By Melanie Allen
If you're thinking of working for yourself, this article provides insights that may help you to decide. The pros and cons of self-employment will be analysed, and we will tell you how to get started, whether as a freelancer or a sole trader.
Working for oneself is a dream that many people have, particularly when the prospect of full-time employment is bleak. Most of us know people who are self-employed, and a life of working when you want to, answering to no one and sitting in the garden when the sun shines looks attractive.
But these wonderful features have a darker side:
- Working when you want to can mean either working all the time or working none of the time
- Answering to no-one is a myth as you are always answerable to your customers or clients who are usually more demanding than a boss
- Sitting in the sun may mean that you don't have any work to do - no money, an uncertain future and a lot of worry.
Is this a good time to go it alone?
The short answer is no - a recession is not the time to start out in business! Having said that, it depends on the kind of business you're in, your target market, and exactly what you are offering. Thorough research of your market - potential customers, the competition and rates and prices - is absolutely essential before you jump.
If you're clever and offer something that fills a gap in the market and fits your potential customers' requirements, (for example plumbing, gardening or small-scale building work) it could be a perfect opportunity to go for it.
If you will be competing in an overcrowded market or one that has been hit by cuts, such as property, gas-guzzling SUV dealerships, advertising or training, then it might not be the wisest choice.
What are your options for self-employment?
- You can work for yourself in a number of ways. The following are the most popular:
- Running a business as a sole trader (for example, a shop, a café, or an internet business)
- Going into a business partnership with someone else (as freelancers or as a small business)
- Freelancing, consultancy or contracting - selling your skills
- Buying into a franchise.
Running a business as a sole trader
Running your own business involves selling a product or service (or other people's products and services). You could start your own business or buy someone else's. You can find businesses for sale on the internet and in local papers. Check the business out thoroughly to make certain that you're not buying something that isn't going to succeed.
Freelancing, consultancy or contracting
If you're selling a skill such as writing, consultancy or graphic design, you need to have built up a portfolio of experience, projects and clients so that you can attract new clients. Without a proven track record and references, you won't get far.
You should beware of going freelance on the basis of a half-hearted offer from your former company. You might find yourself getting dropped if times get hard, if their outsourcing policy changes or someone else offers a better service. As a freelancer, you're owed nothing, particularly not loyalty.
Building and home services people have it a little easier, tending to get work through recommendation. The difficulty is in getting the first few jobs, but if you're good, other work is likely to follow through word of mouth.
Quoting or estimating costs can be a headache. If your quote is too high, you won't get the work. Too low and you either won't make enough to cover your own expenses or won't get enough money for all your effort - and resentment about it can make the work extremely hard.
Buying into a franchise
As a franchiser, you buy a licensing agreement for the right to operate under the trademark of the franchised business and benefit from their experience, marketing, advertising, promotion and training. McDonalds and Holiday Inns are global examples, but there are many smaller ones available.
Do your research
Whatever you decide to do, you need to find out as much as you can about it:
- Research the subject: books, leaflets and on the internet
- Talk to people who work for themselves already
- Find out about the potential competition in your area - keep your eyes open. Look in the local paper, in the library and on the internet
- Find out what you need to do to make your business stand out from the crowd
Are you suited to self-employment?
Gear yourself up for hard work and setbacks. The self-employed route is paved with disappointment. Resilience and persistence separate the winners from the losers.
Being self-employed isn't for the faint-hearted. Being your own boss means that you are completely in control and accountable, but it also means that you have to look after yourself. You have no right to holidays or sick pay - taking a day off or being ill means that you lose money. You have to keep on top of your tax and National Insurance contributions, any other insurances and your pension. You must keep your accounts diligently and stay on top of quoting, invoicing and chasing payments.
More significantly, you have to do all your own marketing and selling. Finding new clients and maintaining your customer base is completely dependent on you.
Still interested? What you need to consider
Your product or service
Thinking of the product or service you offer, ask yourself (and be sure of the answer to) the following essential questions:
- What are you offering (exactly what product or service will you offer)?
- Who are you offering it to (your target market)?
- How will you market it and how will your customers access you/it (i.e. website, local press and other outlets, word of mouth, referrals)?
What type of work you want to do
Some kinds of work are better suited to freelancing or working for yourself than others. Being disciplined about the work itself is not usually a problem as you have to respond to your customers' demands. It's the marketing, paperwork, organisation, quoting and keeping your accounts up to date that often prove more of a challenge.
Most freelancers will tell you that the most difficult and onerous job of all is getting the work and keeping it coming. Unless you are in the unusual and lucky position of having a steady supply of work from different clients (working for just one client is a no-no from a tax perspective).
What self-employed people say about it...
Interviews with a mix of established freelancers and sole traders have revealed some of the most common advantages and disadvantages:
- Choosing when and where to work
- Not being nailed down to a 9-5 daily schedule
- Being able to go for a walk or day off every now and again
- Being left to get on with the work with no-one breathing down your neck
- No unnecessary pressure from a boss or employer
- Being treated as an adult
- Feeling as if you could walk away from a project if necessary (although it very rarely happens as it usually means losing money!)
- Working all the time for not much money
- Getting the work - cold calling, selling, marketing
- Admin, accounts and book-keeping
- Quoting, getting the costings right
- Lots of speculative work (i.e. unpaid)
- Isolation - no-one to support you or talk to about your work
- Isolation - no-one to talk to about anything!
- The buck stops with you - you are often blamed for mistakes that aren't your own
- Very little opportunity for career progression without changing your business (marketing it and starting all over again).
How to get started
Getting started is relatively easy, once you've decided on what your business is and how you will market it. There's plenty of advice and guidance available for free. Get on the internet and search for ‘starting a business', ‘start-up grants' or anything else you may need to know.
To get started, you need to:
- Inform your local tax office that you intend to become self-employed
- Produce a business plan if you're going to set up a business account (Business Link, banks and other organisations will help you with this for free)
- Make friends with your business bank manager - he or she can offer good advice and direction
- Keep detailed and careful records of your income and outgoings from day one
- Decide whether you will use an accountant or submit your own self-assessment accounts. If you decide to use an accountant, make contact from the start.