How to become self-employed
Becoming self-employed is often the dream of those who have worked for larger businesses who would like to build a business of their very own. It can be complicated to set up at first, but it can also be the start of a brand-new career and even a new lease of life.
This transition from employee to employer can only happen if you as the owner are willing to put in the hard work of setting up the business, along with the associated leg work that will ensure you are a legal entity in the UK, which means everything from paying tax to registering with Companies House.
Find out more about becoming a self-employed worker in 2020 with our handy guide below.
- Why should I become self-employed?
- Types of self-employment
- Pros and cons of being self-employed
- How do I finance setting up my own business?
- Self-employed checklist
- How to look after your finances as a self-employed worker
Why should I become self-employed?
- Better work-life balance
- Working flexible hours
- Satisfaction from building my own business
- Work in a profession you're passionate about
- Be your own boss
There are many reasons to become self-employed, but it is usually ideal for those who would like to follow a profession they feel strongly about. You might also feel restrained by current working conditions that have an impact on your lifestyle, so becoming your own boss would allow you to have more freedom over how you work.
That being said, being self-employed can be a lot of hard work depending on what industry you happen to work in, meaning that you will have to weigh up the pros and cons quite carefully before making a firm commitment. Make sure you understand how going self-employed will affect you in the long term and whether it truly is a better alternative to other ways of working.
Types of self-employment
There are many types of self-employment with some being more intensive than others, but ultimately, they all allow you to work for yourself and build up your own business. Some will also allow you to work part-time if you already have a job that is part-time already.
This can often be a good way for those making the transition from being an employee to a self-employed worker, as it means you still have a job to fall back on if your self-employed venture doesn’t work out. This means there is less risk initially and an opportunity to build up your business before quitting your existing job and going full-time self-employed.
This is usually where an existing company or individual will outsource a portion of work to you as a freelancer, paying you a set fee per hour. You can often find yourself being brought into their place of business or simply work remotely from home and will supply work for individual projects rather than being a full-time employee. Examples of freelancers include:
- Graphic Designer
- Marketing Professional
- Web Developer
- Teacher or tutor
A consultant is a lot like a freelancer though it comes with a lot more knowledge around a specific subject. If you are an expert in your field you can often become a consultant as a lot of other businesses would pay for your expertise on certain projects. Examples of a consultant might include:
- Financial consultant
- Strategy consultant
- Operations consultant
- IT consultant
- HR consultant
Opening a small business usually means you will be selling products or providing a service to the general public. This might take place at a physical business address or you might even be selling items online. Examples of being a small business owner include:
- Café owner
- Hairdresser in a beauty salon
- Dog groomer
- Personal trainer in a fitness studio
A sole trader is usually a skilled tradesman who works on their own, usually completing jobs in residential, commercial or industrial properties. This might be for refurbishment purposes, maintenance or repairs to older properties. Examples might include:
A start up business is usually categorised by having a memorable brand, with a smartphone app or interactive website that solves a problem for customers or provides a more customer-focused journey.
As an owner you are usually in touch with customers through social media and make your business more transparent by sharing your journey of growing the business from an idea to a full-blown company. Many start-ups also get started through crowdfunding platforms, where interested customers will get an early bird discount or an exclusive perk for contributing to the success of the business.
- Subscription services
- eCommerce websites
- Online tutoring
- Software as a Service (SaaS)
- Online marketplace
Become a partner in an existing business
Whilst other self-employed workers start a business from the ground up, becoming a partner is usually because of long service within an existing business, to the point where your expertise and experience mean that you’re on the same level as existing partners in a business.
Whilst examples are relevant for other self-employed types, you can become a partner in any sort of business, as long as that role is offered within the company and you are at a sufficient level to be promoted.
Pros and cons of being self-employed
We’ve already mentioned several pros of becoming self-employed in our “Why should I become self-employed” section, but it’s worth reiterating as this will help you make the decision of whether you should take the risk or not. This is especially important if you plan on quitting any previous full-time role and going completely self-employed.
Working flexible hours or deciding your own hours
Build a business from the ground up
Satisfaction from working for yourself
Freedom to make business decisions
Be responsible for hiring
Work in a profession you’re passionate about
More risk on you as an individual
Initial costs can be expensive
Can be a lot of hard work
Having a day off might make you lose money
Be responsible for firing
Do your own bookkeeping
How do I finance setting up my own business?
There are plenty of ways to finance setting up your business, but this will also depend on what kind of business you would like to start and what type of self-employed worker you plan on being.
As a freelancer, you might only need a personal computer to get started, whilst a small business owner opening a coffee shop will need to pay for equipment, furniture, refurbishing costs, rent, utilities and even staff wages.
Think about drawing from one of the following sources when becoming self-employed:
- Existing income – if you’re still working part-time or full-time and are setting up your new venture on the side, you can always divert some of your income into your business. Just make sure this doesn’t stop you from paying the rest of your regular bills
- Savings – if you have planned ahead, you might have saved money in a separate account to use on initial costs. If you’re still in the planning stage, you might want to think about saving a little each month now so by the time you’re ready to be self-employed, you at least have some funds to fall back on
- Business loan – the preferable way of funding a business venture is usually to take out a business loan, allowing you to cover the initial setup costs associated with some businesses. You will usually have to produce a business plan to convince your bank that you will be able to repay the amount you’ve borrowed, since you would usually have to prove that you have an existing income in order to be accepted
- Crowdfunding – another method, popular with start up businesses is to try crowdfunding, allowing you to take donations from interested patrons online, in exchange for an exclusive perk, product or discount when you start up. This isn’t ideal for some business models but can be invaluable if you’re unable to raise the required amount of money on your own
Also, check out our piece on getting a self-employed credit card as another way to manage your spending once your business is set up.
Without going into too much detail, there is a lot to think about when becoming self-employed, not least how you can start to bring on customers or clients. To get you on the right track, we’ve put together a checklist of everything you need to think about when setting up your business.
Remember that not all of it will apply to you, but should give you an idea of what will need to be considered in those first few weeks and months of being self-employed:
- Trading name
- Branding – creation and logos
- Advertising – online or print
- Setting up a website
- Social media
- Main items or equipment required to do your work
- Opening times or working days
- Price you will charge for products/services
- Choosing a premises/address
- What records you will need to keep
- Registering for tax
How to look after your finances as a self-employed worker
Making the transition to being a self-employed worker is all well and good, but if you can’t manage your finances, you’re likely to get in a mess. This should include having a business bank account to track your expenses and accounting software that will help you pay tax and keep records of your spending as a business.
- Accounting software – getting a software package like Xero or Sage will help you keep detailed records and make it easier to pay tax at the end of the financial year. They should link with most business bank accounts as well, so check with your provider before choosing the right one for you
- Business bank account - rather than using your personal accounts, you should try to have a secure space to keep all finances associated with your business, so you can track regular expenses, register your business in the UK and claim VAT
Start your comparison journey and pick out the best business account for you using the button below. Good luck!
Written by Robert Bester
Updated on 10th February 2020
Published on 6th February 2020