There are a number of reasons why people decide to become self employed and also a large number of advantages to working for yourself. However, there are also a large number of disadvantages to becoming self employed and these should be carefully considered before making a decision.
The disadvantages of self employment and any potential risks can be managed as long as you plan carefully and understand the reality of being self employed. Self employment requires you to maintain professional qualifications and identify training and development requirements. Without the necessary qualifications it may be difficult to secure work. However, taking time out from your business means you won’t get paid. There are other occasions when you won’t receive any pay, like sickness or if you are unable to secure a contract. Having a contingency fund is crucial to take you through these periods.
If you are self employed as a sole trader, you will be personally liable for all work you deliver, along with any advice. If something goes wrong, you could face personal legal liability, losing your home and business. Liability insurance is something your business cannot do without.
Finances may suffer highs and lows. Although being self employed can be far more rewarding financially than employment, there may be times when invoices are not paid in a timely manner, leaving you struggling for cash. Careful financial planning is required to allow for occasions when work availability is slow, or invoices aren’t paid on time. HM Revenue & Customs are a priority for anyone self employed, as not submitting relevant documents to HMRC in a timely manner will attract a hefty penalty. HMRC regulations have to be adhered to in order to avoid making mistakes and possibly receiving penalties. Record keeping is a duty which has to be carried out on a regular basis to ensure that your records are kept in an orderly manner. Accurate record keeping has a number of benefits for your business, enabling you to pay the correct amount of tax.
Although being self employed gives you the freedom to work when and where you wish, the reality may be a little different, especially in the first couple of years. You may end up working all the hours you can in order to build your business. You may not want to turn work down and could find yourself working longer hours to complete contracts. However, being self employed means that you also receive the rewards for hard work. Running your own business requires you to source work and complete contracts, deal with administration like record keeping, accounts and completing your tax return. Networking, dealing with invoicing and paying expenses is all part of running a business but can take a lot of time away from actually working and earning money. Struggling to deal with all aspects of being self employed can result in falling behind with paperwork or losing contracts, which can affect your business.
Self employment can be a solution for anyone who wants to have flexibility in their work to enable them to deal with family responsibilities and spend more time at home. However, the pressures of being self employed can mean that you end up spending more time away from home, meeting clients or to meet a deadline. Although there are disadvantages to self employment, they can be overcome with some careful planning and support. Outsourcing some of the duties will leave you free to manage your business without worrying about falling behind with paperwork. Support from friends and family is essential, especially while you are establishing your business. There are many rewards from self employment and professional advice will help you to plan for all eventualities.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox