Whether you’re a contractor or a small business owner, working for yourself comes with its pros and cons.
For many people, the independence and flexibility that come with self-employment far outweigh the downsides. In fact, a study by the Centre for Research on Self-Employment found that self-employed people enjoy higher levels of job satisfaction than employed people.
All the same, being your own boss can come with its difficulties, whether that’s handling uncertainty or saving for the future. Knowing how best to handle these obstacles can help minimise the stress they cause, so you can enjoy the many positives of being self-employed.
Uncertain earnings
According to a survey by the Federation of Small Businesses, 44% of self-employed people consider a lack of certain earnings to be one of their main challenges.
Without knowing how much income you’ll have from month to month, it’s hard to make long-term plans and feel secure about your future earnings.
One way to handle this uncertainty is to keep detailed records, which will put you in a better position to monitor and forecast your business’ performance.
Late payments of invoices can also cause serious disruption to cashflow, so make sure to invoice your customers promptly and be completely clear about your payment terms.
Digital bookkeeping software can be a useful tool for keeping track of all this. For example, we recommend that our clients use KashFlow, which allows you to manage your finances, accounts and invoices online.
Getting a mortgage
Buying a house is a mountain to climb for most people, but being self-employed can present some additional challenges when you’re applying for a mortgage.
Since self-certification mortgages were banned in 2011, all mortgage lenders will require you to prove your income. This is easily done as long as you have accurate records to hand.
As evidence of your income, you’ll usually need to show the lender your business accounts, signed off by a chartered accountant, and tax returns over a 2 or 3-year period.
In some cases, you may also need to provide business projections for the financial year to prove your earnings will continue at the same level or higher over a sustained period of time.
As with anyone buying a home, saving up a substantial deposit and maintaining a good credit history will put you in the best position to get a good deal on your mortgage.
Saving into a pension
Most people who are employed make regular savings into their workplace pension without even thinking about it.
But if you’re self-employed, you’ll be responsible for setting your pension up yourself.
There are a few different options to choose from when you’re setting up a personal pension, including:
- ordinary personal pensions
- stakeholder pensions
- self-invested personal pensions.
The best type for you will depend on your individual circumstances and investment preferences, so don’t hesitate to ask us if you’re not sure.
Although you miss out on employer contributions to your pension, you’ll still get government tax relief on your own contributions.
Covering sick pay
Without the benefit of statutory sick pay from an employer, you’re responsible for covering your own days off.
This could be a case of making sure you have savings set aside in case you fall ill and are unable to work. Alternatively, you could consider taking out an income protection policy, or other personal insurance to cover for illness or injury.
Get in touch
We can help you tackle your financial challenges and make the most of being self-employed.
Contact us at 01628 631 056 or email tracya@knightandcompany.co.uk to talk about our services for business owners and contractors.