Deciding to start your own business can be an exciting but overwhelming concept. While there is the opportunity to pursue your passion for a living, self-employment has many layers that stem beyond simply doing what you love.
By setting up your own business, you become responsible for all aspects of running a business. Bookkeeping, accounting, administration, and customer service all fall to you. If you want to start your own business, read on for everything you need to know about self-employment.
What are the pros and cons of self-employment?
As with any decision, it’s important to weigh up the pros and cons before jumping into anything.
Working a 9-5 job isn’t for everyone. Perhaps you’ve got kids and need to do the school run, or maybe you do your best work late at night. Want to leave early on Friday? It’s up to you! Whatever it is, self-employment means you can choose the hours you work, including how late or long you work.
Choose your location
With advanced technology and the internet on your mobile phone, you can work from just about anywhere! Whether it’s in your bedroom with your dressing gown on, or down at the beach on a nice day, technology allows you to work in all sorts of places. If your business requires a physical location, like a store, you get to choose where that’s located.
Potential tax savings
Self-employment means you may have access to a larger range of tax deductions. Many of the costs that directly relate to earning your taxable income may be considered business expenses, which can be claimed on tax. This could be things like business uniforms, new computers, a work vehicle and more. If you’re looking to claim anything on tax, it’s important to speak to an accountant who can advise what documentation you’ll need to supply.
Say goodbye to having to ask for a pay rise! Working for yourself means you’re in control of what you earn. Once you build up your business, being self-employed has the potential for you to earn more than you would as a PAYG employee. A significant amount of those who are self-employed earn substantially more than those who aren’t. Because of this, so many people are opting for self-employment.
This additional income can fast-track your wealth creation, which can then create generation wealth for your family. As well as this, having your own business is an asset that can be sold later for a significant capital gain.
Choose your employees
Gone are the days where you must put up with people you don’t get along with. Self-employment means you have more of a choice around who you want to work with, and the types of clients you want to take on. It’s important to remember though that you’re running a business, so hiring your friends may be problematic down the track.
Do what you love
It’s true what they say, do what you love, and you never have to work a day in your life. Following your passion means you get to use your skills to do what you love. Keep in mind, there will be mundane tasks from time to time that come with running a business.
Time working correlates to time earning
When you’re starting out, it can take a little while for your business to get off the ground. Your earning capacity may be dependent on how long you actively spend working. However, starting your own business doing what you love is exciting, so you may find yourself working more hours than you realise. Time flies when you’re having fun!
Pay can be irregular
Unlike other employment, your pay will most likely change week to week. You may have busy periods and other times where there’s a lull and your income drops. This can make it difficult when it comes to paying bills and loan repayments. Creating a budget will relieve some of the stress around irregular pay. Having this budget will help to reassure you when managing your wages and can prepare you for any changes.
Communications Director at Oraco Agency, Jessica Humphreys, says, “My number one piece of advice when starting a business is to ensure you have savings in the bank to sustain you, as you probably won’t have income to support you for a while.”
Download our budget planner here.
Admin falls to you
Keeping on top of any admin will help relieve stress if you’re not in the position to hire someone. Do some research on software packages and other tools that can help you out. If you feel like you’re spending more time doing admin than you are working, perhaps it’s worth considering if hiring a professional is a better investment for your business so you can spend more time doing what you love.
No paid leave
Depending on what your business structure is, you may not have the option to access paid leave. If this is the case, it may feel tricky to take a day off, but it’s important to rest if you’re unwell. Putting money aside throughout the year can relieve the financial pressure and allow you to take a break with some money set aside to compensate your wages.
The ‘self’ in self-employment
Self-employment can often be lonely in the start-up period. If you’re working completely on your own, it can feel quite isolating – especially if you’ve come from a workplace with lots of employees. However, working on your own can also feel invigorating – especially seeing how far you’ve come from the hard work you’ve put in.
Employers are required to contribute 10 per cent of your salary to superannuation each year. If you’re self-employed, how much you add to your superannuation fund is entirely up to you. It can be easy to forget about paying your own super, so it’s important to set aside a portion of money from each pay to contribute to your account. Being self-employed, it’s exciting having the power to actively contribute to your super, rather than leaving it up to an employer.
As a business owner, you will need to set aside money to pay your annual tax bill. If your business has an annual turnover above $75,000, you’ll also need to register for goods and service tax (GST) and collect 10 per cent GST from your clients and customers and remit it to the Australian Tax Office (ATO).
If you’re planning to claim anything on tax, make sure you hold on to your receipts. Come tax time, an accountant will need to see a record of what you’ve purchased for the business so they can advise you on what can be claimed.
What do you need to keep in mind when starting a business?
When choosing self-employment, you’ll need to keep a few things in mind. First – it can be tough starting your own business. While some businesses take off straight away, others may take a little longer to see results, but persistence pays off. Becoming self-employed is one of the most rewarding things you can do and provides you with so much pride in the years to come when you see how far you’ve come.
Setting up a business in Australia means you’re required to have an Australian Business Number (ABN). This is an 11-digit number that identifies your business to the government and community. An ABN is free to set up unless you use the help of a tax agent who will then charge a fee.
If you’re used to earning a certain amount each month from an employer, be prepared to potentially earn less for a while. Have money set aside in savings that you can fall back on if you need to. This can help ease financial pressure while adjusting to your new job. It’s also a good idea to keep your personal finances separate from your business finances, as this can become difficult to differentiate between later.
Jessica says, “Knowing you’ll break even is essential. This means being certain you’ll make a certain amount each month to cover your expenses.”
Regardless of the product or service you’re providing, it’s also important to not undervalue yourself and undercharge your customers or clients. “Knowing your value is a significant thing that often gets overlooked – especially by women in business in particular,” says Jessica. “You need to charge according to your skills and the going rate on the market. If you price yourself too low in the market, it’s hard to get back up.”
Wondering if you can buy a house when you’re self-employed? Head to our blog.
What type of insurance should you consider?
Having insurance as a business is crucial. As you sometimes don’t have paid sick or annual leave, it can become an issue if you’re forced to take an extended period off. Income protection insurance pays up to 85 per cent of your pre-tax income for a specified time if you’re unable to work. Every insurance company is different, so it’s important to read the product disclosure statement (PDS) before taking out a policy.
How should you plan for managing your superannuation?
When you’re self-employed, it’s not compulsory to pay super, but it’s important that you do. Putting money into your superannuation fund each pay has a range of benefits, including:
- Saving money for your retirement
- Ability to claim a tax deduction for super contributions
- Lower tax rate on super contributions (15 per cent) so you may pay less tax depending on your situation
- Better returns from super investments than bank savings accounts, so your savings will grow faster
For more information, head to our self-employment hub.
Self-employment can be a tough but rewarding career pathway. You get to do the job you love every day while watching your business blossom into something you can be extremely proud of. To plan for self-employment, talk to one of our team today.