Personal Finance Expert and Founder of Mrs Mummypenny
Are you considering self-employment, or maybe you are self-employed or have been in the past? Doing what you love can be the most powerful form of self-expression. Or it can be a nightmare of worrying about income and cash flow.
More of us are choosing self-employment. According to the Office of National Statistics, there were more than 5 million self-employed people in the UK by December 2019 compared to 3.2 million in 2000. A lot of people take the leap mid-life after years in the corporate world, and many have set up businesses during the pandemic.
Back in 2015, I left my ‘safe’ well-paid corporate job and set up Mrs Mummypenny officially. No longer a side-line or hobby project, I was going to focus on it full time and make it work. I believed that I had a great idea and very few other people out there were doing it well. I could be the best and make it a success. Now, writing this in 2021, I have indeed created a successful business.
Based on my experience, I can share what the positive and negative aspects of self employment are.
Let’s start with the pros.
What are the benefits of being self employed?
1. A chance to make a living from your passion
We all have something that we are passionate about, right? Something that lights up our life and fills us with joy? Setting up your own business can channel that passion into your everyday life, allowing you to make an income from it. What could be better than earning money from doing something that you love.
Almost 20% of 2,015 self-employed people that Superscript surveyed said their greatest motivation was following their passion. And another 19% cited that their motivation was building something themselves.
The mental health benefits here are huge. So much so that 50% of the people surveyed either strongly agree or somewhat agree with the statement, “I love what I do so much for work, that I don’t see it as work.”
To wake up everyday and want to work is a huge deal, something that I personally constantly struggled with in the corporate restrictive world.
2. Freedom and flexibility
One of the biggest reasons people set up their own business is to gain more control over their schedule.
As a self-employed person you are the boss, you answer to yourself with no one telling you what to do. Your hours can fit flexibly around your life, if you want to work a four-day week you can, if you want to work at 2am in the night, you can!
The flexibility often means that self-employment suits those with a busy family life, working business hours around the children. It can also mean that you can work from home or from any location, particularly if internet based.
3. The financial rewards are unlimited
You get out of your business what you put into it, which means how much money it can make is limitless. It’s entirely up to you how big your business becomes. And if you grow your business in the right way, evolving and pivoting when you need to, your turnover will grow and grow. At some point, you may need to outsource some tasks to keep up, or hire a team, but all of these decisions are within your control.
4. Great control over allowable expenses and tax payments
This one is partly a pro and a con but running your own business means that you are responsible for all of the financial records associated with it. This includes a vast array of allowable business expenses. You must keep accurate records of your income and expenses, expenses are then subtracted from your income to calculate your profit, on which tax is paid. There are many allowable expenses that can help to reduce your tax bill.
I would also say sign yourself up to some good, automated accounting software, something like FreeAgent or Xero. And if you’re remotely worried or unfamiliar with producing and submitting your own accounts, I’d recommend hiring an accountant.
What are some disadvantages of self-employment?
1. Hard work and the time it takes to build a business
Talk to anyone running their own business and they will tell you, particularly in the early days, running your own business is hard work. This is especially during the first few years, which are also rarely profitable. The hours of marketing, content creation, lead following and quotes can feel endless to get your business to a point of financial viability.
Many businesses fail in their first two years, with business owners underestimating the amount of work required to generate cash flow. No business can survive without a positive cash flow. Nothing will become more true to you than the phrase ‘cash is king’.
Superscript found in their survey that, on average, the incomes of self-employed people have dropped by 15% as a result of Covid-19. This was felt more so by women, who lost 20% of their income, compared to men who lost 11%. This has led to 25% feeling anxious and 14% feeling frustrated.
The events of 2020/2021 have hurt many businesses. To survive, many have had to change their business strategy, often to something completely different. And sadly, many businesses have slipped through the government support net and received no money to help them survive.
2. Having to do everything yourself
When you set-up your business, it’s important to keep costs down and work on building income. The result is that you often become responsible for everything – the bookkeeping, admin, sales, marketing, legal, design, IT, negotiation, the list goes on and on. Much of this can be outsourced, but only when there is sufficient income or desire to do so. It can be difficult to let go when you have been in control of everything! It can sometimes feel like there is a never-ending list of tasks to be completed, many of which can get in the way of the core purpose of your business, but alas must still be done!
Having to handle everything yourself also applies if you were to make a mistake in your work or if someone had an accident as a result of your business. If someone sued you, you could be liable for the legal and compensation fees, which would have to come out of your own pocket. Buying self-employed business insurance not only means these fees should be taken care of, but also means you’re not alone in dealing with a claim.
3. Pension Contributions
One of the biggest benefits of employment is a pension that not only you contribute to but also your employer. The minimum contribution is 5% from you and your employer will top this up by 3%. Many employers offer more than this and will raise their contribution if you do as well.
As a self-employed person, the only contributions to a pension are made by yourself. There is zero extra bonus from an employer, as you’re the one in charge. But there are the same tax benefits for the self-employed. If you are a self-employed person who pays a lower tax rate, your pension provider will claim for the extra 25% tax top up, so for every £100 you save, an extra £25 will be claimed. More so via your tax return if you are a higher rate taxpayer. If you have a limited company, the pension contributions are an allowable business expense.
4. Holiday and sick pay
Any time off from your own business will be unpaid, unless you have an element of passive income generation (you earn money without having to do anything). This often means that you never switch off and always do that little bit of extra work, even when away on holiday. The same applies to sick pay, if you are ill, any time off will be unpaid if you’re self-employed.
One way around this is to store some cash away each month and put it in a holiday/sick day account. That way you have a safety net if you want or need to take time off.
Is it worth going self-employed?
In my opinion, 100%. I am beyond grateful for Mrs Mummypenny and the life and opportunities it has given me. The mental health benefits and control over my life are a huge deal for me. I love being able to do what I love, and fit working around family life.
If you’re not sure if self-employment is for you, try and weigh up the pros and cons for yourself and make a bit of a plan of what you’d like to achieve. If it doesn’t seem attainable, it might not be the right time. But if you’re ready to take the leap, have a read of our guide on going self-employed.
This blog post has been written as part of our Business is Personal campaign, which explores what it's like to be your own boss at this moment in time.
If you’d like to find out what kind of boss you’d be, why not take our quiz and see what you get!