Business

Things to consider before going self employed

Editor

Self-employment can sound like a dream come true, but it’s not for everyone. Whilst being your own boss and managing your own day-to-day plans sounds great, there’s a lot to consider before actually biting the bullet and going self-employed. Chief amongst these is the actual cost of being self employed.

For instance:

  • Do you have the financial resources to start a business or to go without an income whilst you get off the ground?
  • Do you have the equipment or premises you need? If not, do you have the money to acquire them?
  • Do you understand the administration involved in managing a business? You need to be able to tackle record keeping, paying taxes and controlling your cash flow, incomings, and outgoings at least.
  • Can you do without the benefits that come with employment, like sick pay, pension contributions and paid leave?

It all comes down to the cash! Most of the things you need to consider before going self-employed are to do with money. So what does going self-employed really cost?

What does it cost to go self-employed?

For some people, going self-employed costs very little. If you don’t need to invest in equipment, a premises or a team then there’s much less cash to account for. However, if you need all the above, get ready to deal with a lot of numbers!

Here are the biggest expenses to account for:
1. Tax.
Of course, taxes come out of your profits, so you don’t need upfront funding to deal with them. However, they can take up a much bigger chunk of your earnings than you may imagine. There are a number of taxes you need to pay when self-employed. These can include:

  • *Income tax
  • *VAT
  • *National Insurance tax
  • *Business rates
  • *Corporation tax

How much tax you pay will depend on the amount of money you’ve made and the you’ve run up while doing business. You will need to fill in a ​​Self Assessment Tax Return each year and return it to HMRC with a full payment.

2. An accountant

If trying to stay on top of all this bookkeeping is already making you sweat, you’ll definitely need an accountant or accountancy software too. Business bookkeeping is vital and needs to be done correctly, which sometimes means delegating to someone more experienced!

Whether you choose to employ an accountant or start using accounting software before or after you register as self-employed is up to you, but it’s an important thing to consider.

3. Insurance

Ever heard of business insurance? How about Key Man cover? Insurance that helps the business keep ticking over is vitally important for the success of your business.

However, it’s not the only insurance you’ll need. There’s also income protection to consider. Income Protection insurance is there less to cover the business, and more to cover you. When you’re employed by someone else, you’re eligible for sick pay. When you’re self employed, there’s no one to pick up the slack. This is where income protection comes in. Specifically, it’s there to cover a percentage of your income (usually 50-70%) if you get sick or injured and can’t bring home the bacon. Income protection is a useful thing to have when you’re self-employed, especially if you poured your savings into starting the business and don’t have a lot to fall back on.

4. Premises and equipment

Whether you need equipment and the kind of premises you may need depends on the type of business you run. However, consider whether it’s more cost effective to buy or rent premises and equipment – especially at first when the business is young. Obviously, this will come down to budget and your expectations for how the business will grow and the revenue it will generate.

5. Staff

Being self-employed doesn’t necessarily mean working alone. Hiring too many employees too soon could put a drain on your finances, but not hiring could lessen your ability to actually run the business and make a product/provide a service.

It’s also important to keep in mind that as soon as you hire someone, you must let HMRC know, and navigate the ins and outs of employee payroll.

What do you think the most important things to consider before going self-employed are?