If you’re hoping to become self-employed it’s vital you have a grasp of the fundamentals.
This is especially true at the current time for two reasons. There’s been a significant surge in the number of people opting to become self-employed since the economic downturn. Therefore there is likely to be more competition in sectors where self-employment is the common route to starting a business. It’s also true trading remains tough in many sectors. But don’t let this put you off. Becoming successfully self-employed when trading is difficult will give you confidence you’re on the right track.
Planning & Cash Flow
To give yourself the best possible start you need a plan. Are you prudent with money? The chances are starting a business means taking on more debt. Research shows the self-employed are more likely to fund their business from credit cards and generally have higher debts than those working fulltime.
Most people going self-employed will underestimate how much capital they need, especially if their business has a slow start. You should plan for a poor start to make sure you can cover your own outgoings if trading proves difficult.
The secret of success is to fund your business as far as possible from cash flow. Start small, keep overheads low and that way you are less likely to run out of money – the most common cause of the self-employed giving up.
If you are new to business planning support may be able from your bank or council.
When you turn self-employed you’re responsible for paying your own tax and national insurance although it’s sensible to use the services of an accountant. Different tax rates apply depending on the structure you choose. Finding an accountant before you start trading will help you start on the right foot. The structure you choose also has implications for national insurance contributions and the timing of tax payments. Don’t feel obliged to hire the first accountant you meet. An accountant is so central to your business it’s worth seeking out an accountant you feel you can build a long term relationship with. A good account will also make sure you take advantage of any applicable reliefs and allowances thus saving you money long term.
Insurance and Protection
Depending on the nature of your business there is a range of cover to consider. The most basic is to consider whether you need to alter the buildings insurance policy for your own home. The self-employed typically do some work at home. You may not have to change your policy if you don’t meet other people connected to your business in your property. This includes suppliers and customers. However it’s important to check with your insurance company.
Public liability insurance is considered essential for businesses and professional indemnity cover might also be applicable.
Of course, it’s not just customers and the public you should consider protecting. You should also consider protecting yourself through income protection insurance. Unlike life insurance which only pays out when you die, income protection insurance is designed to protect your income if you’re unable to work. It’s particularly important for individuals who are sole earners or those who would be unable to cover their overheads for any length of time if they lost their income.
While public liability insurance is largely a matter of common sense, the significance of income protection is not so widely understood. But there are policies out there, like ours, offering income replacement of up to £1200 a week indefinitely, until you’re able to work again. On that basis it’s worth giving serious consideration to specialist income protection cover when you take out other self-employment related insurance.