episode 17: Managing Finances as an Independent Consultant

Deb Zahn: I want to welcome you to Episode 17 of the Craft of Consulting podcast. I have an excellent guest today, Diana Crabtree-Green. She is a CPA, and she specializes in individual tax and personal finance. And she's going to talk about those two things as they relate to being a consultant and in particular being an independent consultant.

So she goes over a lot of great stuff, but one of the most helpful is some of the dos and don'ts when it comes to the IRS. One so that you don't get in trouble, and two so that you maximize the amount of money that you keep in your pocket. She also goes over a really interesting option for new consultants to consider that would give you the goodies of being employed but at the same time give you the time and flexibility to build your business over time and then transition. It's something she did, and I think it's really worth hearing about.

So a lot of great stuff. Let's get started.

So I want to welcome my guest today, Diana Crabtree-Green is with me. Diana, thank you so much for joining me.

Diana Crabtree: Thank you, Deb. I'm honored to be doing this with you.

Deb Zahn: Oh, great. Tell my listeners a little bit about what you do.

Diana Crabtree: Sure. I'm a CPA, and I do a lot of different types of work, all of which is consulting. First and foremost, I specialize in individual tax and personal finance. I also do consulting work for a few companies, including a non-profit. In all of these arrangements, I'm an independent contractor where I come in and do tasks as needed such as a tax return or a project.

All of this is to say that I'm not on anybody's payroll. I am self-employed, which is what I'm here to discuss today with you.

Deb Zahn: Oh, that's great. So I know on this podcast I've talked with several of my past guests about what motivated them to become consultants, but there's sort of another piece of the motivation, which is what motivates you to either be an employee of let's say a consulting firm or to be self-employed as an independent consultant.

So I know that in your line of business, you work with a lot of self-employed folks including consultants. So what have you heard about them or even experienced yourself that motivated you to be self-employed?

Diana Crabtree: That's a great question, and the motivations are all over the board. It really kind of depends on the person. For me, the motivation was probably a little different, and maybe we'll get back to me in a moment. I think most people decide to become self-employed because they want autonomy both in their life and also in their working relationships. They want to be able to choose who they work with, the hours that they work, even where they work. And that's an important consideration for people, but there are a whole lot of other things that need to be considered as well which we can get into in a moment.

Now for me, when I started my self-employment tract, it was actually to boost my retirement savings. A lesser known fact is that you can contribute up to $56,000 into a retirement account if you are self-employed versus the $19,000 limit for a 401K plan if you are employed with a company. For me, I chose to pick apart and renegotiate some of my employment arrangements so that pieces of what I did were self-employed so that I could tap out those retirement savings opportunities.

Deb Zahn: Smart.

Diana Crabtree: So that was my motivation. I think it was smart, and I'll tell you what happens is if you do that for long enough, you build enough financial independence that you've got the freedom to work as you want and with who you want without money being your motivating factor. I mean, of course we want to be paid for what we do, there's value in what we do, and I think one of your other guests recently said, "The money will follow," and that's definitely true, but it's nice to be able to make decisions for the right reasons as opposed to following the dollar signs which can cause you to get into a lot of working relationships or engagements that might not really fit you.

Deb Zahn: Right and what I also like about it is it's also that long-term thinking about what you want your life to ultimately be. So I'm one of those people. I've been saving for retirement since I was 25 years old.

Diana Crabtree: Super smart.

Deb Zahn: I've done it without fail because I always thought that I don't know what my life is going to be like later, but I know that I want as much freedom as possible to make choices. So I like that thinking for consultants because one of the things that I've heard quite a bit, particularly from independent consultants, I've had to look at, is, "OK, so how do I still do that? How do I still think about my immediate financial situation plus the long-term one?" And I can imagine for a lot of consultants, and it was this way when I first started, that was a significant factor in terms of trying to decide if you want to be an employee at a consulting firm or if you want to be independent.

Now, you talked about that you were able to switch with some of the companies that you worked with. So what do, generally, companies think about what they want from a firm or a consultant. What are the types of things that they think about when they think about hiring someone?

Diana Crabtree: That's a great question because that can be on two ends of the spectrum there. Generally speaking, I think it's safe to say that companies would prefer to have individual contracting arrangements as opposed to employees. First of all, it saves them money in that they don't have to pay for your benefits, they don't have to pay for the employer portion of social security and Medicare, and also it gives them the flexibility to scale up and scale down as they need you as opposed to keeping you on the payroll which can also be expensive for them, right?

Deb Zahn: Yeah.

Diana Crabtree: So generally speaking, I think it's safe to say that companies prefer self-employed contractor relationships. However, the IRS would much prefer that a company hire somebody as an employee, and the reason there is because they get certain deposits of your federal income tax withholding throughout the year from an employment arrangement as opposed to independent contractors who can, they shouldn't necessarily, but can wait until the end of the year to file their tax returns and submit their withholding there.

Diana Crabtree: It's also a lot easier for the IRS to track down the income that you've been paid through a W2 versus tracking down your income through a 1099 which some companies are better than others at actually issuing those 1099s.

Deb Zahn: That's right, that's right.

Diana Crabtree: So all of that to say that the IRS, in recent years especially, has really come down on companies and large companies to force them to keep employment relationships, as opposed to these independent contractor relationships. So companies find themselves walking a bit of a tight wire trying to keep the IRS happy but also trying to balance their desire to bring on contractors as opposed to employees.

So in my experience, the larger companies they will try to comply with the IRS because they are under the scrutiny of the IRS much more so than a smaller company who can do some of these one off relationships and probably go undetected.

Deb Zahn: Right, and if you're a consultant you have to consider those things because if you are independent and you're a contractor...So I'm a subcontractor with the consulting firm that I used to work with, and we have to be extraordinarily careful to not have me in any way look like an employee because the IRS will reign hell upon us if I'm hired as a subcontractor...And that's true with some of my clients, but I actually really look like an employee, that's where you start to get into trouble, right?

Diana Crabtree: Absolutely. And let's be clear, it's really the company that gets into trouble much more so than the subcontractor, and the ramification there if the IRS were to come in and say, "You've got independent contractors that really should have been classified as employees," is that they will make the company pay the employer's share of the FICA and Medicare tax that they think should have been paid if in fact those had been employees.

So the risk is really more on the company, but as a worker and as a contractor, evaluating and negotiating those work situations with your clients, you need to take the company's motivations into consideration. Whether they're large enough to be under the scrutiny of the IRS or whether they're small enough and can have the flexibility to prefer to bring you in as a self-employed.

Deb Zahn: And I would imagine especially important if...a lot of consultants are after those sort of long-term consulting arrangements where you're embedded within an organization, and I know states do this quite a bit, and particularly if they can't hire folks, where you're essentially augmenting their staff.

Diana Crabtree: Yes.

Deb Zahn: And that's where you have to be really careful. It's wonderful from a cashflow perspective for a consultant, but that's where you have to be very careful so you don't get in trouble.

Diana Crabtree: Yes, and the IRS does have a lot of criteria out there for determining whether somebody fits more as an employee or an independent contractor, and it's things like, "Do you make your own schedule? Do you determine the nature of the work that you do? Are you using your own computer equipment? Do you have an office in their space or in your own space?" And there's a whole list of criteria, and it's kind of the collective evidence that allows them to favor in one way or another there.

Deb Zahn: Yeah, that's one good way to negotiate staying home in your pajamas, I guess.

Diana Crabtree: It is indeed.

Deb Zahn: So if someone professional is thinking of becoming a consultant, they essentially have three options. They can, as we talked about, work at a firm as an employee which is what I did. So I worked for a great firm for about 9 years up until a month ago, and the other option is to be independent. So then you're a self-employed consultant. So I'm one month into doing that. And then the third sort of piece which we don't have to get into as much is starting your own firm which is where you become a little bit of both.

So putting on your sort of financial and tax lens, what are the things that someone who's going to become a consultant needs to think about before they decide and sort of take a leap in any of those directions?

Diana Crabtree: You bet. I think there are three big umbrellas of consideration that need to be looked at in determining whether to become self-employed. First of all is the qualitative aspects of being self-employed which I touched on earlier, and I think for most people, again, this is what drives them to want to become self-employed is to have the autonomy to work with who you want, when you want, where you want. Flexibility of your work but the downside of that is you lose a little bit of security of your work. You don't have an employer handing you the clientele, handing you the work. You actually have to go kill your dinner. You've got to actually find your clients and work your pipeline and make it rain a bit. So that's the downside and something to consider in the qualitative category there.

Also one other thing is when you become self-employed, you generally are your own team unless of course you create your own firm, as you mentioned Deb, but generally speaking if you go out on your own and you're a one man or woman shop, you've got fewer resources available. You don't have an office full of other employees, hardware, software training, that type of thing, available to you. You have to find those things on your own.

