If you're considering a career in contracting but unsure of how to become a contractor, then the following step-by-step guide should tell you all you need to know.

Step 1 - Research your Market.

First of all don't give up your permanent job until you are sure that there is a market for your skills as a contractor. Find out if there is a demand for your skill set and where that demand is by contacting specialist contract recruitment agencies.

You'll also need to think of ways to differentiate yourself from other contractors offering the same skills, so be clear what your strengths are before you begin selling yourself to a recruitment agent or end client.

Step 2 - Quit your Permanent Job.

Most contracts will require you to be available for interview immediately or at least within the next few days and then to start normally within the following 2 weeks. Therefore you will need to quit your permanent position and start looking for contracts at the most 4 weeks before you are due to become available.

Step 3 - Search for a Contract.

To begin with you will need to create a plan of action that covers the following areas to maximise your opportunities:

• Search online job boards

• Visit contractor newsgroups and chat forums

• Personal networking

• Contact specialist contractor recruitment agencies.

• Read career publications and websites

• Check newspaper classifieds

In addition to this you will also need to create a professional looking CV, covering letter and reference page.

Writing Your CV

Your CV is essentially a marketing document attempting to sell a product - you! From the employers perspective they want to know as quickly as possible whether you are right for the position; so you need to tell them why you are perfect for it as concisely as possible.

The main points your CV needs to get across are as follows:

• You have the skills they require

• You have previous experience of using those skills

• You understand their requirements and can deliver them

The most important factor to remember is to ensure that the CV is targeted to the contracting role you are applying for. Considering that each CV is given about 20 seconds to create an impact, you don't want to be wasting any of that valuable time with irrelevant information.

Online Job Boards

The internet is full of online job boards that you can use when searching for your contract. There will be specific job boards that are relevant to your industry so do some research to make sure you find and use the best ones for your specific sector.

Recruitment Agencies

It is recommended that you select about 4-5 good recruitment agencies, with a mixture of large general agencies and a few smaller ones specialising in your field.

Speak to friends and colleagues in the industry and see which recruitment agencies they recommend. You will get an honest opinion through word of mouth.

It is vitally important to build strong relationships with one person at each agency. Make an effort to get to know them and remember to call them regularly so that you stay at the forefront of their mind. That way when a relevant position becomes available you'll be sure to get a phone call.

Working Direct

In addition to working with agencies and checking online job boards, it is advisable to monitor the websites of those specific companies that you wish to target. Jobs are often listed there that are not posted anywhere else.

Step 4 - The Interview

Ok, so you're CV and covering letter has done the job and secured you an interview - great! Here are a few tips to make sure you go into the interview well prepared.

Prior to the interview:

• Obtain as much information on the contract role and the company as you can

• Prepare for the interview as though you are selling your time and skills, and be clear on your requirements

• Make sure you understand the company's work ethos, history, market place and operations

• Think about how your experience, values and approach will fit in with the company's culture and requirements

Your interviewer will want to determine your values, attitudes, skills, and abilities. Think back and make some notes on instances in your working life where:

• you've taken initiative

• overcome challenges

• dealt with difficult situations

• identified ways of improving procedures

• created opportunities for companies you have worked for

During the Interview

First impressions really do last, so dress to fit in with the environment and always try to convey confidence in your body language. If during the interview you are asked a question that you don't understand, don't be afraid to ask the interviewer to clarify the question. Have some good questions of your own to ask, many interviewers are swayed by an interviewee's ability to think on their feet and come up with relevant questions.

Follow up after the interview

According to recruitment experts a follow up thank you letter is a must. You should write individual thank you notes or letters to each person who interviews you within 2 business days.

Step 5 - Negotiating the right rate for the contract

Before beginning negotiations you need to ensure you fully understand the role and its responsibilities.

Remember to follow these guidelines when negotiating:

• When possible avoid naming the rate that you'd expect, as this can often work against you. If you are pushed for a rate then it's always best to pitch around the known market rate for the role, as this leaves room for further negotiation.

• If you know that the recruiter is keen to hire you then they will expect you to aim higher, so they can negotiate you down to an agreed rate. You may be asked to justify the higher rate so make sure you're prepared.

Step 6 - Choose the trading structure of your business

One of the major decisions any contractor needs to make is how to structure their new business.

The three main trading options available to contractors are as follows:

Option 1 - Umbrella Company (Payroll service)

An umbrella company is essentially an invoicing vehicle for contractors who want to avoid the administration duties normally associated with contracting. Contractors who work through an umbrella service will submit timesheets and expenses (normally online) and then leave the rest up to the umbrella company. They will generate and send an invoice to the agency or client, chase payment when it's due and then upon receipt of payment will calculate your tax and N.I and transfer your net pay direct to your bank account.

Naturally, there is a fee for providing an umbrella service which can vary hugely between different companies.

Option 2 - Limited Company (or Personal Service Company)

The vast majority of contractors work through their own limited company, as this is the most tax efficient method, enabling them to keep more of their income.

By setting up a limited company you have complete control of the running of your company and its bank account. Provided your contract falls outside IR35 (i.e. you're not deemed to be an employee of the client using a limited company as a disguise) you may draw dividends from the company that are not subject to National Insurance (NI) contributions.

Option 3 - PAYE through an agency

The last and generally the least favourable option for contractors is the agency PAYE route. In short, you are employed by the agency so you pay full tax and national insurance contributions and you are either tied to working through that agency indefinitely or having to resign and join a new payroll scheme each time you change agency.

Step 7 - Signing Contracts

Once you've decided which trading structure you are going to use you will need to sign contracts with the various parties involved.

If you're using a limited company then you will need to:

• Send your new limited company details to the recruitment agency.

• Sign the agency contract for the agreed period / hourly rate as company director

If you're operating through an umbrella company then you will need to:

• Sign the umbrella company provider's contract for services (terms and conditions)

• Inform your chosen umbrella company about your agency and the contract for services

• Advise your agency on the details of your chosen umbrella company provider

The agency and Umbrella Company will then liaise with each other to sign a contract for your services, working through the umbrella company.

Step 8 - Arranging Contractor Insurance

As an independent contractor you will be providing your services as well as professional advice to clients. In the event that you make mistakes or errors while contracting for a client, they are perfectly within their rights to claim for negligence. For this reason many clients will insist that you are covered by appropriate professional indemnity insurance before they will hire you.

Professional Indemnity Insurance (PI Insurance) protects contractors against claims for negligence, loss of data or documents, unintentional breaches of intellectual property and claims for dishonesty.