How to Become Self-Employed: Advantages and Disadvantages to Consider
The dream of becoming self-employed crosses everyone’s mind. Sometimes after a tough day at work, or when the bills pile up. Or perhaps being so overwhelmed you lost track of your own schedule.
From the outside, it often feels like the benefits of being self-employed may outweigh the downsides.
Image Source: Pixabay
It is tempting to want to be your own boss. But be careful, becoming self-employed suits a certain personality type. Do you fit the mold?
We’ve put together this helpful guide to help you answer some of the tougher questions ahead of potentially becoming self-employed. Questions such as:
- What is the actual definition of self-employed?
- What are the advantages and disadvantages of self-employment?
- How do you become self-employed, whether you already have a job or are currently seeking one?
We’ll help answer all of these questions about becoming self-employed, as well as provide some helpful tips if you decide the benefits of being self-employed outweigh the risks. This will include tips on how to become self-employed, as well as self-employed job ideas.
Like all business ventures, there’s no guarantee becoming self-employed will offer benefits — financial or otherwise. Risk reigns supreme, but the self-employed benefits may be worth it if you are diligent and careful.
You may be drowning in self-employment ideas — if so, great start! But before you weigh the advantages and disadvantages of self-employment, let’s find out the definition of being self-employed.
More Than Being Your Own Boss: The Definition of Self-Employed
When finding out how to become self-employed, it might help to define the terms. What’s the actual definition of self-employed?
It may seem a silly question, but to the taxman, attorneys, and your potential customers, it’s very important you understand what you’re getting into.
The dictionary’s definition of self-employed reads, “earning income directly from one’s own business, trade, or profession rather than as a specified salary or wages from an employer.”
While your mind may be filled with daydreams of rejiggering your schedule to fit your day’s mood, or perhaps even calling an impromptu vacation, the definition of self-employed instead places the onus for earning directly on you.
Before you discover how to become self-employed, you need to understand what exactly you’re trying to achieve. More than being your own boss, becoming self-employed means self-sufficiency and sole responsibility for the results of your actions. It is, plainly, adulthood in its purest form.
To put it bluntly: becoming self-employed means assuming a great deal of risk, then trying to minimize it thorough careful planning, tenacity, and a bit of luck.
So, how do you pick the best self-employed job ideas?
Self-Employment Ideas: How to Pick Successful Self-Employment Ideas
You may have that one professional itch your current job isn’t scratching. A passion and talent that’s not being fully utilized; that mega-project your boss won’t give you time to finish.
Or perhaps none of the jobs available on the market match your arsenal of skills and the ambitions that go with them.
Perhaps you see a hole in the market for a good or service which isn’t being filled, aptly or at all, by any current company.
All of these could be the perfect foundation for self-employment ideas. Like any basic business decision, it all comes down to the ever-present law of supply and demand.
The benefits of being self-employed increase tremendously if your desire to provide a good or service matches a market starved for whatever you’re offering. Remember, you’re essentially starting a business of one (at least in the beginning), from scratch. The laws of basic economics apply to all, even the self-employed.
But first, you may need help finding inspiration. Fortunately, the world abounds in opportunities to rub elbows with potential customers; you’ll need as many as possible if you plan on becoming self-employed.
Go on idea-hunting expeditions. This doesn’t mean setting aside specific time to brainstorm for self-employment ideas. Instead, take a pocket notebook and pen (or your favorite note-taking app) with you wherever you go, and keep it ready. Try to notice common frustrations you, or others, experience throughout daily life or in niche situations. The solutions you conjure could be self-employment ideas.
Make note of other common businesses you see, to get a better understanding of what’s already available — and what’s popular.
Then, brainstorm a solution to the problems or an alternative to the common businesses. That notebook could be a fountain of self-employment ideas.
Another option: visit trade shows that fit the mold of your interests or passions. These conventions and gatherings often feature other self-starters who can give you tips on how to become self-employed.
You may also notice gaps or under-delivered services, which you may fill with your own ideas.
In short, make sure that your self-employed business benefits others.
When brainstorming self-employed job ideas, take several factors into consideration:
- Are your self-employed job ideas a good or service that’s currently not available or being sold for an exorbitant price?
- How big of a financial investment at the onset will make your self-employment ideas a reality?
- Does becoming self-employed realistically mean more work than your schedule can handle? Is this a job that’s simply too big to handle by yourself?
- Who are your potential customers? Are there five real people you can immediately name who you know will pay for your goods or services?
- Is there any competition — major or minor — offering a similar product or service?
- What’s the most efficient way of delivering your product or service?
Image Source: Pixabay
What Are the Advantages and Disadvantages of Self-Employment?
Before taking the plunge with your list of ideas, consider whether being self-employed benefits you enough to assume the risk that naturally comes with any budding business venture. Consider, very coldly and logically, the advantages and disadvantages of self-employment if you pursue your self-employment ideas.