So in summary there, the qualitative...there's some great qualitative upsides, but you need to be aware of the downsides as well and the challenges that that will present.

Deb Zahn: Yeah. I actually got asked yesterday by a client because you know, something wasn't working, and they said, "Can you ask your IT person?" And then I realized, "Wait, wait. That's me. I'm now the IT person." That's a new thing.

Diana Crabtree: Exactly my point. Now additionally, the next umbrella is the financial considerations of self-employment. One of the upsides is as soon as you jump out on your own, you can renegotiate your rate. Those negotiations are somewhat limited when you're employed. Of course, you might have an annual review, and you can talk to your boss about adjusting your pay or having a bonus, but you're selling yourself completely when you are self-employed.

So with that, you can negotiate your rate upward, which generally speaking you probably should because as I mentioned earlier, companies will save money by hiring you as an independent contractor. So that gives you the liberty to demand a higher rate, and you really probably should, and again to cover your portion which previously was the employer's portion.

When you're self-employed, you're now covering the employee and employer portion of FICA and Medicare tax. You're covering your own benefits such as healthcare, and there's a cost to that, and that should be considered in your negotiable rate.

Now, an interesting flip side to that is you can also negotiate your rate downward, and my husband for instance has recently gone to a self-employment arrangement, but he's gone in with some of the clients he was working with the company he was previously employed for, and his sales tactic with them is that he can actually charge them a much lower rate than the rate the company was charging because there was a ton of overhead baked in there, and as a result the clients really appreciate taking him in as a self-employed contractor.

Now for his sake, he's making even more, probably as much maybe more, than he was under his employment arrangement.

Deb Zahn: Yeah.

Diana Crabtree: But his previous employer had a huge overhead, and, of course, they want some profit on the deal too. So when you pile all of that on top of the hourly rate for him, it resulted in a much more expensive rate to the client while he was employed. So that's a lesser understood possibility, or financial possibility, and negotiated rate situation.

Deb Zahn: But the nice thing is you've got the flexibility and the freedom, if you're independent, to decide how you want to do that and how that matches with what the rest of your life goals are as opposed to...Now at my firm, we had set rates, and we could ask if we could discount them. And occasionally folks did that, but largely they were set. But independent, that's where you get the freedom, but then you're also on the flip side of that, as you were talking about, you also then have to think about cashflow in a way that you have not had to think about it before because you're not getting a salary.

Diana Crabtree: Definitely so. And I think that the real moral of the story, regardless of how you negotiate your rate, is that you've got to be sure you don't undervalue yourself.

Deb Zahn: Yeah.

Diana Crabtree: Imposter Syndrome is so real, especially for those of us that are far enough along in our career that we can even entertain the idea of consulting and also becoming an independent contractor. You know, we've got a lot of experience under our belt, and that is worth a whole lot more than we even give ourselves credit for sometimes. So be sure to be really, really honest with yourself about the value that you're bringing to these people, and make sure that you're compensated for it.

Deb Zahn: Yeah, and I always encourage folks to also...If you're feeling a lack of confidence, don't trust it. Don't trust that how you're feeling is an accurate reflection of either the market or your abilities. So talk to people who one, will be very honest with you and two, know you and know your value so that you can actually set a price that's not based on the hit that confidence often takes when you leave an employment situation where you had a job title and everybody knew what that meant, and now you're a consultant and what the heck does that mean? Your confidence often can take a bit of a dive. So if you're not feeling confident, don't trust it. Ask people that you can trust.

Diana Crabtree: Absolutely. It's funny, we creep along in our careers and the whole time we're making leaps and bounds that we don't even recognize. We don't even know how much we know, and until we talk to somebody and realize how much other people don't know and really need our skills and expertise, it seems commonplace to us, the information and the knowledge that we have, but it's really valuable to other people, and you do need to be able to look at that objectively.

Deb Zahn: Yeah, and for any of us who have been also on the other side before we were consultants, I mean we know when a really good consultant walked in the door, and it made our lives easier, or we were dazzled by sort of the experience and the intelligence that they brought to it, and now we have to recognize that that's the experience that we can give people.

Diana Crabtree: Absolutely. We've got dazzle. I like that.

Deb Zahn: We do indeed.

I wish that we had actually had this conversation probably about six months ago, but I know that if you decide to become self-employed, so if you're going to be an independent consultant, there is all kinds of things that you now have to do because you have to set yourself up as a legitimate business, and I just did all of that, and it took a lot of not just time and effort, but it took learning a lot. So the piece that you said about retirement and what you can do as a consultant, I had no idea that that was possible.

