Becoming self-employed can be a liberating experience and most people who have run their own businesses wouldn’t want to return to being an employee.
I have met many people who describe self-employment as “working for themselves” or “being their own boss” but, if they’re not already running their own business, I’m not sure that they fully realise what it entails.
People want to work for themselves for a variety of reasons, a major one being that they want the sense of achievement which comes with developing a business idea that they have been nurturing for some time and having the satisfaction of seeing it become successful. Freedom and independence to make decisions about what is done and how it’s done are the main drivers for many.
Blurring the work/life balance
There are those who want to run their own business as a way of getting a better work/life balance and ultimately that goal can be achieved, but in the early days of setting up it can be very time-consuming and, if you’re running a business from home, distinguishing between when work stops and home life resumes can be quite blurred. The fact that you are doing it for yourself, rather than someone else, helps to overcome any resentment. To have more flexibility and control over their working hours is probably one of the main factors, especially for women in their decision to become self-employed.
Unfortunately, for some, setting up their own business is the last option available for them to have a degree of financial independence and not rely on state benefits, as those made redundant in mid to later life discover.
Research your business idea
So, you are considering setting up your own business. What you now need to investigate is the nature of your enterprise. Whether you have an idea that you have been nurturing for some time and have just been waiting for the right time to strike out on your own or, if an unplanned and unexpected change in circumstances forces your hand, there are still important things to research before taking the first step.
Can you turn your hobby into a business?
Having decided on your business idea, you then should assess whether you already have the skills you will need to run the business or, if not, how you will fill your skills gap. Could you use the skills you have in your current job as the basis for your business, or do you have a hobby which you could turn into a successful business? If neither of these is an option, then you should spend time exploring other possibilities before considering whether you can or want to run the business from home or if you will need premises. If the latter, then costs of accommodation will have to be factored into your decisions about the viability of your venture.
Becoming self-employed because you think you can earn more money can be another deception. You might find that you are making more money than your take-home pay when you were employed but it’s easy to forget that you will have to pay from that money your own taxes, insurance and pension.
How much money do you need to earn?
A very early consideration before starting out in business is the proportion or level of income that it must provide you with.
Is the business going to be your main source of income or supplementary to say, a full or part-time job or pension of your own? Or maybe you have a partner who can support you until you get your fledgling business off the ground? This is significant as you will still have to cover your personal costs such as accommodation, food, travel etc.
If your venture will require resources and equipment before you can start trading, how will you fund this? If you have received a redundancy or pension lump sum, can you use some of that capital to invest in your business or would you be afraid to risk the outlay if the business is unsuccessful? Would you need to borrow money and what would the consequences of this if it takes some time before your business earns enough to repay loans, as well as support your living costs? How much risk you can take depends on your financial considerations.
Sole trader vs limited company
The status of your business is also something that you need to define early on because as soon as you start trading you will have to register with HM Revenue and Customs.
- You may decide to operate as a sole trader, which is the simplest option, where all profits from the business belong to you but, also, all responsibility for debts incurred rest with you
- If you set up in partnership with others, this means that risks, costs and profits associated with the business are shared between the partners
- Setting up a limited company, with its own legal existence, is treated as a separate entity from the personal finances of its owners but there are costs associated with setting up and ongoing administration
Other legislation that needs to be considered, to a certain extent, depends on the nature of the business but most will need to comply with the legal aspects of, at least, health and safety, equality and inclusion and data protection.
You will also have to establish the levels of insurance your business will need so that you are protected from any claim made against you and/or your business. If you are going to have employees, then you must comply with the attendant legislation that comes with being an employer.
The challenges then of starting and running your own business are that you could potentially be taking risks with your capital – and your income, which at least to begin with, may be quite variable. You must be constantly aware of your cash flow situation. If you are a sole trader, success or failure rests with you and you are responsible for all the functions of the business, such as marketing and finance, which means that you will probably be working long hours, longer than when you were employed.
Freedom and independence
The benefits which most of us running our own businesses see as far outweighing those challenges are having control of what we do and how and when we do it. Freedom and independence to promote and follow our own ideas rather than those of others cannot be underestimated and the satisfaction of being responsible for our own success is second to none.
Margaret Wood is principal consultant with VMG Associates and offers professional business and support services, especially to those in mid-later life