Business Overdrafts
Be financially flexible with a business overdraft.
Is self-employment right for me?
Read time: 8 mins Added date: 05/10/2023
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. We look at the personal qualities and business skills you’ll need if you want to be your own boss, and share some tips to make sure you maintain your work/life balance while you build your business.
Why become self-employed?
Ambition and drive can be good reasons 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 idea 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 issues and overcoming challenges?
- Can you earn enough money doing it?
- Where would you like to be in five years' time, and will self-employment get you there faster?
- Are you well motivated and able to 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:
- The potential to earn more than your current salary.
- More independence – you decide what you do and when you do it, and potentially where you work too.
- You can select your own working hours and potentially enjoy a better work/life balance.
- The chance to maximise any opportunities you spot and pick projects that excite you.
- The opportunity to improve your quality of life and experience more job satisfaction by focusing on what you enjoy. You could possibly cut out the daily commute, and ideally create a work culture that you can thrive in.
- You’ll have the freedom to play to your strengths by making the most of your skills.
- You’ll have the authority to develop and shape the direction of your business as it grows.
Potential disadvantages to self-employment:
- Increased responsibility – aspects such as success, failure, loss and profit all lie 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.
- It could feel isolated and lonely.
- You could end up working long hours and spending less time with your family.
- The responsibility for your own tax affairs and pension.
- Having to go out and find customers or clients for yourself.
Looking ahead
When 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 one or more partners can help in both setting up and running a business. This is because you can divide and conquer while playing to each other’s strengths.
The qualities you’ll need to succeed
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 may fall in the short term. However, it could lead to long-term financial security.
- Be prepared for increased financial and emotional pressure on you and your family. However, this is alongside the appreciation of the new freedoms and thrills of running your business.
Working from home
If you decide to work from home, here are some essentials to think about.
Aim for a sensible work/life balance by putting a limit on your work time. Part of the reason for becoming self-employed is to give yourself more flexibility and autonomy, so take advantage of this freedom.
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.
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 can't 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.
Legal and financial responsibilities
Becoming self-employed means you’ll need to get to grips with various legal and financial issues that arise. So you’ll need to be prepared to handle these extra responsibilities, including deciding what 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. This is especially important 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’ll 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’ll need to look after your own tax affairs. You can either do this yourself or pay an accountant or tax professional to help you.
You’ll also have to deal with the paperwork involved in becoming self-employed. You'll need to register with HM Revenue and Customs, either online or by calling them. 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 work out your tax. Remember good record keeping is essential when running a 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.
Where to go for support
His Majesty's Revenue & Customs (HMRC) Business Guidance
If you want to get help with tax-related issues, then HMRC offers various tools and guides online. These include:
- 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.
- Help with understanding your first tax bill.
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.
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.
Small Business Britain – shares industry events, online training and other exciting opportunities.
Lloyds Bank Business Finance Assistant – accounting software to help manage your finances.