So you know, let's start with some of the things that...We mentioned the IRS before. So at minimum, you don't want to make choices or set something up in a way that you're going to get in trouble. You also want to set things up in a way that actually match the type of life that you're trying to have but lets start with the dreaded taxes. Because you definitely want to get that right, and the tax laws just recently changed.

So if someone's thinking of being independent, what do they need to know in order to make good decisions about how they're going to set that up as now a business?

Diana Crabtree: Taxes are probably the biggest consideration there, and, by the way, that's the third umbrella which I was getting to so you just lead into it perfectly. Your tax situation becomes a little more onerous when you become self-employed, but it's not all bad. I don't mean to paint this bad because there are benefits and also some challenges here.

Let's talk about some of the benefits first of all. When you become self-employed, you get the opportunity to start writing off some of your life expenses, which now become deductible because you're now blurring the lines between the expenses around you and how much of those are personal and how much of those are business.

So for instance, if you're working from your home on a regular basis, and that's your main office space, that now becomes deductible which is especially helpful by the way if you rent because your rent has never been deductible before whereas your home interest has been. So home office, your vehicle costs. Now every time you leave your home office to go meet a client, that's deductible. Your commute to the office before was not deductible. Your cell phone, your internet, travel expenses so long as you've got a business purpose for some amount of the travel that you're doing, you can expense a portion or maybe all of that trip.

You know, I like to put it this way: when you're self-employed...Or rather, let me say this. When you're employed, here's how your cashflows work. First you pay the government because your income taxes are withheld from your paycheck, and then you live on what's left. But when you are self-employed you first pay your expenses, then figure out what your taxable income is and pay the government. I much prefer that second arrangement.

Deb Zahn: That's got a nice ring to it.

Diana Crabtree: Right? Absolutely. Now with being self-employed, there does come about a lot of responsibilities from a tax perspective. You now have to file an income statement for your business, and that's typically a schedule C which you've never had to do before if you've never been self-employed. So that can be a bit onerous as well as if you hire anybody to do any work beneath you and you pay them $600 or more, you now have to issue 1099s to those people, and in paying your taxes the IRS generally doesn't let you wait until the end of the year to do it when you file your return, you should be making estimated tax payments throughout the year.

All of this can be a little bit onerous. I think it's completely worth it. But if you're going to become self-employed, it would behoove you to engage a tax accountant like myself or somebody else and get some help in figuring out what your estimated payments need to be and what your end of year reporting needs to be. And also get your arms around those deductions so that you're sure you don't miss anything throughout the year. You want to be keeping track of all of these expenses.

I joined Toastmasters. My annual membership fees, absolutely deductible. You better believe it. As an employee, that would not have been.

Deb Zahn: Right, right, right.

Diana Crabtree: It helps to really become educated about all of the deductions you can take, and boy they are numerous. It's amazing.

Deb Zahn: And what about the expense side? Because I know, and I do have an accountant, and I have two businesses. Now they're both LLCs. So one is my consulting business, and the other is Craft of Consulting, and I know when I went in for Craft of Consulting at the beginning it was all expense because you had to set the whole thing up.

Diana Crabtree: Yes.

Deb Zahn: And her point back to me was you have to have clearly made a sale or tried to make a sale. Now, luckily, I was able to demonstrate that I had everything up that was...I was actually in the midst of negotiating a potential sale so I was fine, but little things like that. I had no idea. I was tracking my expenses. I didn't even track everything that I should have now listening to you, but what are some of the things on the expense side that you have to be careful of?

Diana Crabtree: Home office space is a big one. OK, so if you're going to work at home, you really should dedicate a space. And it needs to be a space that is used exclusively for your work. So the dining room table doesn't work unless you never use the dining room table to actually eat or do anything else, OK? And it needs to be used regularly too. So you know, more than an hour a week. I would say maybe eight hours a week, and don't quote me on this because there actually is not firm guidance around this, but I think you can understand the intent.

Ideally, it's an office space, it's an actual closed room. It doesn't have to be, but ideally, it's a closed room. I'm speaking to you right now from my office space, and it's a bedroom that I've converted into an office, and I only ever work in here. Nothing else happens in here although there is a door. My dog does walk through here to go outside sometimes, but if you don't have a dedicated room, certainly a corner of your apartment or a space that you can reasonably measure out. So that's an important one.

Also as it relates to vehicle expenses...and understand, this is the other thing, let me say this. The IRS, when they come in to do audits, you might understand that schedule Cs are an opportunity to really fudge things. Self-employed people could absolutely try to write off their entire rent and say, "My entire house is my office." Well no, not if you're sleeping there and you're doing other things there. It's not exclusively being used.

So as a result, you need to know that as a self-employed individual, you're filing a schedule C, and the IRS likes to be critical of schedule Cs, and they should be because they are abused. That said, there's no reason to not make bonified, justifiable deductions on your schedule C, but it is a good reason to keep very good records.

So back to the vehicle. Sorry, I went on a tangent there.

Deb Zahn: That's OK.

Diana Crabtree: I took you through the park to come back around to your vehicle, and that is when you're taking a trip to go visit a client, or even a travel trip and you're taking your car, have a log in your car. When you start that vehicle, you write down your mileage. When you finish that trip and come back home, you write down your mileage. You shouldn't be...the IRS actually says, mandates, that you cannot take a vehicle deduction if you don't have a written log.

Deb Zahn: Wow. And that's of mileage, not just going on Google Maps and saying, "OK, how far was that?"

Diana Crabtree: They want the mileage, the beginning and ending mileage.

Deb Zahn: Interesting.

Diana Crabtree: Yes.

Deb Zahn: I'm glad to know that because I'm going on a trip on Monday.

Diana Crabtree: Yes. Do it. Put a notepad in your car. It takes five seconds on either end of the trip. It sounds like a big deal, but if you habituate it it's not a big deal at all.

Deb Zahn: Wonderful. Anything else with expenses that you've seen? Particularly anything that's sort of a common mistake that folks make?

Diana Crabtree: There's a long list of things that can be deductible, and some expenses that I have seen clients try to push through are things like business suits, clothing, and there's such a long list and so many opportunities, and a lot of these are gray. If you've got a big presentation you might think, "I need to buy this business suit to make this presentation," but if in fact you're buying clothing that can be used in any other circumstance, if it's the same suit that you might then wear to a wedding, as a wedding guest in a few months, that's absolutely not deductible. If it's in fact a uniform, that's deductible.

Anyway, there's so many examples. I could go on and on, but this is where it's good to have a good accountant or be ready to roll up your sleeves and do a whole lot of research to get down to the bottom of this to figure out what can be deductible.

Deb Zahn: That's great, that's great, and because most cases you're either, it sounds like, missing opportunities just because you didn't look or you didn't talk to a tax person, but the other thing is you've got to also be careful, and you don't want to do anything that becomes a red flag for the IRS because then they're going to come in and they're going to dig into everything, not just that one thing.

Diana Crabtree: Absolutely. Yes, you should not fear completing your schedule C and deducting your expenses so long as they are actually bonified expenses, and the biggest risk honestly is missing deductions. That's what I see more often than not.

Deb Zahn: Got you. So do that homework with somebody who's knowledgeable about taxes, and then if it feels like you're rolling the dice don't do it.

Diana Crabtree: And I'll tell you what, a good accountant...We answer to a higher power. We don't actually answer to our clients. We answer to our clients secondarily. Primarily, we answer to the IRS, and we really are held to a very high standard to not let questionable things come through the tax returns that we file.

Deb Zahn: That's great.

Diana Crabtree: So a good accountant isn't going to let you write off a business suit.

Deb Zahn: Yeah, and one of the things that one of my recent podcasts guests said is when he realized he was first independent, and now he has a firm, but he realized you've got to have the right people in your corner. And the accountant was one of the top people that he named. And I would say the first thing. So I have an accountant and a lawyer. Those two are worth their weight in gold.

Diana Crabtree: Absolutely. I would agree with that.

Deb Zahn: That's great. So if you had two pieces of advice for a professional who's going to become an independent consultant, so they're now going to be self-employed, what would you tell them to do?

Diana Crabtree: I would first of all suggest that they look into doing a fourth option. You mentioned three options, one being employment, one being full-on self-employed, and then number three having your own firm. I would suggest that there's actually a fourth option, and that is having both employment and self-employment. I did that, and that's how I eased into full-on self-employment, and it's a really good way to kind of carefully move in there. What it allows you to do is keep your benefits from your employer. You can keep that employer match on your 401K, you can keep your healthcare. You also keep some amount of security, job security and income security, there while allowing you to moonlight and grow your business on the other side.

And in my case, I went to part-time with my employment and then started working my tax business and also had renegotiated some of my employment. But anyway, I was doing a little bit of both, and it's a really beautiful way to do it.