First, take a look at your current personal and financial situation to assess what’s at stake. Do you have a family or dependents who need your income? Jumping from a stable situation to a risky one may have ramifications for more people that just yourself.
Be sure to carefully gauge your responsibilities and your ambition. Make sure the former doesn’t suffer too much in the interest of the latter.
If you do think being self-employed benefits yourself and the broader circle of people who depend on you, you’ll quickly discover the myriad positives to becoming self-employed:
- You’ll have more control of your day-to-day life. Even while executing a well-planned self-employed job idea, you can give yourself at least some wiggle room on what needs to be done and when.
- You feel the payoff immediately. In other words — barring any special deals with investors — the profits of your self-employment ideas go directly into your pocket.
- You’re the boss. This is one of the few benefits of being self-employed that need little explanation.
But when weighing the advantages and disadvantages of self-employment, the negatives can give you a moment of pause:
- Any new business or self-employed job idea needs a lot of early time and investment to take off. That slightly looser schedule cannot get too flimsy, or your self-employment job ideas will go bust.
- You feel the debt immediately. In other words — barring any special deals with investors — the money owed by your self-employment ideas needs to be paid back first before you can consider yourself a success.
- You’re the boss. All the responsibility ultimately ends with you. While this may mean glory if you succeed, it also means bearing the burden of miscues and speed bumps.
How Do You Increase the Benefits of Being Self-Employed?
Perhaps the best and simplest way to maximize the benefits of becoming self-employed rests within limited liability companies, or LLCs for short. Forming one could free up your personal finances from your self-employment ideas, minimizing your risk should the venture go under.
An LLC puts your business into a separate entity, which you still control but whose finances are separate from your personal accounts. It’ll free up your self-employment ideas to more outside investment. Or, should things go awry, it will protect your personal assets from any bankruptcy proceedings.
An LLC does come with its own set of legal standards and norms. Be sure to hire an attorney if you’re going to take this route to becoming self-employed.
Be sure to fully understand the tax and legal implications of becoming self-employed, whether as an individual or forming a business. Many law firms and accounting firms offer free advice online regarding retirement accounts and tax commitments that must be met.
Here are some other, very basic tips to squeeze every penny of your self-employed job ideas:
- Save as much money as you can — this includes limiting your personal expenses during the crucial early phases of your idea coming to fruition.
- Learn basic time management. Keeping track of the clock and building the discipline necessary to get work done are absolutely key to successfully becoming self-employed.
- Network, network network: build out a good foundation of professionals and friends who can help or offer advice in a pinch.
How to Become Self-Employed
Becoming self-employed goes beyond just bright ideas and a lot of patience. Unfortunately, it also requires a good degree of business acumen and willingness to push paperwork.
The first tip pros offer on how to become self-employed: draft a business plan. Even the best self-employment ideas need the solid foundation and vision of a business plan — on paper — to survive.
A business plan outlines:
- The projected financial outlay needed to launch your self-employment idea.
- A solid statement of purpose, with a vision for your idea, as well as what potential impediments it may face in the future.
- A financial forecast — a realistic forecast — which outlines projected revenues and sets a goal date, at which time your self-employed job ideas become profitable.
The above guidelines apply even if you plan on taking on a solo career such as a freelancer or consultant. An inordinate amount of your time will be spent doing math and financial projections. It’s tough, but it’s how to become self-employed.
Check out our guide on making a business plan to make the process easier.
Now armed with your business plan, find the funding to get your self-employment ideas off the ground.
If you have a sizable chunk of savings you can comfortably gamble on your idea, use it.
It’s at this point the vital but uncomfortable question arises: “Should I keep my current job?” Consider a simple math equation: does the money you have on hand comfortably cover your expenses until your self-employment idea becomes fully profitable?
If yes, consider ditching your current job so you can commit full-time to becoming self-employed.
If not, seek funding for your self-employment ideas from friends and family, if they have some extra scratch to spare. Keep your job and bide your time, perfecting your business model and plan, all the while saving up to make the jump.
Otherwise, local banks and smaller financial institutions are likely to entertain funding your self-employed job ideas — if you come with at least some cash on hand and a stellar, professional business plan. (See our guide on small business and startup loans for help).
Probably hardest to mention but equally vital: have an exit strategy. While you may feel comfortable and think you know how to become self-employed, the unexpected always happens.
Be sure to set a clear benchmark for when to call it quits if things go awry. Do not stick to floundering self-employment ideas if they begin to hurt your health, well-being, or damage vital relationships.
Learning how to become self-employed requires patience and a willingness to fail and try again. Some argue it’s a lesson you’ll spend the rest of your life studying.
No successful entrepreneur or business person ever got their idea off the ground without any hiccups. And it took a while before they saw the benefits of being self-employed kick in.
Hang tough, and take whatever lumps come your way with fortitude. The road to becoming self-employed is long, and it requires tenacity and a steadfast belief in your self-employment ideas.
But it’s possible, and perhaps one day you’ll actually book a vacation on a whim — and not have to ask your boss for some time off.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.