Guide to becoming self employed and running your own business
Who is this guide for?
Someone who is currently working full-time for the man. Someone who has a good idea and the drive to deliver it. Working for yourself requires many qualities and isn’t for everyone. You’ll need to be focused, driven and smart in order to succeed in running your own business. I’ve seen many people start as freelancers only to cave in and go back to full time employment within 2 years. There are many reasons for this, some of which I’ll come onto later.
What we’ll cover
- Why do you want to work for yourself?
- Preparation and getting ready for business
- Systems and Technology
- Money, Tax and Accountants
- Running your business
- Help and Support
What we won’t cover
- Detailed accounting practices
- Setting up limited companies
Why do you want to work for yourself?
Most people dream of working for themselves or not working for a company. In reality work is the same whether it’s for yourself or for a boss. We all need income to live our lives. The only difference is YOU get to define and shape what your work is and how and where you do it.
Some people think that they’ll have more time, more freedom and more money if they work for themselves. This can be true but it completely depends on you and how you operate your business.
When I left my full time job as a Business Development Director of a digital agency in London, I wasn’t happy with the function of my particular role. I felt like a Matre D at a good restaurant. I would greet the diners, tell them how wonderful our products were, then hand them over and not really be involved with them anymore. This was hard as a lot of the time the customers were buying into me not just the company or product. So I resigned and started my own consultancy business, which allowed me to work with the customers.
Preparation and getting ready for business
There is never a perfect time to quit your job and start working for yourself. There will always be reasons why you could put it off or wait until X or Y has happened. Depending on your commitments (mortgage, family or debts) I would suggest you have at least 2 months running costs in the bank which will help you get started. This doesn’t mean you have 2 months off or 2 months before you actually start pushing it.
Obviously you could be starting a business doing a variety of different tasks. I’m assuming that you are a consultant or someone that produces something, perhaps in digital: websites / designs / content etc… Think about what you will need to work for yourself: a laptop? a printer? a desk? an office? (probably not as that one can be expensive to start out). Make a list of the minimum items you’ll require and get them ready.
Go out and talk to other people that have done the same thing as you. Find out where they had the most successes and failures. This will be a massive help to you. Start thinking about customers. Where are you going to find them? Do you have some already? Are they customers of your current employer? Will they come with you if you go it alone? Are you allowed to take customers (check your contract!). When I left my company I went back through the list of potential customers we lost pitches to over the last 12 months. This was a great idea as they were not connected to my previous company so I wouldn’t be treading on anyones toes and as I was working for myself, my fees were lower than an agency with their overheads.
Depending on your current employment contract there is no reason why you can’t start your business while working full-time. Use the evenings and weekends to plan out what you need to do and prepare stuff you’ll need: a website, marketing material, business cards and contact lists…
You will need customers in order to run your business. You might find that you only need one or two in order to get started. You can be pretty lean when you start out. Adjust your lifestyle to match your new income level. Focus on getting a few customers who pay well and allow you to do good work. You might have to take on a few projects or customers that are not ideally suited to you or the type of work you do. However, you need the income and experience when you are starting out. Once you are more established you can work on finding the ideal customers and projects.
Ask for referrals. Most, if not all of my customers come from word of mouth referrals. People I’ve done projects for in the past who appreciate my work and experience will always recommend me to new prospects. Don’t be afraid to ask for referrals. People don’t sit around thinking about how they can make your business better. You need to let them know that you are looking for some new projects and could they introduce you to Mr X or company Y. A good tip is to go through your LinkedIn contacts and carefully read through your customers connections. You will find people in there that you could work with. Ask for an introduction.
Another sticky point is how much should you charge for your work / time. There are loads of posts on the web about this. You can work out some equations based on your expenses vs total hours worked in a month to get a figure. Then you have to be careful that you are competitively priced yet not too cheap. My advice is to find out what others charge for similar work in the same location (someone in London will probably charge a lot more than someone in Bucharest). One of the best tips I can give you here is Don’t be cheap just to get customers. You might be able to get some new customers but its hard to put prices up later. Plus you need to live off your income and there is no sense in working 60 hour weeks to earn less than you did full time. You will make some mistakes with your pricing but don’t worry, you’ll get better at it the more you work. Also, some projects will need to be priced differently. This is fairly standard practice.
Systems and Technology
Be smart about what you need to run your business. Chances are you only need a few software programs (you might already have them) and a computer to start working. Here’s a list of systems and technology I use:
- London based landline – VOIP number (www.soho66.co.uk)
- Business email from Google Apps for Business (this includes Calendar and Drive)
- Dropbox – to store all business data and work as a backup
- External USB hard-drive – For full local backups (Eg: WD MyBook 2TB)
- Accounting package – FreeAgent – Used for invoicing, banking and tracking payments) 10% off with that link!
- Time tracking software – I use Slips with FreeAgent but there are loads of alternatives out there…
Money, Tax and Accountants
Ok, so to be very clear, I am not an accountant and you should always speak to one with any matters regarding tax and finances just to be sure you are doing the correct thing. Here is how I operated my accounts until I setup a limited company in 2013 (we won’t get into that in this post).