I would also say that if you're married or if you have a partner that you share finances with, that's also a good opportunity to move into self-employment entirely assuming that your partner is married. Because you can take advantage of some of those benefits like healthcare and such and also have the income security that you wouldn't necessarily have if you're single and you're doing this. But if you are single and doing this, I mean I certainly was. Having both one leg in employment and one in self-employment, that is a really good alternative I think.

Deb Zahn: I like that. I like that as an idea for your...First of all, it gives you the time to build up your client base, but it also lets you, without a ton of pressure, sort of climb up the steep learning curve that you're going to have about all the things you need to do as a legitimate business. So I didn't, on a regular basis, think about disability insurance. I'd always been employed. I did a little consulting when I was still employed which actually ended up being my first client and an ongoing client once I made the full leap, but there's all this stuff that just someone else in some room, who I was very nice to when I saw them, took care of it for me, and now you have to take care of it.

Diana Crabtree: Yes.

Deb Zahn: So one, you can build up your client base so that it helps you with the cashflow perspective, but the other side is you need to learn all that, and it takes a while to set it up.

Diana Crabtree: Absolutely. Yeah. Yeah.

Deb Zahn: And then it sounds like...I'll let you give your second piece of advice, but also taking advantage then of both worlds and the retirement contribution example I thought was a great one.

Diana Crabtree: Yeah, and you know when you're self-employed and employed, when you're straddling both there, that same $56,000 limit applies. So you can continue to contribute to your 401K and put your $19,000 in there, and then the difference between that $19,000 and the $56,000, you can contribute to your SEP IRA which is a self-employed pension. That's probably the best vehicle.

But the point is, between your 401K and your self-employed retirement contributions, that's where the $56,000 limit comes in, and the employer match by the way is outside of that $56,000. So you can actually contribute more to that when you consider that your employer is kicking in a match there as well.

Deb Zahn: And if you're not one of those people like me who's been saving for retirement since they came out of the womb then...and you need to play some catch up, this is a great way to do that, but if you also are like me and like yourself and you want to maximize the opportunities to save for retirement, this is another way to do it.

Diana Crabtree: Absolutely. Yeah, it's a very good way to do it. And again, it was my motivating factor for becoming self-employed, and it allows me the freedom...I mean, I'll tell you what. I work full-time during the two months of tax season, and the rest of the year I work part-time and completely on my own schedule, and I can attribute that to the fact that I maxed out my 401K savings as a self-employed person for more than a decade, and that...And I won't say max out $56,000, but I did as much as I could. Understand, that $56,000 is limited to 20% of your self-employment earnings. So it's the lesser of, but nonetheless if you're making a killing you can put a full $56,000 away.

Deb Zahn: Yeah. So the two months full-time and the rest part-time seems like you've cracked some code that I think is actually helpful to talk about which I do want to ask you about that because how did you make that happen for yourself?

Diana Crabtree: Well, again, that was my biggest motivating factor for moving over to self-employment was that I saw the higher retirement savings contributions that were available to me. So I just doggedly plugged away at it, and we could talk about frugality, and I haven't necessarily been frugal. I've made some dumb decisions. I definitely had a luxury vehicle or two in my time, but I was making good money, and I could afford it, and I'm no worse for the wear now. I don't necessarily endorse that, but...

Deb Zahn: So let me ask, because I think this relates to what you're talking about which I know a really exciting secret which is that you're going to launch something brand new very soon that relates to how people think about their money and make choices about it, and it sounds like it's going to help a lot of people including me. I'm going to be the first to sign up. So you want to talk about what that is?

Diana Crabtree: Oh, do I ever want to talk about this. This is my baby that I'm incubating. It is called Buck the Budget, and I plan for this thing to be incredibly disruptive. This is a personal finance concept which turns conventional advice on its head.

The trending advice, and the traditional advice, is to create a budget and to track your expenditures. To which I say buck that. Budgets don't work, and no one wants to track their purchases. Buck the Budget, this will be a simpler and more effective way for people to manage their finances and look for that this fall. It will be out on

Deb Zahn: That's fantastic. And for consultants who, even if you're working at a firm, but definitely if you're independent, understanding your finances and making choices about it is absolutely critical. I am one month into being independent, and I'm realizing I have to make a whole bunch of different decisions that I didn't have to make before. So this sounds like this is going to be great because...I kind of don't like budgets the same way I don't like diets.

Diana Crabtree: They work as well as diets do, which is to say they do not.

