The pros and cons of self-employment

A version of this article was originally published on 19 July 2021.

Are you considering self-employment?

Leaving your ‘safe’ well-paid corporate job and setting up your own business can be daunting. You have an idea and see an opportunity — but what was once a side-line or hobby project now needs your undivided focus to make it work.

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.

Let's take a look at the positive and negative aspects of self-employment, starting with the pros.

What are the benefits of being self-employed?

1. A chance to make a living from your passion

Setting up your own business can channel something you're passionate about 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?

In a Superscript survey, almost 20% of respondents 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 these same people 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 every day 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 and answer only 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 start work at 2am, you can!

The flexibility often means that self-employment suits those with a busy life, like working business hours around your children. It can also mean that you can work from home or from any location, particularly if internet based.

3. The financial rewards can be unlimited

It’s entirely up to you how big your business becomes — you get out of it what you put in.

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. Greater control over allowable expenses and tax payments

Equal parts pro and con, running your own business means being responsible for all of the financial records associated with it, including 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.

Automated accounting software, like FreeAgent or Xero, can be very helpful.

Ultimately, if you’re worried or unfamiliar with producing and submitting your own accounts, instruct an accountant to help.

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.

Also, the first few years are rarely profitable.

You're not just doing your job either — consider the hours of marketing, content creation, lead following and quotes to get your business to a point of financial viability.

Rather soberingly, 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.

Many have to adapt their business strategy to survive. So having an open mind and pro-active approach will take you far in your venture.

2. Having to do everything yourself

When you set up your business, it’s important to keep costs down and work on building income.

That seems simple enough, but you’ll likely find yourself being responsible for absolutely everything as a result.

This includes your bookkeeping, admin and sales — not to mention your marketing and design, your legal matters and any IT issues. And to top it all off, you’ll probably oversee any negotiations and contracts too.

Before you know it, you have a lengthy to-do list and you’ve not even got round to your actual job yet.

This can feel really isolating. This is completely normal and you’re not alone.

If you’re self-employed, you might want to consider joining a like-minded community. Our partner, Passionfruit is a premium freelance community connecting you with other freelancers and potential clients.

If you’re self-employed, consider joining a premium freelance community like Passionfruit and connect with potential clients and other freelancers.

Companies, like Passionfruit, can help tackle your to-do list and get help handling your admin, payments and contracts. They also provide ongoing project support, so you can focus on the work you love, knowing you have a community to lean on when you need it.

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.

As the business owner, you could be liable for the legal and compensation fees. Having adequate self-employed business insurance, designed to cover such matters, not only means your fees could be taken care of, but that you’re not alone in dealing with a claim.

3. Pension contributions

When you're employed, you and your employer both contribute a minimum of 5% and 3% respectively, with many employers offering to raise their contribution if you do as well.

Being self-employed means making your own contributions to a pension but there are the same tax benefits, despite you being the sole contributor.

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.

For higher tax payers this can be more via your tax return.

Also, if you have a limited company, pension contributions are an allowable business expense.

4. Holiday and sick pay

Unless you have an element of passive income generation — which is where you earn money without having to do anything — any time off from your own business will be unpaid.

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 — any time off for illness will be unpaid if you’re self-employed.

Many set aside cash 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?

You have to weigh up the work/life balance and opportunities self-employment brings. Are there benefits to your mental health? Do you have more control over your life? Many love being able to do what they love without compromising working around their personal lives.

If you’re not sure if self-employment is for you, make a pros and cons list and set out 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.

Whatever you decide — remember that you're the master of your own destiny. Good luck!