Nearly five million Britons are self-employed: should you join them and start your own business?
The advantages of going it alone
There are many great reasons to make the leap to self-employment:
- Be your own boss
- Do something you love
- Earning potential is endless
- No more commute
- No more tiresome office politics
- Work-life balance – more flexibility to work the hours you want and have time for your family, friends and hobbies
The downsides of going it alone
On the flip side, being your own boss is a real challenge:
- Less job security
- Possibly-unpredictable income
- Getting up and running takes time and effort
- No holiday or sick pay
- No employer contributions into a pension scheme
- No company car or medical insurance
So, what can you do to overcome these worries and challenges?
1. Make sure you plan
Forward planning is the key to a stress-free transition to self-employment.
“Make sure you are fully prepared before you go self-employed. It’s important to keep it in mind that many new businesses fail because of cash flow problems. If you make a detailed business plan before you set up on your own, then you’ll be able to stay on top of your finances: that’s essential if you want your new business to succeed.”
Ed Molyneux chief executive and co-founder of accounting software specialists FreeAgent
2. Keep funds in reserve
You’re going to need a cash cushion to keep you going until the money starts coming in. Keep at least three months’ income – enough to cover your mortgage and household expenses at least – in an easy-access savings account. Opening a free business bank account is another great way to track, trace and future-proof your spending.
You can use our Self Employed Tax Calculator to help you when it comes to budgeting.
3. Set up a business bank account
You’ll likely need to set up a dedicated bank account – again, compare the market to find the best business bank account for you.
“Will it be easier to keep your business and personal finances separate if you have a discrete bank account for your business? How will you keep track of everything you’re spending to get your business up and running? Make this a key part of your start-up plans.”
Emily Coltman FCA, Chief Accountant at FreeAgent
Do also bear in mind that if you are self-employed, it might be harder getting a mortgage. Here’s a useful guide from MoneySuperMarket on how to get a mortgage if you’re self-employed.
4. Make sure you’re insured
You won’t be surprised to learn that there are many different types of business insurance. However, only two are compulsory:
- Employers Liability Insurance (if you employ anyone other than yourself)
- Motor insurance (if you plan to use a car)
5. Be prepared to chase!
When it’s your livelihood at stake you’re going to want to make sure your invoices are paid on time. The FSB estimates that 37% of small businesses have run into cash flow difficulties caused by late payment.
“You should make your payment terms as short as possible, but as long as practical to ensure that you remain competitive. Bear in mind that many customers will not adhere to these terms. Make sure you make these terms clear and chase your customers for payment, regularly. Failing to do this may mean that some of your customers might start to see you as a bit of a “soft touch” and pay others, ahead of you.”
Henry Cooper MAAT, Managing Director of BirchCooper Accounting Services Limited
6. You might struggle with loneliness
One of the biggest changes, when you’re starting out, will be how little interaction you have with other people.
“Being self-employed can be quite a lonely existence so I find switching up where I work can help – go to a coffee shop, try a co-working space, do a bit of networking… just being around other people can make you feel better.”
Francesa, Send And Amend
But, on the flip side, there’s a lot to be said for working in your own peaceful environment without the constant chatter of colleagues. You can work the hours you like – perfect if you have family commitments or hobbies. And no distractions mean you’ll get more work done.
7. Can you do it gradually?
One way to approach self-employment is to make the move across slowly.
“My move to self-employment wasn’t overnight. For a few years I was working on the blog outside of my nine to five. But gradually I cut my days working PAYE: first to four and a half days, then for 18 months I was in the office just two days a week. This slow move was at times frustrating, but it meant when I finally did go all out on my own I had everything in place to not worry about where work would come from.”
Andy Webb, money expert of Be Clever With Your Cash and presenter of Shop Smart Save Money on Channel 5
8. Finding your first customers
If you’re going into business on your own, you will have to find your own customers and clients. If you’re not a natural salesperson, this can be daunting… but the truth is, you don’t need to be an extrovert to be a success.
“If you’re going to succeed you need to find some way of putting yourself and your business “out there”. The simplest tip is to give yourself a perception shift.
Instead of thinking about marketing as self-promotion, focus on how much the people you want to work with need someone like you and the products and services you have to offer. When you shift your focus on to them, it takes the pressure off you.”
Jen Smith, freelance marketer and content strategist
One of the key things you’ll need to master is how to promote your business effectively. Luckily, given the wealth of digital marketing options out there, there has never been a better time to do this – even on a shoestring budget.
Self-employment has many advantages: working for yourself is rewarding, convenient and potentially lucrative. But planning is everything: don’t decide on a whim to go it alone. You need to make sure you have enough money to live on. Ideally, if you can arrange some contracts before you take the plunge to self-employment then that is ideal. And do make sure you have savings to cover the time before the money starts coming in – as well as for periods when payments come through slowly.
For a comprehensive guide to getting your business up and running, download our how to start a business in 20 days eBook.