Is self-employment right for me?
Before you start working for yourself, it's a good idea to consider all the implications of being self-employed. Many people love being their own boss and enjoy the freedom, responsibility and the rewards it brings.
This guide will take you through the pros and cons of self-employment, the personal qualities and business skills you’ll need if you want to be your own boss, and some tips to make sure you maintain your life/work balance while you build your business.
1. Why become self-employed?
Ambition and drive can be a good reason to become self-employed – to be your own boss and reap all the rewards from your own efforts. It's good to have definite reasons for becoming self-employed, and a clear vision 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?
- Do you get personal satisfaction and thrive on solving problems and overcoming challenges?
- 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 or get there faster?
- Are you well motivated and able forge your own path?
There are plenty of good reasons to become self-employed but discontentment 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 with true job satisfaction.
- More independence – you decide what you do and when you do it and potentially where you work too.
- You can choose your own working hours and potentially enjoy a better work/life balance.
- You can maximise any opportunities you spot and pick projects that excite you.
- You could improve your quality of life and enjoy more job satisfaction by focusing on what you enjoy, possibly cutting out the daily commute, and ideally creating a work culture that you can thrive in.
- You will have the freedom to play to your strengths by making the most of your skills, have the opportunity to learn new ones and outsource to experts when you require their specialist experience.
- You’ll have the authority to develop and shape the direction of your business as it grows.
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 have to rely on your own intrinsic motivation as you won’t have a line manager directing your efforts and backing you up.
- 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.
- You’ll have to go out and find customers or clients for yourself.
Looking ahead
If you are contemplating self-employment a useful exercise could be to evaluate how you would like your future to change because of taking this step.
Think about how you want to see your business growing and developing. Will you take on more staff or could you franchise your business and create an income stream that way too?
It’s also worth thinking about how you could manage if things changed at home, for example getting married, having children or caring for elderly family members. Many people can find these positive motivators, such as wanting to provide a legacy for their children.
You might also want to consider working with others in partnership in your new enterprise. Having partner(s) can provide support in both setting up and running a business, as you can divide and conquer while playing to each other’s strengths.
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. When you are running a business you’ll also need soft skills and management abilities such as:
- Time management
- Accountancy
- IT
- Marketing
- 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 some or all these skills already or you may want to take on an employee or outsource and pay someone to provide some of these for you freeing you up to do the things you are best at. You could even learn some new skills yourself.
Protecting your family life
Working for yourself can dramatically change your lifestyle. For example, you could be able to reclaim all the time you spend commuting or regular working hours could be a thing of the past. It will be a change 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 but could lead to long-term financial security.
- Be prepared for increased financial and emotional pressure on you and your family alongside the appreciation of the new freedoms and thrills of running your business.
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. Part of the reason for becoming self-employed is to give yourself more flexibility and autonomy, so take advantage of this freedom.
When thinking about the practicalities of working from home you’ll need to find a new routine and way of working. Ideally, 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 focus and have the right mind-set. It can help you be organised and secure around paperwork and data too.
If customers 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 or having a different work mobile number from your personal one.
If your home doesn't have enough space for you to run your business, you'll need to look at alternatives. You might want to consider some of the newer, flexible options like co-working spaces now available. These can have advantages such as access to services like printing, meeting rooms and the opportunity to connect with other entrepreneurs and inspiring like-minded people. But you will need to factor in the costs into your business plan.
Insurance
If you work from home, you’ll probably need to extend your home contents insurance to cover work materials and computers and to protect you and your business from financial risk. It’s straightforward to organise:
- 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.
Find out more about our Business Insurance.
You’ll also need to check with your mortgage or landlord to see if you are able to run a business from your property.
4. Legal and financial responsibilities
Becoming self-employed means you’ll need to get to grips with a variety of legal and financial issues that either your employers were responsible for or that arise from your self-employment. So you’ll need to be prepared to handle these additional responsibilities including deciding what if anything you delegate or outsource to professionals.
Legal issues
Here are the most important laws, rules and guidelines you need to be aware of:
- Check with 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). See our guide to employment law.
- Disability legislation: the Disability Discrimination Act covers small businesses. See Government services and information for details.
- You will also need to know the basics of Health and Safety legislation and keep on top of changes in rules for your industry.
Tax and National Insurance
If you become self-employed you will need to look after your own tax affairs. You can either do this yourself if you feel confident about being able to handle it and get to grips with for example, what you can claim tax relief for and what you can’t. If not, you can pay an accountant or tax professional to help you.
You will also have to deal with the paperwork involved in becoming self- employed. You'll need to register with HM Revenue and Customs (HMRC), either online or by calling 0300 200 3500. 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. Good record keeping is essential, so you will need to consider how you’ll deal with this alongside the work you need to do to run your business.
You'll be sent a self-assessment tax return to fill in every year. So you'll need to be organised about completing your return on time otherwise you will face a fine. Find out more information on how HMRC can help you.
5. Where to go for advice
HMRC Business Guidance
If you want to get help with tax-related issues then HMRC offers a variety of tools and guides online. These include:
- An e-learning package covering all aspects of starting and growing a business.
- Webinars on subjects like VAT, business expenses and record keeping.
- Useful YouTube videos with quick overviews on topics like PAYE.
- A free business education email service.
- Tools and apps that can help with putting together your first tax bill.
- HMRC’s SME Tax Widget, which offers video tax guides.
Visit the HMRC for a full list of their tools and guides.
Government business help and support
You can find advice and financial help from government-backed schemes based on where you are in the UK. There is regional help available and advice on writing a business plan.
Visit the government support helpline.
Non-government sources of help include
Be the business - which can help your business improve its performance
British Chambers of Commerce – can offer you insights, networking events and guidance on changes
Important legal information
Lloyds Bank is a trading name of Lloyds Bank plc, Bank of Scotland plc, Lloyds Bank Corporate Markets plc and Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH.
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