If the idea of being your own boss is attractive, you might be thinking of becoming self-employed. Self-employment presents both opportunities and risks. You should give some serious thought to what you have to offer and what you will need.
Advantages and disadvantages of becoming self-employed
There are many advantages to being your own boss such as:
- managing your own time and workload
- developing your career in your own way
- independence from organisational processes and constraints and control over your work environment.
Consider the drawbacks to see if self-employment is for you. You will have to:
- be responsible for all aspects of your business including financial and legal responsibilities
- organise suitable premises for yourself and your employees
- deal with unexpected issues that could impact on your personal circumstances.
Different self-employment options
There are several ways a business can operate through self-employment - think carefully about which type will suit you.
Your business could take one of three legal forms.
- Sole trader – this is the simplest way of starting a business. Sole traders work on their own, generate their own income and are personally liable for any losses or debts.
- Partnership – a minimum of two people hold responsibility for a business. The partners may or may not share equally in the business and carry out different types of work. Each person’s income and liability is proportional to their share in the business.
- Limited company - the business is a completely separate legal entity from the people who run it. The business must be registered with Companies House. Although there are more rules governing such companies, there are also tax benefits.
Here are some of the variety of trading practices.
Franchises – You buy a license to run a branch of a business that someone else (the franchisor) has set up. It allows you to start a business with the backing of an established brand and a proven business concept. The franchisor has some control over the way in which the products or services are marketed and sold.
Going freelance - Being a freelancer could be an option if you have years of employment experience behind you in a certain role or sector that you wish to remain in. You might choose to go freelance because you want more autonomy or flexibility. As you will already have built up your expertise, it will be much easier to market yourself to employers and use existing contacts.
Creating a portfolio career - You take on various part-time jobs or projects with different organisations. The type of careers may or may not be connected and the make-up might vary.
Social enterprises such as The Big Issue are businesses with primarily social or environmental objectives. Profits or a trading surplus are reinvested in the business or in the community, rather than paid to shareholders or owners.
Non-profit organisations with a social or environmental benefit are as varied as community enterprises, credit unions, development trusts, co-operatives and housing associations.
Community and co-operative enterprises such as the Co-op Bank share a similar ethos with social enterprises. They are owned and run democratically, profits are returned to members, and typically they use employee share schemes. They are not focused on making large profits, but are frequently creative, practical or founded on ethical values.Back to top
There are many aspects you will need to consider before starting your venture. Think through the skills, values, knowledge and experience that you already have. Spend some time completing a skills audit and identifying your core values. This will help you to recognise what you need to stay motivated in building, marketing and running your business or freelance work. See our careers self-assessment pages for more help.
Generating and marketing your ideas
List self-employment roles that interest and challenge you as well as considering whether there is a market for the trades, services or roles you could offer.
Before setting yourself up as self-employed, it is essential to carry out market research to assess the feasibility of your ideas. Check out similar or replica services or businesses in the geographical area where you intend to operate: what is the average price being charged, operating hours and location?
What would be different and an improvement about your service or business compared to others offering the same products or services?
Define the purpose of your business
Once you’ve researched whether running your own business is feasible, think about your customer profile and how many people may need to be involved in the business. It’s very important to develop a clear business plan for funding applications and forecast any financial issues.
Think carefully about the goal of your business.
- Is it primarily to create an income for yourself, using your skills and knowledge?
- Is it to produce profit and show a return on investment for a bank, business start-up company or private investors, sometimes called a consortium?
- Are you starting a business that has a wider purpose and will benefit others? Could your business be a non-profit organisation, where profits are re-invested in the development and quality of the business?
Write a business plan
Business plans are essential if you intend to apply for funding. Use market research to develop your business plan. You’ll find free sample plans at GOV.UK/write a business plan.Back to top
Financing your business
Explore different options when looking to finance your business. Funding and start-up packages are available from banks, trusts and charities, but also from business competitions, venture capitalists and business angels.
Funding your business yourself is probably the simplest way. However, it may not be the easiest route if you don’t have the money to invest. If you have a job already, you might have less time to spend on your new venture.
Loans and grants
Banks and organisations could provide funding either as a loan or grant. Another option could be to remortgage your property if you have enough equity or secure a loan against your home. We strongly recommend you take professional advice if you’re considering this option, as your home could be at risk of repossession if all goes wrong.
A venture capitalist is an investor who can either provide the capital to help start your business or support you if you’re looking to expand, but don’t have the capital yourself. A venture capitalist would invest in your business for a proportion of the equity, think Dragons Den.
Business angels are wealthy individuals who operate in much the same way as venture capitalists but are more likely to consider smaller ventures and to make investment decisions quickly without complex assessments.
Business plan competitions
Business plan competitions can provide excellent opportunities to both raise money for your idea and receive feedback on it. Business plan competitions often organise guest lectures from a range of relevant professions and events which sometimes attract business angels or investors, or useful contacts for networking.Back to top