Going from being employed to working for yourself is a major transition. To many it looks like a dream – you get to set your own hours, take holidays when you like, work from home, and set your own wage. It offers unparalleled freedom to do your own thing and control your own destiny, and yet it also comes with an awful lot of responsibilities and complications.
These responsibilities and complications are overlooked by many, but they are just as important as the rewards in terms of how they’ll shape your lifestyle and the impact they should have on your decision making process. Here are 3 important items you need to consider before taking the plunge.
- Your Working Options
- Financial Implications
- Your Pension and Protective Measures
Self-employment may seem simple, but it’s actually not. One of the first things you’ll need to do is decide which working option is right for you – working through an umbrella company, setting up as a sole trader, or forming a limited company.
An umbrella company can be useful for those who struggle to perform their own admin tasks, as your tax is taken care of for you, freeing you from the responsibility of keeping things in order. Despite this, you’ll find that this is less financially rewarding than your other options. Setting up as a sole trader, on the other hand, has lower running costs, but affords you less legal protection than your third option: setting up a limited company. This is more complex and has higher operating costs, but it provides better legal protection, is tax-efficient, and allows you to take home a higher percentage of your pay.
One of the aspects of self-employment that will have the biggest impact on your personal life is your financials. There is no particular reason for you to earn less, yet you’ll find it a lot harder to secure monetary backing from third parties, such as banks, building societies, and lending companies. Many loan and credit card providers will not consider you, and you’ll probably have to turn to specialist lenders if you’re in need of a mortgage or any other sort of financial support. Although this doesn’t mean that it’s impossible to secure the funding you’ll require, you do need to be aware of how much more complicated it will make things.
The freedom of self-employment is wonderful, but it does strip away the safety blanket of having an employer. It means that your income is suddenly far from certain, and that there will be no one to provide you with paid holidays, sick pay, or any other statutory employee rights. Benefits such as pensions and insurance will no longer be covered either, and the onus for each of these will fall on you.
This doesn’t mean that you can’t protect yourself at all, however. Stakeholder and self-invested personal pensions are both options that you might want to explore, and business insurance can be taken out from a third party source.
If you’re still committed to working for yourself after reading through these considerations, then good luck with your new venture.
