When you want to be your own boss.
Before deciding whether to become self-employed, it’s a good idea to think about the implications of working for yourself. This guide will take you through the pros and cons of self-employment, the personal qualities and business skills you’ll need and how to make sure your family life doesn’t suffer.
It’s good to have definite reasons for becoming self-employed, and a clear picture of what you want to achieve. Ask yourself these questions as a starting point:
- Do you know exactly what you are going to do?
- Does it use your strongest skills?
- Can you earn enough money doing it?
- Where would you like to be in five years’ time, and will being self-employed help you get there?
There are plenty of good reasons to become self-employed but discontent with your current job, or being unemployed, may not be the best reasons.
Here are some of the potential advantages and disadvantages to help you think it through further.
Potential advantages of self-employment
- You create your own success, with the potential to earn more over time.
- More independence – you decide what you do and when you do it.
- You choose to work full or part-time and set your own hours – you could enjoy a better work/life balance.
- You could improve your quality of life and enjoy more job satisfaction by cutting out the daily commute, avoiding office politics, or being able to focus on what you enjoy most.
Potential disadvantages to self-employment
- Increased stress – the responsibility for success or failure, loss and profit, all lies with you. You won’t have paid holidays or sick pay, and you could earn less in the short term.
- You won’t have a manager to direct you, motivate you or give you moral support.
- You could feel isolated and lonely.
- You could end up working long hours and spending less time with your family.
- You’ll be responsible for your own tax affairs and pension.
It could pay to look further into the future and think about what will happen if you make a success of being self-employed:
- How do you see your business growing and developing?
- Do you plan to take on staff and become an owner-manager or continue working alone?
- Would your business outlook alter if things changed at home – having children, getting married or caring for elderly family members?
You’ll need the right personal qualities and business skills to make a success of self-employment. Try to assess your character and ask colleagues, friends and family to give you an honest view of your qualities.
Personal qualities needed for success
The main factors for success in starting a small business are:
- determination and drive
- clear objectives
- the ability to work hard
- the readiness to listen and learn
- common sense and realism
- a definite focus.
Business skills needed for success
If you’re a mechanic, musician or beautician, your business may be based on your specific skills. Whatever your line of work, you’ll need to have the right business skills too. Take a look at other businesses to see the variety of skills and knowledge you might need, such as:
- time management
- sales (selling yourself and your idea to lenders, investors, potential partners and employees, and also selling your products and services to customers).
You may have all these skills already or want to take on an employee, consultant or freelancer to provide some of them for you. You could even learn some new skills yourself.
Tax and National Insurance know how
If you become self-employed you’ll need to register with HM Revenue and Customs, either online or by calling 0300 200 3504. They’ll send you a guide to starting up in business that explains the records you’ll need to keep, how to pay your National Insurance and how they’ll calculate your tax.
You’ll be sent a self-assessment tax return to fill in every year. So you’ll need to be organised about keeping records and completing your return on time.
Protecting your family life
Working for yourself can dramatically change your lifestyle. For example, regular working hours could be a thing of the past, so make sure you’re ready.
- Talk with family and friends about how your life will change, and what it could mean for them.
- Make sure that anyone who depends on you understands that your income could fall in the short term and could be less predictable in the future.
- Be prepared for increased financial and emotional pressure on you and your family.
If you decide to work from home, here are some essentials to think about.
- Aim for a sensible work/life balance – put a limit on your work time and don’t be tempted to work long hours just because you’re always near your desk.
- Keep work and home life apart. Let your family know when you’ll be working, and allocate an area of the house to work so you can avoid distractions.
- If clients or colleagues are likely to visit make sure you dress for work and that your ‘office’ looks professional. Think about installing a separate phone line for work.
- If your home doesn’t have enough space for you to run your business, you’ll need to look at alternatives.
You will probably need to extend your home contents insurance to cover work materials and computers and to protect you and your business from financial risk:
- Tell your insurers that you’re running a business from home and check that you are covered.
- A specialised home worker’s policy will cover you for business interruption if, for example, your home was flooded.
- If you employ anyone – even part-time – you’ll need employer’s liability insurance.
- It’s advisable to do a risk assessment of any parts of your home the public might visit – you might need public liability insurance in case someone injures themselves while on your property.
- Think about taking out permanent health/accident insurance. If you’re unable to work because of an accident or serious illness, this will give you a regular income.
Here are the most important laws, rules and guidelines you need to be aware of:
- Ask your local authority whether you need planning permission to use your home for business purposes, especially if you need to make alterations.
- If you employ staff, make sure you know your employees' rights, including the National Minimum Wage (NMW) and the Working Time Directive (limiting the hours employees can work per week).
- Disability legislation: the Disability Discrimination Act covers small businesses. See www.gov.uk/reasonable-adjustments-for-disabled-workers for details.
- Check your mortgage to see if running a business is allowed, and inform your lender if needs be.