9 Challenges To Consider When Working For Yourself

If you’ve considered working for yourself, you probably already know the benefits. You instantly gain flexible working hours, the pride of working for yourself, you can do something that you enjoy, no more commuting, and you get to forget about office politics for good.

However, working for yourself is not always rosy, and here are some of the challenges that you will need to consider if you start working for yourself full time.

1. You lose the perks and benefits

Many companies offer a range of benefits to entice you to work for them, such as childcare vouchers, medical insurance, private pensions, company cars and more. If you work for yourself, you won’t have these benefits. You will have to investigate your own requirements for medical insurance and pensions and deal with them privately. On the other hand, you might not need any of the benefits you’d get with an employer.

2. You can’t get away with doing nothing

With most employment, there’s a margin of which you can get away with doing nothing and still get paid for it. For example, if you have a day in which you don’t do very much, normally it’s not likely that your manager will notice. However, when working for yourself, there’s usually a direct correlation between what you do and your revenue.

3. Your credit rating takes a hit

Those mysterious credit ratings are quite sensitive to how you earn your money. If you become completely self-employed, you are considered a credit risk by financial institutions. This is because financial institutions consider self-employed workers more likely to earn a poor income or even fail completely compared to employed workers. As a result, it’s more likely that you’ll attract higher interest rates or credit refusals when trying to take out a credit card, loan or mortgage.

4. No more work-related social events

Unless you organise your own social or networking events, you’re going to miss out on the work jollies or socials. It depends on how good the work parties are if you’re going to miss them. In my case, the work social events are great fun. It is something I will miss.

5. You’re the boss, secretary, accountant and worker

Certainly as your business grows, you’ll have to do everything yourself. If you’re a control freak or you thrive on working hard then this could be the reason you wanted to work for yourself. However, bear in mind that you might need to grow your skills in a certain fields in order to fulfil your role. It will also be lots of hard work upfront before you begin to see the fruits of your labour. But that’s also one of the many reasons it’s great fun!

6. Sorting out your own paperwork, accounting and tax

When you work for an employer, typically your tax is calculated for you. In the UK, tax is also deducted at source via the Pay-As-You-Earn (PAYE) system along with National Insurance. If you work for yourself, you’ll need to do your own tax self-assessment, which allows you to work out how much tax you need to pay. In the UK, self-assessment is designed to cover income tax, national insurance contributions and student loan payments.

Although self-assessments are not too painful, you might need to get accountant advice to work out what tax relief you are entitled to so that you can minimise the tax you need to pay and therefore maximise your effective salary.

Since you need to pay tax at the end of your working year, make sure you correctly estimate what your tax bill will be. Once you have this estimation, put aside the associated portion of your profit ready to pay the tax at the end of your tax year.

7. Earning the smallest salary you need to survive

If you produce a detailed budget of your outgoings, you’ll soon see that the budget can be divided into the ‘essentials’ and the ‘extras’. The essentials are things you must spend money on in order to live, such as rent, mortgage payments, basic food, heating, water rates, etc. The extras are things you choose to spend money on to enjoy rather than being things you need to survive.

It’s worth calculating the smallest amount of money you need to survive, as it can help prioritise how you earn your money. For example if you can work 3-4 days a week for an employer to earn this minimal salary, then anything else you earn through your business will pay for the extras. This is a good solution if you’re just starting your business. Clearly as your business becomes successful, you can leave your employed work as you earn the minimal salary through your business.

If you have dependents such as children or other family members, then being self-employed can be a risky strategy. Since you and your family’s welfare is essential, plan as much contingency into your earning methods to minimise the risk of earning a poor salary.

8. You are responsible for business ideas

Since you are self-employed, it’s your ideas that you want to make money. To do the best you can to make them a success, research your ideas in as much detail as humanly possible. You want to be able to quantify how successful the idea can be, such as what investment capital it needs, the target market, the estimated time to reach profit, and the degree of profit.

Do accept that not all of your ideas will be a success. Be prepared to learn from them.

9. You are your own motivator

Working for yourself can be a hugely rewarding career choice, but there will be tough challenges and problems to face. Having a supporting family and friends to call on will help comfort you, but you alone will need to tackle problems. It’s worth building up a range of experienced contacts that might be valuable as resources to help you tackle the challenges you hit.

Learning how to motivate yourself when things get rough is a valuable skill, and it’s something that only you can learn how to do.

Conclusion

The challenges above are just a few of those that you need to consider when working for yourself. If you have any tips to add to them, please leave a comment below!