What it means to be self-employed

We all dream about being our own boss!

Some say that if you want a really ruthless boss, you should work for yourself.

But would it suit you?

Would you miss your steady salary and paid holiday, or do you crave more flexible hours?

To be self-employed means that you work for yourself … but not necessarily by yourself.  

Whether your business fails or succeeds is generally down to you, however.  

Moreover, you decide how, where, and when you work and whom you work with.

After all, you are the boss!

There are countless different roads to self-employment…

You can start your own business, (which we wholeheartedly encourage, but only if it is right for you!)

You can work as a sole trader or work as a partner in a business partnership.

You can work as a freelancer providing services to lots of different clients.

Or be a contractor (like freelancing, except you work for one employer at a time).

You can also do any of these things at the same time as being employed by someone else – the ‘gig’ economy has arisen from large numbers of people providing services and goods in their spare time, usually online.

Being a part-time gig worker can be a step on the way to full self-employment, if it proves successful.

You can even own a limited company and still work for yourself.

But in this case, your company is your employer – and you are the person running it.

Of course, there are pros and cons…

A move to being your own boss can mean gaining in some areas while losing out in others.

Here are some factors to consider when making your decision…

Income

Will you earn more, less or roughly the same when self-employed?

It’s generally accepted that you will earn more per hour working for yourself than you will as an employee.

Where you may lose out is in the dependability of that income.

If you’re a freelancer or contractor you will inevitably have gaps when there is no work; and if you run your own business, you may have periods of low or negative profits, which might reduce your income.

Consequently, you may find you’re always chasing work and putting yourself under pressure.

You may need to rely heavily on your savings, especially when first setting up.

In fact, your savings are generally your only fall back when you aren’t making any income. 

So, you need to be prepared for some tough times and be able to manage these on little or no income.

And there will be tough times …because every business has them.

Tax

As an employee, you pay tax automatically through PAYE, so you don’t need to do anything, unless you have other taxable sources of income.

By contrast, when you’re self-employed you take full responsibility for paying the right amount of tax.

You’ll need to keep accurate records of everything you earn during the year and all business-related expenses and fill out your annual self-assessment tax return form.

If you run your own limited company, the company will also have to pay tax.

Work-life balance

The biggest perk of working for yourself is the flexibility to choose your working hours, take time off whenever you want and (perhaps) work anywhere in the world, if work is available.

This can make it great for managing your career around family life and personal goals.

At the same time, you’ll need to be careful that you’re not jeopardising your earning power.

If you take too much time off or work too erratically, then clients may come to think of you as unreliable.

Some self-employed people find they take less time off than they did when working for someone else! (says he, writing this Guide on a Sunday afternoon).

Long term prospects

One of the long-term aims of any employee is career development.

However, when you work for yourself it’s a bit different.

Your career development will depend on the experience you gain and how you capitalise on it.

It is up to you to market yourself.

No-one will promote you unless you promote yourself.

Benefits

Basic earnings tell only part of the story.

Being an employee can bring other perks like bonuses, help with childcare, health insurance, company cars, bike schemes and so forth.

You’ll need to factor in any perks you want to keep when calculating how much you’ll need to earn as self-employed.

If you take time off work due to illness you don’t get paid for this.

If you set up a pension you must take care of this yourself.

When you get sick, you will have to manage not only your own health but also manage your client’s expectations as well.

Issues like this will impact on your income.

Of course, you may be happy to live without these benefits.

Nevertheless, it’s important to consider them when comparing an employee’s salary with a freelancer’s income, for example.

Additional Responsibilities

Being self-employed means taking care of everything – from marketing to sales to administration.

This includes filing your taxes and keeping your financial records in order. 

You need to stay on top of all these things.

And that means having less time to work on activities that generate income.

Marketing and sales can be very time-consuming, especially when you are just starting out.

Juggling all of these tasks can be challenging, especially when you have no real experience with many of them.

You can hire someone to take care of these tasks for you. 

But that means an additional financial cost that you must bear.

That’s why building a business takes hard work and consistent effort over a period of time. 

Of course, it’s easier if you have a great reputation for what you do before you start out on your own.

Job security

How secure will your job be as a self-employed person?

Come to think of it, how secure are you as an employee?

There are arguments to be made on both sides of this question, and ultimately only you will be able to decide.

Which works better for you may come down to your personality.

If you find it easy to market yourself and are energised by the hunt for new clients, you may feel more confident in the driving seat than as a passenger.

Loneliness

You have no doubt heard the phrase “It’s lonely at the top”.

And that’s because it generally is!

While you may currently be working with and interacting with others, as a sole trader you may find yourself working on your own a lot and you might miss the support of a team.

Think about how you would feel about this before starting out on your own.

Wil you be able to adapt to working by yourself?

Working at a shared workspace could potentially be a good way to counter loneliness.

You might even find new clients!

It can also help you establish a good work-life balance, enabling you to step away from your work environment and switch off.

Working from home does not always provide this opportunity because it can be difficult to completely switch off.

Lest you have any doubt …

Starting your own business isn’t just a job – it’s a way of life.  

Of course, there are disadvantages to everything that we do in life.

But many times, the advantages outweigh them.

So, don’t be put off.

Do careful research, plan, and seek out legal help if needed.

If you plan things meticulously, your business will be off to a great start.  

To find out more review our guide: which business model is right for you?