In the current difficult economic climate, especially with the recent growth in working from home (WFH) culture, self-employment can seem like an attractive option. However, there are plenty of pitfalls for the unwary, and this article looks at both the benefits and challenges of going it alone …
Are you tempted by the idea of being your own boss? Do you have a solid business idea, and the drive and tenacity to succeed? If so, self-employment could be very rewarding. Bear in mind, though, that you’ll need huge dedication and hard work to build a customer base from scratch. Having said that, a record number of people have already taken the plunge into self-employment and are reaping the rewards. So, whether you have plans to be a gardener, security consultant, clerical worker or personal trainer, by approaching your target customers independently, it is possible to generate varied and interesting work – and the perks of being able to manage your own time, and not being tied to a single location, can be very appealing.
Types of business
British businesses are classified into three categories: large (250 or more employees), medium (50 to 249 employees), small (10 to 50 employees) and ‘micro’ – classified as having up to nine employees. Often grouped together, small and medium-sized enterprises (SMEs) account for an astonishing 99.9% of private-sector businesses in the UK.
Businesses often grow and change their legal status – however, in this article, we will concentrate on the aforementioned SMEs, which may fall into one of the following main categories:
limited liability partnership
Click here for useful explanations of how these types of business differ – and the advantages and disadvantages of each.
For government advice on setting up a business Click here
In addition to the business formats listed above, a franchise is a common way of starting a business these days. It is basically one person copying another’s proven business and receiving support from them in exchange for an up-front payment (the franchise fee) and ongoing fees (royalties). It is an option for those who have some money to invest and who want the independence of self-employment coupled with the support of the franchisor.
Although there is nothing unusual about starting up a business, it’s a good idea to think about gaining experience by working for someone else in a similar field before branching out on your own. If you are a newcomer to an industry you will need help, advice and a certain amount of luck to succeed. So – unless you have such a brilliant idea that any delay in launching means someone else may get there first – it is strongly recommended that you gain business experience before going it alone.
Bear in mind that almost half of all new businesses fail in their first three years, with the major reason being poor preparation and planning. So, before you get started, you will need to establish a ‘business mission’, and carry out a personal analysis or audit to see if you possess the qualities needed to make your business a success. Following on from this mission comes a business plan that may be as short as six months or may look ten years ahead. Most people consider the period up to about three to five years out, but focus on the specifics of the next 12 months or so.
Initially, it is best to keep things as simple as possible. It is important to keep business and private matters separate, and to keep proper records and be able to produce them when required.
Before you start, consider the following factors …
Think about why you want to start a business.
Operating in a field that is known to you, or at least familiar, is safer when starting up.
Setting up from scratch has the advantage of a clean start, but gives little feel for whether an idea is going to work.
Buying an existing business can be expensive (and that includes franchising).
Look around at other – successful and unsuccessful – businesses, and try out ideas on friends and family first.
It’s very important to have a clear target audience and a regular mechanism in place to communicate with them. Many people who become self-employed spend around 50% of their time trying to generate business in the first year. That’s 50% of your time unpaid! But, as you start to get regular work, the whole process becomes much easier.
Get to grips with the basics
You’ll need to work through some challenges …
Define your offer and explain why people should buy from you, or use your services rather than someone else’s. What makes you competitive or the best in your field?
Who makes up your target audience and how are you going to generate business from them?
Are you sufficiently disciplined and motivated to succeed in a tough, competitive environment?
Can you survive on a lower income while you build up your business?
Visit the website of the UK’s leading resource for those looking to start a business: startups.co.uk
You’ll find a wealth of useful information if you’re starting from scratch, unsure how to set up your payroll, or just interested in finding out more about the UK start-up scene.
Other things to think about
Once you have decided that starting your own business is the way ahead for you, you should spend some time researching the following areas.
Financial issues – including sales and purchases records, VAT (if registered), wages, Income Tax and National Insurance, bank accounts, cash flow, loans, benefits in kind, dividends, insurances and Corporation Tax on any profit made. More businesses fail because they get their cash flow wrong and become insolvent than because they have any other weaknesses.
Health and safety – including registration with the Health and Safety Executive (for factories and workshops) and/or the local authority (for offices and shops). There will be additional requirements if the business involves food and drink or is liable to cause pollution.
Environmental issues – including the disposal of business rubbish, hazardous materials, or certain solvents and aerosols.
Employees – including their legal rights, recruitment, employment, discrimination, sickness, pregnancy, dismissal and discipline. Employer’s Liability Insurance is a legal requirement to afford protection for employees who might be injured at work.
Premises may be necessary for manufacturing or retail businesses, while others can trade from the owner’s home, reducing overheads and leading to a better quality of life (the holy grail of WFH). For businesses that need premises, the most important thing to consider is location.
Intellectual property and licences – involving any company name and logo, inventions, product design and copyright. Certain business activities will need to be licensed by a wide range of authorities.
Check out the expert tips at MoneyMagpie to find out how you could make running your own business a breeze
Are you a ‘people person’?
Depending on your field of work, self-employment can be lonely. Apart from needing the drive and motivation to get started every morning, you should consider whether your chosen profession provides enough ‘people contact’. If you end up feeling lonely and isolated, or you lack motivation, this route may not be the right one for you.
Is it for you?
The personal attributes of someone well suited to self-employment include:
drive and determination
a strong commitment to delivering projects on time, to specification and to budget
personal budgeting and organisational skills.
Remember, there are tax bills to pay, so you can’t spend all your income – and you need to keep your paperwork in order for HMRC inspections.
Be aware of the obstacles
There are many obstacles to self-employment – potential clients often want to know about your experience or your track record, or to see a portfolio of your work. The cost of specialist equipment can be prohibitive, and because many companies will already have preferred suppliers it can be hard for you to even get a foot in the door. However, persistence can pay off, and many of these obstacles can be overcome with a little initiative.
Help and guidance
There is an enormous amount of assistance available, from a wide variety of sources. These include:
government (e.g. the Department for Business, Energy & Industrial Strategy)
banks (although now perhaps less helpful than they may have been in the past)
professional advisers (solicitors, accountants, insurance and pensions advisers, marketing experts, specialist trainers, IT experts).
As someone who is still serving or thinking about leaving the Services, you are particularly fortunate in also being able to draw on the expertise of the following organisations, which can offer assistance that is targeted to your specific situation:
The Royal British Legion (RBL)
X-Forces Enterprise (XFE).
In addition, and as in many other areas of civilian life, the importance of networking cannot be overstated.
Earning highs … and lows
In the early years you might earn less than you would expect to achieve in full-time employment. But, in the longer term, if you’re successful, your earnings are entirely dependent on the work you put in. That’s hugely motivating. It’s like performance-related pay – with all the rewards and none of the bureaucracy.
On the downside, payment dates may be erratic. Are you financially robust enough to deal with slow payment periods? If you need a regular pay cheque and/or cannot budget effectively, you need to give serious thought to whether this is the right path for you.
Find out more on the Quest website
Search ‘Steve Bulleyment’ for information straight from the horse’s mouth about what it’s really like to make the leap to self-employment – and stay there. Use the search function here to read what our regular self-employment contributor Steve has to say.
Search ‘Clive Lewis’ – again using the search function here – to access a series of features, under the title ‘Preparing for business’, which Clive has produced in conjunction with XFE, highlighting all you need to know about starting and running your own business.
Startups (the UK’s leading resource for those starting a business)