For some, a new year means a fresh start and can give rise to new ideas, new goals and new plans both at home and at work. And if you got that heart sink feeling when you went back to work on January 2nd perhaps it’s time to take a look at your career options.
Today, an increasing amount of people are turning their backs on traditional permanent employment and opting instead to go it alone and work for themselves. And, with 99% of UK businesses believing a flexible workforce is key to their competitiveness, it really is a two-way street. Julia Kermode is chief executive of the Freelancer and Contractor Services Association (FCSA), the UK’s largest independent trade association whose members provide professional support services to some 120,000 contractors and freelancers, and here she offers some advice on the important things to consider before taking the plunge to set up on your own.
First and foremost you might want to ask yourself why and ponder a few tough questions to help you decide whether freelancing is for you. Are you disciplined enough? Is there a market for your skills? Do you know your own strengths and your own limits? Are you flexible enough to adapt quickly to new clients and new projects that come your way? Do you have a business head to negotiate well on rates? Do you have a strong network of contacts and can you market yourself effectively? Are you organised to manage your workload and manage your finances?
Once you have done some soul-searching and are still keen to set up on your own then you might want to consider the following practicalities:
Choose your business model
Are you going to work as a sole trader or form a limited company? The structure you choose will have commercial, financial and tax implications. Increasingly, the most popular trading model is the limited company option; being limited means that your business finances are separate from your own personal finances and so if you run into any difficulties with your business you will not be personally liable. You will only lose money from your business. However, most people initially might choose to set up as a sole trader initially. Working as a sole trader brings much of the freedom that comes with a limited company but without the formality. However, a sole trader is still responsible for maintaining accounts and records but the income generated will be counted along your personal income, making the accountancy side of running your business fairly straightforward. But that does mean that your personal assets could be at risk if your business fails and there are debts to be paid. Whichever route you decide, find a good accountant to help you who specialises in managing the accounts for micro-businesses.
Choose a name and a brand
Before selecting a name for your business, a trading name if you are setting up as a sole trader or a limited company name there are some things to take into account. Firstly, be sure that it sounds professional and is inoffensive. By law, your business name must not include any sensitive words and if you are setting up as a sole trader you must not include limited company related words in your business name such as ‘Ltd’.
If you are becoming a limited company you must check for uniqueness via Companies House to find out if anyone else has chosen that company name. If you are setting up a website it is easy to check for domain names via one of the domain name sites.
With your name chosen you might consider a logo along with business cards. If you have the technological savvy it is easy to design a logo and a website yourself nowadays.
Getting finances in order
Be scrupulous about keeping work and home finances separate. Setting up a business account will help you to manage your finances better and keep a track of your business expenditure. One of the most important aspects of running any business is the accounts. Keep a record of all your invoices and payments and file them properly to save yourself additional hassle when it comes to sorting your tax at year end. It is important to keep on top of all your incomings and outgoings, business costs and overheads and know and understand your financial position. Don’t be one of those people on Dragons Den who clearly doesn’t know how their business operates. Knowledge is power and understanding your finances will stand you in good stead and should put you in a stronger position than not knowing – you will be able to tackle anything head on before it becomes too big an issue if you have the facts. An accountant or book-keeper will be able to help you.
Register with HMRC
When it comes to making your business official it is important to register as self-employed with HMRC and register for self-assessment. As a sole trader you will be expected to pay income tax and National Insurance contributions and if you are a limited company you must inform HMRC because there will be corporation taxes to pay.
Get insurance in place
With freelancing comes lots of freedom to work on a wide and diverse range of projects. However, if something goes wrong at any time you could be in trouble if you do not have the right insurance in place. With independence comes responsibility and it is important that you consider the right insurance for you. Ask yourself do I give professional advice? Will I get paid if I am sick or injured at work? Do I employ my spouse? Do clients visit me at my premises? Do I have legal duties if I operate as a limited company? Do I need funds to defend myself against any actions taken against me, even if they are unfounded?
If you can answer yes to any or all of these questions, then it is important to consider taking out some insurance. Talk to a specialist advisor about public liability insurance, professional indemnity insurance, contents insurance and business interruption insurance for times when you cannot work for one reason or another. Insurance can give you the peace of mind you need when you are working independently.
And remember, with some 5 million people working self-employed in the UK today you are not on your own and there is a whole host of advice and help available for anyone who is considering working flexibly. So, what’s stopping you?
Julia Kermode is chief executive of the Freelancer and Contractor Services Association (FCSA), the UK’s largest independent trade body whose members provide accountancy and umbrella services to freelancers and contractors.
