Becoming self-employed is a big decision and not one to be taken lightly. There are many factors to consider, both for the business itself and for you personally. The major ones are as follows:
A lot of people start a business more or less on a whim, without putting much thought into whether it is a viable proposition or how much work it will take. Before embarking on any new business, you must do some research and try to ascertain as far as possible if it is likely to be a success. Most people know what kind of product or service they will be trying to sell, but you also need to identify your target market. Who are likely to be your customers? How are you going to reach them? If you are selling a brand new product or service, are you sure that people will want to buy it? What makes you think that there will be a demand for it? You've only got to watch Dragons Den to see some of the weird ideas people come up with - who could ever forget the condom for a cucumber? If you are going to sell an established product or service, why should people buy from you rather than the existing suppliers? What have you got that they haven't? What is your unique selling point? And is there enough business in your local market for yet another supplier? In times of recession, there is a lot less trade to go round.
It can be very expensive to start a new business. You may need to find premises for a shop or office, in which case you will be paying for rent, business rates, electricity, fitting out, cleaners, maintenance and all the other site costs. You may also need furniture, computers, vehicles and equipment. You will probably need to pay for advertising and website development so your customers know you exist. There will no doubt be some professional fees such as legal, accountancy, consultancy, design. If you are selling products you will need to pay for stock or raw materials if you will be manufacturing them yourself. And of course if you hire staff you will need to pay them. It is vital that you know how much money you are going to need and where it will come from. Have a look at our information sheet on Preparing for Self Employment for advice about obtaining finance.
People become self-employed for a variety of reasons. Sometimes it is the sense of freedom that being self-employed can bring. Maybe it is the idea of spending your life doing something you really enjoy. For most people though it is ambition and the chance to make money that they would not be able to earn as an employee. A new business can take time to generate the desired level of profits. Sometimes you will even trade at a loss until the business becomes established. So if profit is your main motive for becoming self-employed, you need to have a hunch for how much money the business will eventually make and when it will achieve this. If you cannot risk a substantial drop in your income for the time it takes the business to produce the profits you are looking for, you may be better off staying in your current job.
Running a business is totally different from being an employee. It is totally up to you how much work you do, what you do and when you do it. There is no boss watching over you but at the end of the day the buck stops with you. Some people find it quite hard adapting to that culture change. You need to be hard-working, tenacious, adaptable, resilient and obviously have that certain entrepreneurial spirit. It goes without saying that you must have a good technical knowledge of the product or service you are selling but you also need to have an awareness of other skills such as marketing, project management, budgeting, accounting, IT skills, people skills, etc. It is not absolutely imperative for you to be an expert in all these fields as you can surround yourself with people who are, but they will not come cheap and you will save a lot of money if you can add a few more strings to your bow.
This cannot be under-estimated. Running a business will not just be a life changing event for you but it will affect your partner and children too. It is vital that you have their support and understanding. For one thing you will not be around so much. Getting a business off the ground requires a lot of effort and you may need to work in the evenings or at weekends. Also, there may not be much money for a while. Holidays and new furniture may have to be put on hold until you are back on your feet financially. If you are working from home, you will need peace and quiet to get on with your work which may not be so easy if you have a typical noisy family with kids running round the house. Finally, you may need to put your house up as security for a loan. It is only fair to consult your partner on this as it is a big risk to take with the family home.
You might not want to jump in at the deep end straight away. You may want to consider easing into your new role as a self-employed person more gradually. Giving up a well paid and secure job in order to venture into the unknown can be a daunting prospect. As an alternative, it may be possible to start your business as a sideline or go part-time in your current job. Then, if things go well, you can take the plunge and do it full time. This depends greatly on what kind of business you want to run. It may not be possible to start slowly like this as it could be an all or nothing affair. It also depends on your current job and whether you would be allowed to run a business on the side. You might find it impossible to juggle all the demands of holding down a job and running a spare time business simultaneously, even if you go part-time. For those that can however, it provides the safety net of a regular income whilst your business gets off the ground.