When you think of going self-employed, the first thing that comes to mind is a stress-free lifestyle with flexible work hours. But is giving up your employment the right choice for you?
According to the UK labour market statistics by ONS, nearly 4.33 million people are working as self-employed between November 2023 and January 2024. If you’re thinking of joining them, ask yourselves a few questions before committing to being self-employed.
In This guide Experlu shares seven questions you must ask yourself before becoming self-employed.
Table of contents
- Who is a self-employed person?
- 7 questions to ask yourself before going self-employed
- Final thoughts!
Who is a self-employed person?
A self-employed person is someone who works for themselves. They run their own business and aren’t under direct supervision while working.
According to HMRC, such individuals must calculate their taxable profits from self-employment and submit their self-assessment tax yearly. You can use a self employed calculator to calculate all your income taxes and NICs. This ensures you pay the right amount of taxes to the government.
7 questions to ask yourself before going self-employed
If you’ve thought of becoming self-employed, here are seven questions you must ask yourself.
1. Ready to be self-employed?
The first question to ask yourself is whether you are ready to become self-employed. You must have a good business idea that solves the problems of your target audience. Then, think about what products or services you want to sell and see if they are still in demand in the market. Also, see if you need any additional training for this work.
2. What you’ll gain and lose?
Now think about what you are going to gain from this self-employment and what you will lose. You will have the flexibility of working, no stress from your boss, unlimited income, and a proper work-life balance. What you will lose is a regular income, steady work, paid leave, and guidance from mentors.
3. How much will it cost you?
As a self-employed person, you will be solely responsible for all your business costs and for making money for yourself. The costs of setting up a business vary significantly depending on what type of company you want to start and how you set it up.
Some of the common costs associated with operating a business are
- Renting a workplace: Though you can start a business from home, some businesses require a separate workplace. You can either purchase, rent or share a commercial property with someone else.
- Furniture: You need to invest in building the interior of your workplace, especially in the furniture, interior colour, and more.
- Equipment/stock: You need to stock products before selling them. Additionally, you might require machinery like computers, CCTV cameras, or other equipment.
- Business expenses: Certain regular costs will be necessary to operate your business smoothly. These include insurance fees, subscriptions, employee payments, travel costs, and utility bills.
4. Are you prepared to invest your own money?
Ask yourself if you are prepared to cover all your business expenses initially before you start making a profit. It may take several months to become profitable, and running out of cash won’t help your business grow. So, you must consider your available funds and see how long they can support your business operations.
5. What are your funding options?
If you don’t have sufficient funding to invest in your company, you must consider different funding options. Some of these can be government grants, applying for business loans, using business credit cards, or asking for funds from angel investors, venture capitalists, or crowdfunding.
6. How do you pay tax on your income?
If you are self-employed, you are responsible for paying your taxes directly to HMRC. Therefore, you must first determine whether you understand your tax liabilities and can pay them on time. You can ask an accountant to help you decide how to pay income tax and reduce bills legally.
7. If business fails, what impact will it have on your personal finances?
Finally, you must consider how much risk you can take in investing in your business so that when it fails, you don’t go bankrupt. Try to keep your business and personal funds separate, and don’t invest all your savings in a risky business that doesn’t promise you a huge profit.
Final thoughts!
Once you have all the answers to these seven questions and are still satisfied with your decision, you are ready to become self-employed. However, always have a good business plan and stay compliant with the country’s legal requirements. You can also seek advice from accountants and financial professionals before starting your business.
