Is the grass always greener? How to decide if self-employment is right for you
Self-employment may seem like a dream to many of us. The ability to be your own boss and not be accountable to anyone else. However, it’s not suitable for everyone. Starting a business can be an equally exciting and stressful adventure and planning ahead is essential to achieving your goals. There are serious considerations to made about whether self-employment will be the right direction for you to take. Ask yourself the following questions before taking the plunge and you should be better paced to judge if it’s the best decision for you.
1.Are you ready to be self-employed?
The first thing you need before handing in your resignation and jumping into self-employment is a business idea.
Having an idea in place for a business should be the first step before you start researching exactly how you can execute your plan.
Making your business as efficient and streamline as possible will allow you to focus on the main principles of your business, which will hopefully mean that it becomes financially successful.
Also think carefully about whether you are mentally equipped to deal with the pressures of being self-employed. Remember not having a boss may be great, but it also means that the buck stops with you and the weight of responsibility is all on your shoulders. That can be a big burden to carry.
“It’s always good to have a backup plan”
2. Are you financially ready to become self-employed?
The financial costs of become self-employed and running your own business can vary significantly, some of the common costs associated with a new business include:
- Renting a workspace
- Accountancy fees
- Hiring staff
You need to have a realistic idea of how much all of these things will cost, plus a contingency fund, before you can establish if you’re in a position to be able to afford to become self-employed. Even smaller businesses have costs involved, so make sure you’ve done your research.
3. How are you going to fund your business?
Using your savings to fund your business might be the cheapest option, but comes with plenty of risks. The benefits are that you can budget around your savings – take what you need and keep drawing on the funds as and when you need them and you won’t be paying any interest to a lender for drawing on your own funds. However, it’s important that you’re realistic about your costs as may leave yourself short if you need to use your savings for personal reasons. There’s even the chance that you may never get the money back from your business. This can cause huge strain on your mental health and personal relationships.
If you don’t have any savings to launch your new business you’ll need to find alternative ways to get your new enterprise up and running.
Once you have created your personalised business plan you can apply for the following:
- Business current account: overdraft
- Business credit card
- Business loan
All of these have their advantages and disadvantages and you may not be accepted for any of these options, so it’s always good to have a backup plan.
4. How do you pay tax on your earnings?
When you start making money as a self-employed person you will be responsible for doing your tax returns. Failure to do this will result in late return penalties ranging from £100 up to £1,600 if not submitted within 12 months of the tax return deadline.
You can visit the HMRC website for further information on your tax obligations as a self-employed person.
5. If your business fails, will it have an effect on your personal finances?
While it’s important to remain optimistic and plan for success you also need to be aware of the things that can go wrong for your business.
If you become overwhelmed with debt while self-employed you will be able to do the following:
- Liquidate your business
- File for bankruptcy
Both of these are serious and can have life-long repercussions.
6. If your personal finances suffer, will it affect your business?
Although people often think of how their business income will affect their personal finances, many fail to look at it the other way. If the worst was to happen and you fell into personal financial trouble it’s important to know how protected your business would be.
If you had to take out an IVA your name would be placed on the insolvency register which is available online and your credit rating will be affected, but you can still trade in your business.
If you have a CCJ there is no legal implication that will affect your status as a self-employed person or business owner.
If you file for bankruptcy then the courts will liquidate your company, dismiss any employees and sell off the businesses assets as part of recouping any money you owe.
If you are already in financial trouble when you decide to go self-employed you will need to seek financial advice to see where you stand in relation to setting up business related accounts and how likely you are to be approved for any business related lending.
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7. Is the grass always greener?
It’s all too easy to get swept up with the idea of being your own boss, but before you make your final decision on whether being self-employed is the right thing for your circumstances, consider the following:
Are you current working full-time?
You’ve hopefully got job security
Guaranteed income coming in every month
Feel stuck due to lack of progression?
You feel that you could earn more on your own?
Are you current out of work?
You have an abundance of free time
You can use this time to study and gain new skills
You have a limited income
Without a working routine you can feel demotivated
No work looks bad on your C.V.
It’s important to remember that serious planning is needed to make a success out of any new business. Remember that working for yourself can mean that failure equates to no income, unlike working for an employer where you would have a financial safety net to fall onto.
Make sure you seriously consider the repercussions, good and bad, before jumping into self-employment.