Are you strapped in and ready to go? Welcome to the world of self-employment.
We don’t need to rattle through the benefits today; they’re there for all to see. However, as you ponder this life-changing decision, it’s also very easy to be drawn into the potential risks.
Such a thought process should not be condemned, either. The media are very good at highlighting start-up risks, and for many, this is sufficient information to put them off the project.
If you are sitting on the fence, today is for you. Let’s now look at some of the key questions you should ask yourself before taking the plunge.
Do you have a financial safety net?
This is an important question and one which many overlook. Even the most successful self-employed individuals will have times when work is scarce.
Let’s not forget that even if little work is coming in, you’ll still be responsible for all of your fixed costs, whether it’s office rent or even your professional indemnity insurance.
As a result, you need to have a financial cushion to tide you over during these difficult periods. This could be in the form of savings or a potential redundancy payout if you are leaving employment.
There’s no specific “correct” amount, but many sources suggest a 6-12 month cushion will be sufficient to keep you afloat.
Are you prepared for the potential lack of annual leave?
This is a big one for many people. When you’re employed, you have the security of knowing that you’re entitled to a certain amount of paid annual leave each year.
This doesn’t necessarily translate to the self-employed world. Yes, you can take a holiday whenever you want, but in short, you’re not going to be paid for it.
As a result, it’s important to factor in the potential loss of earnings when planning your annual leave. Alternatively, you could look at working whilst you’re on holiday, although this obviously isn’t ideal!
How much will you pay yourself?
Many people struggle with this one, particularly in the early days. It can be tempting to simply take whatever is leftover at the end of the month, but this isn’t a sustainable long-term strategy.
You need to pay yourself a salary that allows you to live comfortably and contribute to your pension and other essential outgoings. While these additional costs might not appear necessary, it’s crucial to factor them into your decision. After all, they were covered when you were an employed worker, so if you’re no longer accounting for them, are you potentially putting yourself in an inferior financial position?
Do you have support from your family?
This is a vital question, particularly if you have young children. Running your own business can be a very isolating experience, and if you don’t have family support, it can be tough to cope.
Of course, this isn’t always possible, but it’s well worth considering. For some people, not having the buy-in from family can be a deal-breaker. Establish where you are all sat in your journey.
