Self-Employment: Understanding the Basics

Self-employment can be an option at any age. If you like the thought of working for yourself, this article will give you plenty of food for thought. We’ll look at the sort of things you could do, the reasons why you might decide to take the plunge, the kind of person you need to be and the various ways in which you can become self-employed. So that you avoid the potential pitfalls of self-employment, we’ll help you think through the main considerations, give you some basic advice and point you in the right direction to get more information and support.

If you decide on self-employment, you won’t be alone. According to the Office for National Statistics, around 4.25 million people in the UK work for themselves.

Why self-employment?

You need to approach self-employment for positive reasons rather than thinking it’ll be an easy option, earn money fast and be fantastic not having a boss breathing down your neck! 

Sure, in some cases, self-employment will give you the freedom and flexibility to work as and when you want, and it can sometimes be rewarding financially – although not often in the early years. However, as you’ll discover in this article, self-employment isn’t for the light hearted.

Self-employment can represent a new challenge to those who are struggling to find paid employment or stuck in a job they don’t enjoy. But people who tend to be successful have really good reasons for working for themselves; they have a well-researched, viable business idea together with the right skills and personality. 

Of course, in certain career areas, freelance work is common; think of those who work in the creative industries, for instance.

What could I do?

Depending on your skills, qualifications and/or interests, you could consider:

• Selling goods through your own shop, other stores or online
• Being an artist, designer, craftsperson, making and selling fine art, jewellery, textiles or ceramics
• Offering a service to businesses, such as accountancy, proofreading or web/app design
• Providing personal or healthcare services like counselling, podiatry, complementary therapies, hairdressing or childminding
• Offering practical building/domestic services, for example gardening, carpet or window cleaning, painting and decorating, or plumbing and electrical work
• Running a café or restaurant, catering for parties and other functions, or making food to sell through cafés or other outlets
• Teaching – offering private maths or English tuition, running craft workshops, coaching sports or teaching dance or music
• Being a taxi driver, driving instructor, courier or LGV/van driver
• Entertaining or performing – perhaps DJing, singing, acting or being a children’s entertainer
• Dressmaking, tailoring or making curtains and soft furnishings
• Blogging, vlogging or podcasting
• Running a hotel, guest house or B&B
• A rural or farming enterprise – anything from setting up a small holding to running a farm shop or glamping site

… we could go on!

What business formats are there?

No matter what you decide to do, your ‘business’ has to have a formal structure.

Many people who work for themselves are sole traders and this is the easiest way to start. Sole traders are found in all sorts of sectors; you might run a mobile hairdressers or have a small shop. People who sell their skilled services are sometimes known as freelancers, contractors or consultants, but are often sole traders. 

Some people decide to go into a partnership. This is a popular way of working in certain professional services, such as the law, dentistry and accountancy, but other people can work in partnerships too. Your responsibilities will be shared, but you have to be very sure that you trust your partner/s, and that you have the same work ethic and outlook.

If you want to set up a private limited company, you’ll need to find out about your legal obligations. Unlike sole traders or partners, you are seen as a separate entity from the business. Having limited liability can be a safer way of operating in case you end up with debts.

If you have the necessary funds, you could consider buying into a franchise. This enables you to use an existing business format and receive support from the franchiser. Some well-known franchises include McDonald’s, Molly Maid and Dyno Rod.  

Co-operatives are businesses that are owned and run by their members who all take a share of the profits. And then there are social enterprises that are businesses with a social or environmental aim.

Which business format you choose will depend on all sorts of factors, but particularly on the kind of work you want to do, how much money you have to invest and the risks involved.

What about money matters?

• You have to generate your own income and this may not be regular. Can you cope with this uncertainty? Do you have a safety net?
• Some ventures need significant financial investment to get going. You may need to buy stock, rent premises and have enough money to live on if you don’t make a profit in the first year or so. If you can’t cover these costs, you’ll have to take out a loan. Find out whether you might be eligible for the Start Up Loan scheme or a grant through an organisation such as The Prince’s Trust (see below).
• You’ll have to budget to pay your taxes . Depending on your business structure, this could include Income Corporation Tax and/or VAT.
• You may need to pay for an accountant or other specialists, e.g. for website design or shop fitting.
• You won’t get holiday or sick pay and you’ll have to sort out your own pension with no employer to make a contribution.

What else do I need to consider?

Apart from the financial issues outlined above, there are a number of other things you need to think about.

• Do you have the right skills and aptitudes? You need to be self-disciplined, determined and confident with excellent organisational and time-management skills. It helps if you are the kind of person who can turn their hand to all sorts of tasks – from keeping records to promoting your products.
• Are you prepared to work long hours, especially while you’re making a name for yourself?
• What happens if you are ill or not able to work for another reason? Depending on the kind of business you run, you may not have anyone else to take work off your shoulders, and your clients or customers will be relying on you.
• Are you aware of rules and regulations? For instance, you may need public or professional liability insurance, have to follow all sorts of health and safety regulations, understand employment law, be aware of data protection and know what you can and can’t do when operating a business from certain premises.

What are my first key steps to self-employment?

• Clearly identify your clients or customers. You will need to make sure that there is a market for your product.
• Find out how other similar ventures operate. What can you offer that your competitors can’t?
• Think about how you will market your business initially and in the future. You could pay for expertise in this area or do it yourself via social media, your own website, sending out flyers, giving special offers and so on.
• Establish your start-up costs. Some businesses are cheap to set up needing only a computer and broadband connection, but for others you need premises, stock, staff and so on.
• Forecast your income and expenditure and then work out whether you are likely to make a profit.
• It’s useful – often essential – to produce a business plan. If you need a bank loan or investments, you’ll need to show that you have a viable business idea.

What support is out there?

There are business support services in different areas of the country – all have useful information on their websites and helplines; you can find links to these via GOV.UK. Other sources of advice and support include banks and local councils.

If you’re at school or college, you may be able to participate in a Young Enterprise programme. This would give you an insight into what it might be like to run your own business.

The Peter Jones Foundation for Enterprise offers courses and qualifications through various learning providers, mentoring support and a national enterprise competition for those aged 18 and under.

If you’re in higher education or recently graduated, find out whether your university offers business start-up support. Some offer specific help and/or partnership arrangements, especially for those with a tech or scientific business idea.

The Prince's Trust Enterprise programme helps those aged at 18-30 who are unemployed or working fewer than 16 hours a week explore a business idea and turn it into reality. Participants receive training and mentoring, including support with writing their business plan.

Finally…

It’s well known that many businesses fail in their first year or so, but if you get advice and research your idea thoroughly, there’s no reason why you shouldn’t make self-employment a success.

Whether you’re aiming to make a modest living or want to be the next Richard Branson or Karen Brady, don’t be afraid to access the support you need.

Debbie Steel, updated July 2024

With a background working with apprentices and teaching in further education, Debbie was employed as an in-house careers author before establishing herself as a freelancer. As well as co-authoring numerous careers books, Debbie has produced resources and web content for a range of high-profile clients. She is an enthusiastic proponent of impartial and reliable careers information.