My system works like this. On the 1st of every month I login to FreeAgent and go through all the time I’ve tracked and the fixed price projects I’ve worked on. I then create invoices for each of the customers that need to be billed. FreeAgent emails them a PDF for me which is really cool and saves me a lot of time. I then make sure I have tracked all my expenses and bills for the previous month. I don’t wait to the end of the month to see who has or hasn’t paid the previous invoices. In this area I micro manage and check almost daily. Cashflow is very important to me and it should be to anyone running a business.
When you do receive a payment I take 30% of the total amount (£300 on a £1000 invoice) and move it so a separate saving account (can be with the same bank) this is my tax money. Having it in a separate account lets me know for sure that I always have enough for my Self Assessment bill at the end of the year (or longer depending on when you started). I then mark the invoice as paid in FreeAgent. Repeat this process whenever you are paid.
Payment Terms are your terms not your customers. It’s normal to ask for an invoice to be paid within 30 days (I prefer 14 days as I’m not a bank and want the money asap). Some customers might tell you that they have 60 day payment terms. I find this unacceptable and not good business. Why should the little guy wait 2 months to get paid by a big company? Anyway, if you have any customers like this, speak with them and explain that you need your invoices to be paid faster. If they can’t change this, suggest that they prepay upfront and you draw the time off these invoices. This can work nicely for some customers.
You must already have a bank account. Some people like having a completely separate account for their business. I however, used my personal account when I started up. I added a sub account for my tax and that worked fine. The fact that I micro manage all the accounting details through FreeAgent helps. If you do setup another account be warned that there may be additional charges on the account. Many business bank accounts have a monthly fee just for having them and there are charges for using such as paying in a cheque. Your current account might be the easiest way forward to begin with.
Providing you are in the UK (if you are not – this section won’t apply to you) when you start working for yourself you will need to register as Self Employed via HMRC. This is easy to do and can be done online here: http://www.hmrc.gov.uk/working/intro/selfemployed.htm#1 You will also setup your National Insurance contributions here. Depending on your circumstances you may or may not need to do this. Talk to an accountant if you are unsure.
If you are willing to pay (maybe a few hundred pounds) an accountant can help with the HMRC setup and do all the paper work when it is time to file your self assessment tax return. I would recommend this as it can be a real headache doing it yourself plus dealing with HMRC is a nightmare usually.
The golden rule about accounts is to keep track of everything. Every purchase you make or income you receive, track it. It will all be needed at some point. Systems like FreeAgent help massively! Also, finding a good accountant is also a good idea. A decent accountant will pay for themselves in saved time and penalty fees from HMRC. To find a good one, again, ask people that are working for themselves. Who do they recommend? Don’t just Google the closest accountant to you. You need someone who is affordable, easy to talk to and good at their job. They should also specialise in small businesses, an accountant that deals with large corporates doesn’t work in the same way as a small business accountant. My accountant is: www.franklin.uk.net (ignore the rubbish website – they are good at accounting!)
Running your business
Now that we have covered all the setup and basics you need to start running your business.
Here’s a list of tasks / objectives I recommend you work on, and keep reviewing how you are progressing:
- Create case studies from your best projects – Publish these on your website or make PDFs to send to potential new customers
- Go for coffee with people. This means customers, potential customers, other self employed people and friends (who know people). You’ll be amazed how quickly you’ll be introduced to new people and you’ll learn stuff (plus you might get a bit lonely working on your own!)
- Use your calendar to plan and prioritise your time. Be strict on yourself, no one is going to tell you off if you haven’t done your work but when it gets to the end of the month and you don’t have enough work to bill for you will kick yourself.
- Exercise! I find that because you don’t have to commute you do less exercise. Some people I know force themselves to go for a walk before they start their day. This helps clear the mind and get you ready to be productive.
- Have a Skype video call with another freelancer / self employed person. I do this every other day with my friend Sam (graphic designer). We help each other when we are having issues with customers or need a little advice. It’s good to have someone you trust and sometimes just having someone to listen to your rants!
- Make time to plan for your business and work out how you are going to grow it. You should be looking at building on your strengths and finding new customers and / or projects.
- Read industry blogs – you’ll find they are a good source of ideas and give you inspiration to do new things.
Have fun! It’s important that you enjoy what you do. It might not be as nice as relaxing on a beach but what you are doing will enable you to hopefully spend more time on the beach in the near future.
Help and Support
As I’ve already said it can be a little lonely working for yourself. I actually enjoy working alone as I can be 100% focused and really get stuff done. The hard bit is that there isn’t much banter or social interaction in my office (if there was I would be worried!).
You can find hundreds of mentors and business coaches out there. Personally, I feel that a mentor is a good person to have onboard. You’ll need to think carefully about who you decide to work with as there are good and bad ones. Talking to other people in your field and learning about their experiences is really valuable. I can’t emphasise this enough.
There are also schemes (at least here in the UK) for small businesses and freelancers. Here are a few websites to checkout:
I hope you enjoy working for yourself and I wish you the best of luck. If you are stuck with anything or think I’ve missed anything (I have left out a lot here) then get in touch. If you would like a quick chat about your self employed business I’d be happy to have a coffee and a chat.