Are you among the 15% of British workers who hope to become self-employed? It's a career move that is not for the weak of heart, with plenty of financial consequences and risks even aside from the obvious ones.
The figures, from a new report by Aldermore, show that the UK truly is a nation of aspiring entrepreneurs, with 22% having the ambition to become their own boss. Impressively, 12% are planning to make the transition in the next six months, while 25% are more cautious, giving a timeframe of five years or more. A further 25% say they would only consider becoming self-employed if they were to be made redundant, while 20% would take the plunge only if they were to become unhappy in their current place of work.
There are plenty of happy reasons to become self-employed, however, not just being made redundant or being unhappy with your job. Indeed, one of the most cited reasons is the opportunity to earn more money, which 37% on average cited as motivation, including nearly half (48%) of those aged 25 to 34. Another positive reason is to improve work-life balance, which 35% cited. Of course, reality might look quite different.
Aldermore, in collaboration with YouGov, also surveyed those who are already self-employed, of which 50% stated that they were not making more money than they had been previously. The vast majority did say they enjoyed being their own boss (93%) and feeling in control (82%). However, this freedom can certainly come at a cost.
When looking at the common concerns that people have about becoming self-employed, the figures show that 55% of the self-employed struggle with having irregular sources of income, matched by 52% who have an irregular volume of work and 41% with inconsistent cash flow, while 18% have difficulties paying bills, 44% have had to deal with clients not paying on time, and 10% have had difficulties securing a mortgage.
Anybody who is thinking about becoming self-employed will probably first consider how they will keep up their current level of income, especially if they have a family to support. This involves getting a roster of clients and trusting that they will continue to give you their business once the move is actually made. After that, common concerns will probably be in terms of practicalities – how do taxes for the self-employed work, what types of business insurance will I need, where will I work from, what can I write off as business expenses, etc.
Some will consider their mortgage when taking the plunge, but probably not enough. If you are planning to become both self-employed and a homeowner, or to remortgage anytime soon, it is better to secure a (re)mortgage first, as most providers will insist on seeing proof of at least one year of solvency as a self-employed person.
Charles Haresnape, Aldermore's group managing director of Mortgages, agreed: "Almost a third (30%) of self-employed homeowners believe the mortgage application process was biased against them, while almost two-thirds (63%) of those who have experienced difficulty securing a mortgage said it was because it was difficult to find a provider who understands individual business owners. All too often self-employed borrowers do not fit the 'norm' for many lenders and it can be a real challenge for the self-employed to receive the financial support they need to buy a home."
So, if you're hoping to become self-employed in the next few years, why not take advantage of the current low mortgage rate environment and see if you can get your repayments as low as possible before your sources of income become less certain. Other things to consider are life insurance or some other form of financial protection for the sake of your family, and don't forget about opening an appropriate business bank account.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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