The first thing you need before taking the leap into self-employment is a business idea.
Having an idea in place for a business is the trigger point for you to start researching exactly how you can execute your business 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 be making you lots of money.
The first benefit you'll find as a self-employed person is that you are your own boss. You can get up any time you want for work, head off for a long game of golf in the afternoons, you really can do anything you want.
You need to consider what will happen to your business as you cut these valuable hours out of your working day.
Naturally if you work more hours you should make more money, but becoming self-employed is also about working smarter as well as harder and longer.
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:
If you require a workspace for your business, whether it's running a clothing shop, selling milkshakes or making furniture you will need premises that offers you the space you need to operate the business efficiently.
Finding a commercial property can be difficult and expensive. Locations near city centres will charge higher rents compared to premises outside the city which are unlikely to attract as much foot flow.
Before you make a decision whether to ditch your day job, get some quotes for suitable workspaces to see what the costs are likely to be. You can find out more about renting your own workspace by visiting the GOV.UK website.
If you require specialist equipment for your business you'll need to factor in the cost of purchasing and repairs. If you can start buying the equipment you need in phases before you take the plunge into becoming a business owner it can make this more affordable. The last thing you want to do is start your business without everything you need.
Knowing when to buy stock for your business is another conundrum. If you are selling clothes for example you will need to place your orders an entire season before you receive the items. This means that you will need to judge the demand you will have up to 6 months before anyone even sees what you have to offer.
You will need to seek out specialist banking products to run your business. This is because corporate or business banking comes with privileges such as a personal business advisor at your chosen bank, and your income and outgoings being organised appropriately on your statements for tax purposes.
Business banking comes at a cost though so make sure to shop around for the best deal before choosing your provider.
You will need to consider the level of insurance you need as a self-employed person. Business liability insurance will cover you, your business and any staff you may take on for business related accidents.
Hiring an accountant to keep on track of your finances will come at a cost but will free you up to focus on your new business.
If you want to reduce the costs you can take up a course on bookkeeping offering the accountant help, and therefore cutting the price of the fee you end up paying.
Whichever you think you'll choose, it's worth finding out how much an accountant or the training you'll need will cost before you start your new enterprise.
Don't take on staff until you have the demand to warrant taking on extra bodies in your business, otherwise you'll be paying out more on wages than you'll receive as an income from your business. As an employer you will be responsible for paying the National Insurance for your staff as well as additional benefits, such as payments into a pension, so make sure you are prepared for the extra responsibility before hiring anyone.
Using your savings to fund your business might be the cheapest option, but if they make up your rainy day fund spending them could leave you stuck later on, the pros and cons of using your own money to fund your business include:
You can budget around your savings - take what you need and keep drawing on the funds as and when you need them.
You won't pay any interest to a lender for drawing on your own funds.
You may leave yourself short if you need to use your savings for personal reasons.
You may never get the money back from your business.
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.
When you plan to become self-employed you will create your own personalised business plan. With this ready you can apply for the following:
Your business current account can offer you an overdraft which can be used as a safety net if you need a small sum of money urgently for your business. You can compare Business Current Accounts by using our comparison table.
You can use your business credit card for your day-to-day expenses and pay off the balance at the end of your working month. This is a good way to keep your business expenses separate from you banking transactions. You can compare Business Credit Cards by using our comparison table.
This will offer the lump sum investment you need to kick start your business. Typically, you can borrow up to £25,000 with repayments up to 10 years. Most providers offer a payment holiday at the start of the loan for 6 months, this will give you time to focus on building your business before any repayments are due.
The acceptance of your business loan will be dependent on your business plan, so make sure you take your time when working out your budgeting analysis and financial forecast for the future of the business. You can compare Business Loans by using our comparison table.
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.
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 - If you run your business as a limited company you can liquidate your business. This won't affect your personal finances but will affect you seeking funds for business purposes in the future.
File for bankruptcy - You can only file for bankruptcy if you run your business as a sole-trader.
If you seek personal funds after starting a full time self-employed career you should be aware that when borrowing for personal use, whether a loan or mortgage, most lenders will require at least 1 year of audited accounts as a judgement on your income.
If the worst was to happen and you fell into personal financial trouble it's important to know how protected your business would be.
Your name will 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. You can visit the IVA website to find out more.
If you have a CCJ there is no legal implication that will affect your status as a self-employed person or business owner. You can visit the GOV.UK website for more information on CCJs.
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. To find out more visit the GOV.UK website.
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.
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.
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?
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 a 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.
If you are worried about your employment, compare income protection plans to find the best cover, so you will be protected should the worse happen.