Should you be Self Employed? (A guide to the advantages and pitfalls)

Should you be self employed?

Being self employed is a tough road. Being prepared can make your journey to independence much more rewarding!

“I’m my own boss”. It is a dream that almost all of us have had at some point in our career, whether it is as the alarm shrieks its shrill warning to rise, or as another infuriatingly fruitless meeting starts to come to its inevitable conclusion. Much is talked about ‘work-life balance’ and job satisfaction, both seen as a main-stay of being self-employed, yet it is not as clear cut as that. There are many delicate calculations to make, many deep intricacies depending on profession and lifestyle, skills and desires that mean each individual situation requires careful thought. There is certainly no ‘one size fits all’ answer to the biggest question in any individual career; do I go it alone?

When deciding between the many pros and cons of turning self-employed in New Zealand, there is a whole raft of things to consider. The most obvious are the financial incentives.

The Financial Case for Turning Self-Employed

In working for someone else, you have a ‘guaranteed’ income. Each week or month, you will return home with a set amount, regardless of the company’s success (to an extent). The company turnover is not your direct concern, and your blood sweat and tears will earn you the same financially as it will on those days when 5 o’clock cannot come fast enough. Your pay is reliable, but stagnant. Hard work may be repaid, at some unspecified point in the future, and if the company suddenly hits gold, it will not weigh heavy in your pocket, but theirs. What is more, self-employed contractors can often earn around 25% more than salaried employees for the same work.

Well then, self-employed it is! The harder you work, the more you earn. In theory. There are no guarantees. Payday will come and go with no guarantee that a wage will pop into your bank account if you have not secured the work yourself. Finding work as a freelance or self-employed individual means finding the opportunity, bidding and winning the job before you start to work on it. The initial phase of finding work is unpaid. Does the job itself provide enough financial reward for the combination of the time and materials required for the task itself, as well as the time and resources spent finding and bidding on it (and the last three failed attempts)? If you have no clients, you have no income – the self-employed version of being made redundant. This is why many self-employed contractors build a ‘rainy day fund’, usually equivalent to three months living costs.

Therefore, from a financial standpoint, the choice to go self-employed or not really depends entirely on the availability of work. If there is an untapped source of jobs, then your earning potential as a self-employed venture is limited purely by your working habits, resources and time – a limitless opportunity that simply does not exist in the employed sector. However, this must be considered sensibly. If there really was the completely untapped source of work for a self-employed individual, why has no one else considered tapping into it?

Finding a reliable client base is something that will come with time. If you have enough clients to start, it is likely that there are enough clients to sustain the business in the future. Client bases and reputation grow, and finding works becomes much easier as time goes on, as more projects are completed to standard, and word increases. It is a daunting prospect finding enough work, but if there is enough available to encourage you to take the leap, it is very likely there will be enough to sustain the company.

This is especially true in the current financial market. Companies have casualised much of their workforce in an attempt to cut overheads, with many companies, large and small turning to freelance contractors, consultants and labourers when once those positions were held in-house. This is a trend that does not look likely to change. Though economists are preaching the end of the financial downturn, and a slow return to a growing economy, many businesses will be reluctant to increase overheads to the level they once were, instead retaining the flexibility of a contracted workforce.

When considering the expense of setting up as a contractor, with printing business cards, buying tools, potentially creating a website and hiring an accountant, there are some fundamental returns. These come largely in terms of self-employed tax relief. Expenses of the nature mentioned above can be taken against tax, and if working from home, or working from a home office, a percentage of household bills can also be written off in this way. It is well worth hiring, or at least consulting, an accountant for these reasons alone.

Being self employed means a bigger workload!

Being self employed can mean a lot more responsibility!

The Work itself – Self Employed vs Employed

The common cartoon style ‘work problems’; awful bosses, awful colleagues, repetitive, ear-splitting alarms, these are all a thing of the past when you turn self-employed. It does not however, remove awful clients! Though, if the business is performing as well as it does in your mind’s eye, you can even choose your clients! Even the least appealing of clients can provide an interesting project, and for many, the lure of being able to pick and choose the work, or at least be able to regularly change working environment, stylistic input or location makes being self-employed a much more stimulating form of work. In working a variety of projects, rather than in a steady job, you gain much more experience, and develop many more marketable skills (or extended portfolio) than you might working for someone else. This can only aid in securing work, and could even widen the horizons of future projects.

In seriousness, when you are working for yourself, everything you do adds or subtracts from your reputation, and it is professional reputation that will be the deciding factor in the success or otherwise of any self-employed venture. Every task must be completed to standard, or the old adages of “a dissatisfied customer tells 11 times more people than a satisfied one” come into play; with your income potential. When you are self-employed, you cannot afford ‘off days’, or it is your company that will suffer as a consequence. There is huge pressure involved. Sick days and holidays do not exist when you are self-employed, there is no safety net.

However, without a safety net, you are forced, or should at least force yourself, to make sensible plans. By careful planning, you can ensure that overheads do not spiral, resources are not stock-pilled for that “guaranteed” job, and that debts and promises do not grow. It is this careful planning that means that in the worst case scenario, you are not left in the cold. Finance packages and ‘buy now pay later’ deals are the luxury of the employed, not the newly started self-employed. When times are good, and clients are fighting on the doorstep, it is vital that some money is put to one side for those times when the clients are not so easy to find. Most contractors put aside enough to cover three months living.

The Self Employed Lifestyle

Of course, the lifestyle itself will entirely depend on two things; your desired lifestyle, and your line of work. Your working hours as a self-employed contractor are really up to you. Clients may expect to be able to contact you during reasonable hours, but the flexibility is untold. Working around family commitments, other jobs or simply your own preferences for working until 2 am and sleeping until 12 are rarely an issue when working for yourself, though again, this will entirely depend on the industry. The advent of the internet has completely revolutionised being self-employed, as geography and communications are now rarely a consideration.

In many lines of business, a contractor must be entirely flexible to the whims of their employers. Many contracts are won on the basis of immediate availability to start. Being able to drop everything at a couple of hours’ notice may make the difference between winning a project or remaining out of work until the next opportunity arises, and this can take a toll, if you are not prepared for it.

However, many self-employed contractors find it hard to ingrain themselves into a team when working on a project. Full time staff tend to side-line contracts, as not being ‘one of the guys’, and though their contribution is often absolutely vital to the success of the venture, they are not included. This, for some, makes working as a contractor a lonely prospect.

The Decision to go Self-Employed

In New Zealand, there are a number of things that an individual must do to become legally self-employed. It is remarkable easy though. The administration required to do so should certainly not stop anyone from turning self-employed. If so, the first step in your new business plan should be to acquire an experienced PA!

And so the decision to turn self-employed comes down to one question; is the potential benefit in terms of finance and freedom outweighing the risk that there is no work available, or that I am unable to perform the work that is? Is the answer is ‘yes’, then the pros outweigh the cons; self-employment really is the dream. Self-actualisation, seeing the direct benefit of your labour, is the prize for turning self-employed. It is a feeling that is unsurpassed in human endeavour, and a sensation that can only be realised by going self-employed.

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