How to Become Your Own Boss
14/01/2021
Are you an aspiring business owner? Are you ready to step out on your own and become your own boss?
Perfect, we've got you covered.
Read on to discover the different ways you could start your own business, and we'll help you to decide which route might work best for you.
Being Your Own Boss
Working for yourself, or being self-employed, applies to you if:
- You run your business yourself and take responsibility for its success (or failure)
- You can decide how, where and when you do your work
- You can hire other people at your own expense to help you or to do the work for you
- You provide the main items of equipment to do your work
- You are responsible for finishing any unsatisfactory work in your own time
- You charge an agreed fixed price for your work
- You sell goods or services to make a profit
When you're working for yourself, you may operate as a limited company. This means that you both own the business, and are an employee of your company. In the eyes of HMRC, you're not self-employed in these circumstances.
It's also possible to be both employed and self-employed at the same time, for example, if you work for an employer during the day and run your own business in the evening.
If the above doesn't apply to you, and you are self-employed, you may need to set up as a sole trader.
To check if you are classed as self-employed, you can look online or by calling HMRC on 0300 123 2326.
How Do I Know if I'm a Sole Trader?
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be classed as a trader if you:
- Sell items or services regularly to make a profit
- Make items to sell for profit
- Sell items on a regular basis, either online, at car boot sales or through classified adverts
- Earn commission from selling goods for other people
- Get paid for a service you provide
If you only occasionally sell items or rent out a property (for example through auction websites or short-term rental apps), check if you need to tell HMRC about this income.
If you're not sure if you're classed as a trader, you can contact HMRC for advice.
Other Ways to Work for Yourself
There are other business structures apart from being a sole trader. For example, you can:
- Become a partner in a business partnership
- Set up your own limited company
How to Set Up a Partnership
With a partnership, you and your partner (or partners) personally share responsibility for your business. This includes:
- Any losses your business makes
- Bills for things you buy for your business (such as stock or equipment)
Partners share the business’s profits, and each partner pays tax on their share. A partner doesn't have to be an actual person. For instance, a limited company counts as a ‘legal person’ and can also be a partner.
When you set up a business partnership you need to:
- Choose a name
- Choose a nominated partner
- Register with HMRC
The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping business records. Remember: there are different rules for limited partnerships and limited liability partnerships (LLPs).
How to Set Up a Limited Company
There are two types of limited company: ‘limited by shares’ or ‘limited by guarantee’.
What is a Limited by Shares Business?
Limited by shares companies are usually businesses that make a profit. This means that they:
- Is legally separate from the people who run it
- Has separate finances from your personal ones
- Has shares and shareholders
- Can keep any profits it makes after paying tax
What is a Limited by Guarantee Business?
Limited by guarantee companies are usually ‘not for profit’. This means the company:
- Is legally separate from the people who run it
- Has separate finances from your personal ones
- Has guarantors and a ‘guaranteed amount’
- Invests profits it makes back into the company
What Are the Pros & Cons of Working For Yourself
Now you know the different options available, let's take a look at the good, the bad and the ugly elements or working for yourself:
Pros of Being Your Own Boss
1. Independence
Being your own boss often leads to a better quality of life, as you're able to set your own hours and fit your work around your other commitments
2. Job Satisfaction
It can be extremely rewarding to reap the success of your own hard work
3. Creative Freedom
You're in charge of decision making, and can choose to explore creative solutions to problems
4. Variety
You'll be involved with more projects and deal with various clients if you work for yourself, meaning you will develop new skills and knowledge
5. Salary
You have higher earning potential as you are in control of your own destiny. Financially, the sky's the limit
6. Location
You can often work from home. This means no concerns over office politics, company hierarchies, or a stressful commute
Cons of Being Your Own Boss
1. Unpredictable Finances
When you're working for yourself, your finances can be irregular. At first, you may go for several months without a profit, whilst still paying running costs such as rent, insurance, and internet access
2. Lack of Employee Benefits
As a self-employed worker, you won't receive sick pay, holiday pay, or any other employee benefits
3. Starting from Nothing
It can be a frustrating process establishing your business and building a client base. Progress may be slow and you will need the perseverance to grow
4. Responsibility
You will be responsible for not only business decisions, but also for your pension, National Insurance, and Self Assessment Tax Return. Remember, you'll even pay tax if your business makes a loss. These factors can lead to increased stress
5. Social Isolation
You will miss out on the workplace environment, this can lead to increased loneliness and you'll have to work harder to maintain motivation
Related Guides
3 Ways You Could Become a Business Owner
So, there’s a run-down of what it means to work for yourself, understanding partnerships, and learning about key characteristics of a limited company.
One of the best ways to become your own boss is to purchase an existing business. Why not take a look at the businesses available for sale?