Deb Zahn: That's great. I love that. Well, I'm excited for that to come out. So tell me, what is it that...So you have most of the year where you're part time. So it sounds like right there you've figured out a way to have life balance, but as you know I ask all of my guests about life balance because I think it is so essential that everybody think about it and make choices to create the life they want.

So what is it that you do and are able to do to bring that balance to your life?

Diana Crabtree: I love that you asked this question, Deb, because I feel like this question applies to everybody, and it especially applies to consultants, and then even more so it applies to self-employed individuals who have so much autonomy but then have so much falling on their shoulders.

So with that, I would say I've got a few rules that I follow here, and first of all I have a separate office space. I come into this office to work. I try to avoid working from the dining room table, from the couch. I want to keep my personal space separate from my business space so that I can shut the door on my office at the end of my day or my two hour work period or whatnot and be done and not feel like it's nagging at me to come back and address it.

Deb Zahn: Right, and that's almost like a ritual too that I know some people do. I do it because I have a distinct office, which is tax deductible, but that ritual of walking out the door, shutting the door, sort of punctuates for you, "OK, now this is not work time."

Diana Crabtree: Yes. And I know people that even go out the front door and come back in the front door to actually ritualize the start and end of their work day. I don't necessarily have to do that, but I'm not exactly in my pajamas right now either. So you know. That's the first thing is having a separate office space, and yes established rituals around that. That's important for me.

The second thing, there's a great book called Deep Work and it's written by Cal Newport. He talks about scheduling work times and windows while also eliminating distractions, and the idea there is to really hone in and focus on your work, and boy I'll tell you as a society with so many distractions right now, we as a whole, we've lost the ability to focus. His book really gives some great tips and advice on how to really, really get in and focus, and focus is especially important when you're an independent contractor, when you're self-employed, because your time is yours.

Deb Zahn: That's right.

Diana Crabtree: You're not punching a clock trying to fill the work day checking Facebook, checking Instagram, trying to make it look like you're busy so you can get your 40 hours in during the week. Ain't nobody got time for that when you're self-employed. You want to get the work done so that you can get on with your life and get other things done.

As a result, deep work and real focus is important, and the one tip I took away from him is scheduling out time for projects. So I'll take my day, and I personally like to work in the morning because I like to get it done when I'm fresh and bright and lucid. Which I lose later in the day, let's be honest. But also, to get it done and to allow myself the treat of my free time in the afternoon.

So I'll schedule out, "OK, I've got this model that I've got to work on." So from 10:00-12:00 that's what I'm doing. The office door shuts. I might turn the ringer off on my phone. I will definitely ignore email, and I will dive in. I will do a deep dive and make my time very focused and very efficient.

Deb Zahn: Yeah, I have this, I mentioned this on another podcast. I have sort of a similar system which is to...included in that is to batch things. So I will...because if I have to go on and off of something, forget about it. I'm wasting a bunch of time because my brain has to adjust. So yeah, I dedicate that time, and I found that to be tremendously helpful, and if I stray from it, forget about it. I'm wasting time, and that time doesn't come from the work from my clients because that has to get done. It comes from my garden time, it comes from my family time, it comes from the other things I like to do.

Diana Crabtree: Absolutely. Yeah, I hear you loud and clear.

Deb Zahn: That's great.

Diana Crabtree: And you know, the other thing that's really important for me, and again important for everybody but especially when you become self-employed and you're managing all aspects yourself, is being incredibly organized.

Deb Zahn: Yeah.

Diana Crabtree: For me, that means have a very strict email protocol. I mean, I use my inbox as a loading dock, and I've got a system for what I do with every single email, and nothing goes missed. Very, very little ever goes missed with my email because I've got a great system in place. You know, utilizing task lists, super important. Developing tools for yourself to become more efficient, these things are all incredibly important. Scheduling your client, scheduling your client times. You know, kind of juggling everybody and placing them in a time slot that makes sense for you and also them and really honoring the importance of spacing that out. All of these things are really important. Organization is critical.

Deb Zahn: That's great. What I like about that is often I think when people hear...A lot of this falls under the umbrella of productivity, and I know when I used to hear productivity I thought, "Oh great, that's another thing I have to do now," as opposed to, "No, this is a gift for you to make choices so that you can have the time that you want to have in your life." The email system, I was brand new to that, and I I turned my alerts off because I'm like a squirrel, anytime I would see an alert, and what would happen is because I know I have really horrible short term memory. Anybody who's ever worked with me could tell you. I actually had an assistant that used to call me Etch-a-Sketch because she said if I moved my head, it would be gone. That's a legit thing to say about me.

