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The 14 mistakes that will kill your independent development shop

Steven A. Lowe | Oct. 15, 2014
Deciding to go it alone as an independent software developer is a liberating experience. The thrill of being your own boss cannot be denied -- neither can the fact that being your own boss means building a business. It's no longer simply about the code. Everything is your responsibility, from paperwork to partnerships, and with this increasing burden come greater pitfalls that can sink your business.

Most independent software developers get their start with one main client. This can be a great way to strike out on your own, but beware attempting to maintain a business this way. When that one client has a hiccup, you'll be scrambling — or out of business.

The other downside of having one main client is that they may start thinking of you as "staff augmentation" instead of "valued business partner," with demands going up and respect going down simultaneously. Three medium clients are better than one large one. Twenty small clients may be better still, as it is highly unlikely that a majority of them will suddenly stop at once.

Think of it this way: One client is a job; multiple clients, with diverse revenue streams, comprise a business.

Indie dev mistake No. 8: Failing to account for taxes and overhead

Most ISVs are LLCs or S-Corps, both of which are "pass-through" companies in the United States. This means you have to account for and pay estimated taxes as you go, and usually even more at the end of the year; nothing is deducted for you. Even if you pay yourself a salary, your finances can still get complicated and surprising at the end of the year. A good CPA can help, but it takes consistent financial discipline to stay current.

Nothing can sink your business like inattention to taxes.

Indie dev mistake No. 9: Playing fast and loose with collections and cash flow

Most independent development shops run "lean," as in "very little cash buffer to fall back on." This can turn a minor payment issue into a layoff-inducing company crisis.

The fact is, clients don't always pay on time; this is normal, and it helps the relationship to be flexible. But if you notice a pattern — unexplained delays, administrative misplacement of invoices, waiting on someone to sign checks, and so on — the client may be having internal problems they aren't telling you about.

This may be a temporary issue, but it could last long enough to put you under water if you're not prepared for the possibility. Do your best to keep a buffer and pay close attention to collections. Understand the client's payment process, who is involved, and how long it takes; investigate immediately if the pattern starts to quaver.

Indie dev mistake No. 10: Hiring people before you have (enough) paying work for them

A chief concern when going independent is knowing when it's time to no longer go it alone. While staying lean at the expense of adding help is the norm for some, it's nearly as easy to overestimate the scope or certainty of new projects and bring on eager, even inexpensive talent to help. After all, the only way to grow is to grow, right?

 

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