If you are going from being an employee to becoming self-employed, it can be hard to know where to start. Never fear! We have some tips to help you get started and how to deal with self-employment during the process.
Should you be self-employed?
Before taking the plunge, you need to think about whether being self-employed is right for you. There are plenty of perks of being self-employed as you are essentially your own boss and can work far more flexibly than in any other situation. However, there are a few downsides that you need to consider.
There are a few things that you need to consider when asking yourself “is self-employment right for me?”
- Do you have any savings to set yourself up?
- Do you have a plan about how you would acquire clients or customers?
- Do you have any customers or clients already interested?
- Can you support yourself in periods of little or no income?
- Do you have the means to manage your own business?
- If you were to be self-employed and working at home, would you miss having colleagues?
- Do you have the equipment you would need? If not, do you have budget to purchase these items?
The advantages for being self-employed
Flexibility – As someone who is self-employed, you have far more control and flexibility over your working life and working hours. This enables you to maintain a healthy family life or partake in other things you are passionate about like playing music, keeping fit or doing art. No need to worry about how many days of annual leave you have left or how many sick days you have taken – you can decide when you want to work without any hassle from above.
Variety – As an employee, you are required to work on the tasks that are given to you, regardless of how boring they may be. But as someone who is self-employed, you can pick and choose your clients and jobs accordingly. For someone who works as an illustrator or in marketing, you can work on projects that really interest you whether it be fashion, sport or tech.
Be Entrepreneurial – Running your own business allows you to make decisions and be responsible for your own growth. This responsibility is empowering and finally lets you use your entrepreneurial prowess to its fullest.
Tax Efficient – Being self-employed allows you to be more tax efficient allow you to deduct certain costs relating to travel, office supplies, clothing, stock and advertising. See the full list here.
Earning Potential – You have the potential to earn a lot more money as someone who is self-employed. This is because a day rate for someone who is self-employed as a consultant or a freelancer tend to be a lot higher than salaries since the work is not considered to be long-term or provide full-time stability. This means that if you can continue to get regular work, your earnings can be significantly higher than a standard salary.
Save on the Commute – You save money and time on your commute, since you are likely to work from home. This means not having to pay petrol, drive to the station, pay for parking or the train fare. The average savings on just getting to work and back can cost the average UK worker around £3,000 per year. Also, with the average person spending around 2 hours commuting per day, you potentially pick up an extra 10 hours per week in free time or extra time spent working.
The disadvantages of being self-employed
Finding Clients – Finding initial clients can be challenging especially if you are not that established and do not have a big network. This is where networking can play a big role or putting some money aside to advertise your services on Facebook, Linkedin or in the local paper.
Slow Start – The start of your journey as someone self-employed can be slow. Whether you are trying to get some new clients or starting a new business, one cannot expect to be earning huge amounts from day one. As a result, you may have to budget for the first few months and also consider working at a discount in order to prove your value to clients and get in their good books.
Start Up Costs – If you are launching a new business, you have to budget some initial costs such as a website, business cards, insurance and advertising. Depending on how competitive your industry is, you may have to dip into your savings and wait a few months until you get a return.
No Reliance On Employer – As an employee, you always have a financial cushion that you will continue to get paid if take holiday leave or possibly if you are unwell. But as someone self-employed, the business relies on you to generate revenue so your income may fall if you have to take time off. In addition, for anything that goes wrong such as poor quality work, defective products or slander, you are fully responsible for any damages and cannot rely on the employer to protect you. Not to mention, that you now have to look after all the boring admin such as contracts, filing, invoices and more.
Access to Finance – Some short term lenders and loan companies, especially mortgage providers, sometimes struggle to offer products to those that are self-employed believing that their income is inconsistent. This could be a big issue if you are looking to move home in the near future and you may have to rely on renting.
Home Issues – For those that work from home, it can sometimes be hard to separate their home life from their working life. As someone who works from home, your family become reliant on you for deliveries, picking up the kids and making dinner – but this may conflict with your work goals. In addition, whilst you save significant amounts working from home, some can get quite isolated and lonely without the interaction of a busy office.
Setting up a limited company
If, as part of going self-employed you are setting up a limited company, there are certain things that you will need to do. These things include registering with Companies House and paying corporation tax.
You will need to:
- choose a name for your company
- issue shares
- get help from a specialist (potentially)
- get help from an accountant
- set up a company bank account
- register for VAT
- incorporate in any start-up expenses
Starting up as a sole trader
If you are going into self-employment as a sole trader, there are things to do and consider also:
- You need to tell HMRC that you are of self-employed status – this is so they know that you will be paying tax through a self-assessment and paying Class 2 and 4 National Insurance contributions. It is very easy to register, just go to the governments website and register yourself.
- Set up a business bank account.
- Establish a way to record all of your profits and evidence of any business expenses. This is sure to make your life a lot easier when you have to do your taxes.