So I used to answer all of my emails right away because I was afraid I would forget about them, and so now I do what you're talking about which is I used it as sort of a loading dock, and I just move it over to my schedule so that I have a discreet time in a block that I answer emails, and it's going to go into that block.

Diana Crabtree: You're preaching to the choir on this one, and it's funny because I'll look over somebody's shoulder once in a while, a friend, and I'll see 1,628 messages in their inbox, and my mind is blown. My head explodes. I just have no idea how people manage it that way, and somewhere out there somebody's managing it beautifully that way, I just don't understand how.

Deb Zahn: That's right. But I love that. I love that way of talking about balancing your life is get the tools that actually automate it or make it easier for you.

Diana Crabtree: Yes. Yes. Or develop the tools. I mean, I've got a spreadsheet that I create for my tax clients which allows me to duplicate the return in Excel, and it allows me to double check my work because nobody else is here checking my work, right?

Diana Crabtree: And it also allows me to make an expectation for what that tax return looks like, and this is something I just kind of created, and I used it for every single client, and it is part of my process, and I'll tell you what. I couldn't complete tax returns without this tool that I've created.

Deb Zahn: That's wonderful. I love that. So any last words of advice for folks that are thinking of being consultants and thinking of being self-employed?

Diana Crabtree: Absolutely. The last one, I've heard a lot of your other guests talk about managing client expectations. So of course I wouldn't want to fail to mention it, but I also don't want to go too far into it because I know a lot of your clients have talked about it. But another rule that I abide by is the 80/20 rule, and if you're not familiar with this it's 80% of fill in the blank, your client revenue, your life satisfaction, you best relationships. 80% come from 20% of the group, right?

So as a result, that is an opportunity to constantly evaluate who you're working with, the processes you're using, the relationships around you, the way you spend your work time, your free time. It's just a very important metric to use and to kind of keep in mind, and as a self-employed person you have the liberty to eliminate the people who are, the clients not the people, but the client relationships that are not feeding that 80% for you.

I know I certainly, I have fired tax clients for sure. Some of them that are just far too difficult, not very cooperative, or frankly a little too risky. They're trying to push deductions through that they really shouldn't, and I have the liberty to say, "You know what? This really isn't serving my bigger picture of what I'm doing here, and they're really not in the 80% value category."

Deb Zahn: Yeah. And if you're independent, you have more freedom to make that choice. Now I worked at a great firm where they gave us a lot of autonomy and a lot of authority, and so there was room to be able to do that, but as an independent you absolutely can. I remember at one point having...I think I had 18 clients, and I thought, "Well that's pretty cool." Well no, no it actually wasn't. It was nonstop work. I had no life. Because I refused to do less for any of my clients.

But I couldn't do everything so I wasn't as responsive as I wanted to be. The quality of the work was still great, but I couldn't be as responsive, couldn't do anything. It wasn't helping me. It wasn't helping my clients, and the 80/20 rule I think is much more reasonable. So right now I have a few big clients. I have a group of clients that I never say no to because I love and adore them, and I want to help them do whatever it is they want to do, and then I occasionally take on new clients if I sort of have a slot that opens, but otherwise I think the 80/20 rule's a great way to live by as a consultant.

Diana Crabtree: That's what I'm talking about.

Deb Zahn: Love it. Well that's wonderful. Well I've got to thank you so much. Like I said, I wish I had had this conversation six months ago when I first knew that I was going to be heading into being a self-employed consultant, but when your new product comes out, which I am dying to see, I definitely want to have you come back on, and you can tell people all about it. So it's coming out in the fall.

Diana Crabtree: Yes.

Deb Zahn: So very soon. That's wonderful because I don't want to wait too long for it. So we'll have you back on, but thank you so much for joining me today.

Diana Crabtree: Thank you, Deb. This has been great fun, and I hope it's been helpful.

Deb Zahn: Thank you so much. Bye-bye.

Diana Crabtree: Bye-bye.

Deb Zahn: I want to thank you so much for listening to Episode 17 of the Craft of Consulting podcast. I have a lot of other great guests that are going to come on and be interviewed so please hit subscribe. I don't want you to miss anything, and as always check out I've got a lot of great information and tools that are going to help you build your business as a consultant and also build the life that you want.

So thanks again for listening. I will talk with you next time. Bye-bye.

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