So you did it, you’ve gone into business for yourself and become your own boss. You’ve taken your idea or your passion - and turned it into a career. Now you’ve made that step, it’s a good time to start thinking about what you’ll need to make your business a success.
Starting out on your own
When you’re self-employed you’ll take on new responsibilities. For some entrepreneurs this is a dream, and for others, a nightmare. When deciding whether or not you should start out on your own, you should consider the following:
- Can I afford to be self-employed?
- Have I found a gap in the market?
- Is my idea unique or niche enough?
- Will being my own boss make me happier?
Some business owners can see real rises in profits early on in their journey, whilst others may face real hardships to break even to begin with. One of the big lessons to learn early on is budgeting. Both in terms of your time and your money. Here are three things to bear in mind when becoming self-employed:
1. Balancing the books
Try to minimise time spent and maximise money earnt. Sometimes this will require investing in agencies, equipment, subscriptions or training to help give you a stronger business model. Every self-employment journey starts differently. But creating a cost benefit analysis of different parts of your business could be very valuable in your new venture.
2. Gaps in the market
Another thing to always look out for is the ever-changing landscape of your business and how that fits into the wider market. Imitation may be the highest form of flattery, but not to your bank account. If a competitor is moving in on your niche, now may be the optimal time to innovate and further develop your product or service. Alternatively, finding ways to get your product or service to market faster and cheaper could help give you the competitive advantage.
3. Self-care in workplace
Chasing your dream may not always feel like work, but when you’re self-employed it very much is and it’s important to remember to look after yourself, as well as your staff. Don’t forget to have breaks, to have lunch, and check in on your own wellbeing. As an employee, you’d usually have opportunities to reflect and relax within the hustle and bustle so it’s important to create these moments for yourself in your new working structure. Your creativity and productivity will likely increase if you aren’t overworked, meaning you may produce better work.
Benefits of being ‘the boss’
Within the spectrum of self-employment there are different specialisms: contractor, freelancer, sole trader, and so on. But even between these role variations, the advantages remain the same: choosing your own hours, doing the jobs that you want to do, taking annual leave without approval needed. You have complete control of your career and working schedule.
This level of flexibility is one of the biggest drivers for most self-starters to make the jump to self-employment.
Sounds lonely? It doesn’t have to be, not all business owners work alone. Around 40% of UK workers now hold down two jobs: their regular ‘day job’ and their self-employed ‘side hustle’. Supplementing your steady income with some extra cash is by itself a perk. But pursuing your passion on the side is a good way to balance the risks against the rewards.
Starting a second career in later life
Not all self-starters are young entrepreneurs. Being self-employed can earn you a bit of extra income in retirement (or for retirement). Recent trends in self-employment show that the largest age group is actually 45 to 54 year olds, with many more over 65s becoming self-employed to boost income.
Our aging population may not want to give up working later on in life. And in real terms, this could mean more money in your pension. Or perhaps it will help create a comfortable retirement when you do eventually decide to wind down. Embarking on a second career and rediscovering your passions could be the perfect recipe for a happy retirement.
Get your (tax) ducks in a row
The term ‘self-employment’ covers a lot of different kinds of jobs and there are diverse implications to how your business operates - and how it’s taxed. Here are two types of self-employment that you can register as:
Sole traders are quite common - with all profits taxed similarly to how income tax is charged on an employee’s gross salary. Watch out for registering for Value Added Tax (VAT) if your business earns more than £85,000 per year. If you’re uncertain about your tax situation, you may want to seek professional advice.
Private Limited Company is another option. Creating a distinction between you and the company means two types of taxation: one on the salary you receive, and the other on profits the company makes. You could end up paying less tax depending on how successful your business is, and what salary you grant yourself.
Update your calendar with upcoming deadlines to stay in control:
- 31 January 2022 deadline to file and pay your Self-Assessment form*.
- 1 April 2022 deadline for setting up ‘Time to Pay‘ for tax owed from 2020-21.
- 6 April 2022 beginning of 2022/23 tax year, introduction of 1.25% tax levy.
- 5 October 2022 deadline for registering as self-employed in 2021-22 tax year.
- 31 October 2022 deadline for filing paper tax return for 2021-22 tax year.
*Due to COVID-19, HMRC is extending this to 28 February without penalties, however interest will still be charged on late payments.
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Rainy day savings
All businesses, big or small, need a safety net for less profitable periods. Some companies, or even consumer demands, are seasonal. There will often be unseen costs when starting out, or setbacks outside of your control. From a financial crisis, to a worldwide pandemic. Businesses, and the environments they operate within, are rarely entirely predictable.
Creating a rainy day fund covers a lot of potential pitfalls when starting out as self-employed. Navigating those tricky early years, reducing negative impact of cash flow problems, or even building up an expansion fund when your business begins to take off. Being confident in your finances and pension is one step on the road to financial freedom.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.