Chris talks here about the pros and cons of self-employment. Explore several of the benefits and risks, including pensions, time off, profits, and required skills.
- Is self-employment a good plan? Well, self-employment form two of my six choices. You'll remember the two options for self-employment were to build up a big company and sell it off, or to just sell yourself day by day, so to have what's called a lifestyle business where you have some sort of trade, something you can do, and you just work every day, selling your days as you go along. So that could be a builder or a trainer or a professional musician or something like that. The first thing I'd like to say about self-employment is it's more secure than you realize, because you don't have a boss who controls your life, a boss who can fire you at random because they've decided they don't like you, or maybe they're just cuts to the company and a certain number of people have to go or your department gets cut through no fault of your own. So there's a justice to self-employment that if you do a good job, you're pretty secure. Usually you've got a number of different customers and I'd recommend never having a customer that has more than 20% of your business. I had the chance to get a really big customer years ago, and I failed to get them, and I'm so glad I did, because I would have become completely dependent on that one customer. As it is, I'm spread over lots of small customers. So if customers come and go, I don't really mind, it makes no difference to me. So you're more secure than you realize when you're self-employed. Also, you've got a trade that you can always sell. So even if quite a lot of customers go, you've got something that is going to be in demand, so you're going to be fine. And you're in charge of your own destiny so you can evolve into different sectors if you think they look better. You've got that control over where you're going. The next advantage of self-employment is that the money is better. If you think about it, a company is always going to make a profit out of you. Otherwise, why would they employ you? So they give you a certain amount of money, let's call it X thousand a year, the cost of employing you is 2X, so you have to double that, and then they've got to make money on top of that. So you've got to bring in three or 4X to be worth employing. And if you're self-employed, you just get to keep three or 4X. So it has to be better financially to be self-employed. Obviously, there are a few small costs, but quite often you're working out of your house, you got to have a car anyway or whatever. So quite often, the costs are fairly small, but almost always self-employed people seem to be better off. Now, there are some snags because you don't have a company giving you paid holidays and paid sickness and a pension. But on the other hand, if you're self-employed, you can take as many holidays as you like. Although you're not being paid for them, you can have as many holidays as you like. So I go on holiday a lot more than my employed friends do. And I don't have to count the days and think, "Oh, I've only got two days of holidays left." I can do I like. Sickness isn't a big deal, because you can have insurance for that. And funnily enough, self-employed people seem to take almost no time off for sickness. They certainly don't take odd Monday's off for hangovers and things like that. And if they have a big serious piece of real sickness, then they're insured for that. Pensions are a problem though, and if we're talking pros and cons, I would say that a big downside of being self-employed is that you don't get a pension. You have a state pension, but that's tiny. But you don't have a company pension and company pensions are a very valuable thing. Don't take that for granted if you've got a company pension. I read somewhere that you need at least a million pounds in your pension pot to be able to live. I mean, these numbers change all the time. But you know, if you're going to get let's say 2% interest on your million pounds, 2% of a million pounds is 20,000 pounds. So you're going to have 20K to live off your 1 million pension pot. Is that going to be enough? And remember, with inflation, you know, in 10 or 20 or 30 years time, you're still only getting your 20K from your million pounds and that may well not be enough. Now obviously you can eat into the capital, you can start to spend the million, but the million is not going to last very long. So you got to think about the size of pension pot you're going to need. And if you're going to save up even 1 million, which is probably not going to be enough, you're going to have to save either 10,000 pounds for 100 years, or you're going to have to save 100,000 pounds a year for 10 years. And who's going to be able to save 100,000 pounds a year? How are you going to save up that pension pot if you're self-employed? And if you can't save up a pension pot, then the other option is just to work forever, work till you die. And that's not great. Now, there are ways around this, and I'll come to this later. But you could for example work fewer and fewer days, you could go down to three day, two day or one day a week, so you could still fund your retirement. But you need to be doing a job that you can do as you get older. So if you're a self-employed builder, are you still going to want to be climbing around on people's roofs when you're 75? So you're going to ask yourself. So I think holiday, sickness and pensions are worth thinking about when you're weighing up the pros and cons. The final thing to think about if you're going to go self-employed is that you have to be able to sell and do. So you got to be able to think of something that you can do and then you got to be able to sell it. And it's going to require a certain amount of time and effort to do the selling. But it also takes a certain type of personality to be able to do the selling. So if you're let's say a software geek, that's great, and that's something that is valuable, but you got to be able to sell that, so you need to think how will I sell that? Now, you may not have to go and knock on people's doors, there might be an internet portal where you can do it or some agency you can go to, but of course, they're going to take a cut. So you need to think about how you're going to do the selling as well as the doing. My original plan when I was going to do training courses was to spend half the time selling them and half the time doing them. What I actually found was that I needed much less than half my time for the selling because I got a lot more repeat work than I expected. And most companies would get me back in to do another course next year or to do other subjects. So I found that I had to do very little selling. Even getting new companies turned out to be easier than I thought because there was quite a lot of word of mouth, people would move to a new company and they would take me with them and say, "You need to get Chris in, we had him in my last company." So I found that actually it was quite easy. Also, the occasional lead came in from my website. So the number of times I'd have to actually cold call somebody rapidly became zero. Now I get the occasional internet inquiry coming in by email, so I have to ring them up and do a little bit of a sales job when I talk to them on the phone. But the selling has turned out to be easier than I expected. But nevertheless, you do need to consider the selling as well as the doing and you have to be able to sell in some way if you're going to be self-employed. So I would say those are the main pros and cons when you're thinking about being self-employed. It's more secure than you realize, the money is better than you realize, holidays are great, but they're unpaid, pension is an issue you need to think about, and then selling is also an issue that you need to plan, but it probably won't be as difficult as you think.