The most common reason people choose the road to self-employment is because they feel stuck in a dead-end job. But is this enough of a reason to give up financial security and regular income? Before you decide to give up the nine to five in order to pursue your dreams of working for yourself, you need to ensure you are in a strong position to do so. Starting a business isn’t always as simple as making an innovative idea a reality. Any new venture comes with fresh paperwork to keep and new accounts to keep tabs on. In order to survive in business, it’s important to know exactly what your company needs before you begin.
Should You Register As A Limited Company?
As a self-employed worker, you have two choices when it comes to trading. You can either work as a sole trader or register as an officially recognised limited company. Although there are benefits to both business structures, choosing the wrong option can make trade more difficult in the future.
For many freelancers, sole trading is by far the simplest process. As a sole trader, you are free from the constraints of business bookkeeping, beyond a relatively straightforward tax return. This gives you more time to focus on the running of your business, receiving work and completing it to a high standard.
But there are also clear advantages to forming a limited company. In the world of business, limited companies hold a lot more prestige. In fact, many other companies won’t trade with you unless you choose to register your business. There’s also the added bonus of business security. As a sole trader, you are personally liable for any loans or debts you owe, whereas going limited means your personal assets are considered a separate entity to those of your company. For this reason, it would be prudent to take this approach should your company begin handling larger sums of money.
Will You Largely Be Funding Yourself?
If you’re planning on using your savings to fund your business, then you need to be sure you can cover more than just it’s running costs. Aside from the expense of renting office/production space, buying equipment and stock and investing in insurance cover, there are also the costs associated with tax and any personal emergencies.
Whilst you can budget business costs with a fair degree of accuracy, unexpected expenses can arise in a variety of forms, including medical bills, lawsuits and government fines. If you’ve tied up all your money in your startup, then you’re unlikely to see any of it again should things turn sour.
On the other hand, should you decide to take out a business loan or credit card, then you need to keep a close eye on interest rates and ensure you pay them off on time. In either case, you’ll want to begin budgeting as soon as possible, in order to work out exactly what you’ll need to keep the company ticking over.
When Should You Take On Staff?
A lot of companies jump into hiring a workforce before any real work has begun. Until things become impossible to manage by yourself, it would be wise to stall the help of external parties. Wages aren’t the only factor you need to consider. Every member of staff comes with fresh paperwork and fresh taxes to pay. You’ll be in charge of each employee’s National Insurance contributions, as well as dealing with any pensions or staff benefits included in their contract. If you’re only handling a small number of orders, then you probably won’t need another pair of hands on board. Only consider taking on staff when your business expands and new roles open up in your company.
Will Being Self-Employed Actually Benefit You?
The idea of working for yourself can be all too great a temptation, but are you actually in the financial position to achieve it? Although you may have big dreams of starting your own company and living a comfortable life from the money you make, things might not always work in your favour.
Many people leave full-time employment to pursue these ideals. Unfortunately, most of the profit your business makes at first will be fed back into the company. Although you are able to take home a salary, it may not be sufficient enough to live on straightaway, and for that reason you need to have a stable base to work from. Whilst starting a business can be a gateway to financial success, it’s worth remembering that not everyone is in the best position to start from scratch.
About the author: Chris Weston is the director of Aston Black Accountants in Milton Keynes. Chris has 25 years experience in accounting and loves helping small businesses thrive. Together with his staff, Chris and the team at Aston Black deliver personal tax, payroll and accounting services to a range of successful small business owners.