Disadvantages Of Being Self Employed – What Are The Key Challenges In Starting Your Own Venture
Becoming self employed is the most common alternative to working a 9 – 5 job or trying to move up the corporate ladder.
The draw of freedom and the courage to ‘make it happen’ are two key ingredients that people drawn towards self-employment are going to possess.
Self employment can seem like a great idea, the path is an incredibly difficult one to navigate successful.
While there are plenty of positives that come with self employment there are also plenty of disadvantages which I’ve experienced many times in my journey so far.
People That Are Suited To Self Employment
People Who Are Independently Minded And Can’t Work For Somebody Else
Somebody with skills that are in demand in their area
People who are willing to work as hard as needs to be to achieve their goals
People who want more out of life than a simple 9 – 5
People who are willing to take risks in order to be successful.
People with dreams of reaching a higher level in life.
Characteristics Not Suited To Employment
People who are risk averse
People who have great social lives
Those who are happy with their jobs and careers
Anybody who considers themselves lazy or gives up easily.
People who are not into self-improvement
People who don’t understand business.
Some Commonly Self Employed Careers
Most Service Businesses
Some Of The Biggest Disadvantages Of Self Employment Are As Follows
No.1 – Misconceptions Of How Hard It Is Going To Be
If you have a skill or a service that you are offering, like a graphic designer or a web developer, you may think that you will be spending most of your time doing that.
In fact, the first job you need to take on when you are self employed is to find customers for the business. So, immediately, instead of doing what you are good at in the business, you are now a salesman and you have to handle the operations as well.
Don’t expect to become self employed and have a 5 – hour work week. You may find yourself putting in 12 hour days – 7 days a week to start off with.
If you are lucky enough to have clients lined up, you will still need to manage the business, plan for hiring, deal with tax and finance, internet and marketing and all these other business functions that you didn’t have to worry about when you were working a job.
You also need to decide whether you are a sole trader or a limited company.
* Pro Tip: Set up Smart goals to achieve as you start your business:
Revenue Targets, New Customer Acquisitions Targets and Long Term Goals That Will Push You Forward on your path.
No. 2 – Taking On All The Risk, Lack Of Security
Starting a business or becoming self employed can be likened to jumping off a cliff and learning how to fly on the way down.
The comfort of the steady pay check may be gone and it is time for you to learn how to catch what you eat.
Sure, the lure of unlimited earnings is tempting but there is also a lot more risk involved with self-employment.
You are only going to get what you earn when self employed so there may be good months, bad months and it may even end in failure.
* Pro Tip: Eliminate as much risk as possible by validating your idea and even getting started while still in employment.
Build up a customer base, work free to start and ensure your idea is viable before jumping in too deep.
No. 3 – Likely To Need Some Run Rate Starting Out
If you have clients and customers lined up, happy days but if you are starting from scratch, you will need money set aside to live on and for business expenses as you start out.
The run rate should be about 6 – 12 months of expenses and trying to start a new venture without some cash on hand to support you can result in intense money pressures.
This is one of the reasons why many young entrepreneurs starting out will take part time jobs with limited responsibility like working in a bar or even driving for dominos ( I know I did it).
* Pro Tip: I spent six months building up funds, knowledge and experience while still in employment to ensure a smooth transition in self employment.
No. 4 – No Guarantee Of Success
When you start any business, the odds are stacked against you. Very few businesses are actually successful and only a tiny percentage make it to their 5 year anniversary and an even smaller percentage make it to the 10 year mark.
The longer term future looks even more bleak with the top companies of 50 years ago being largely out of business today.
If you are a professional or a consultant, the odds will be more firmly in your favour but you will still need to fill all the functions of the business and be fully responsible for the companies success or lack thereof.
* Pro Tip: Get a mentor, learn from others who have been successful and find out what they have done to be successful.
No. 5 – Sacrificing One Job For Another
It is common practice when employed to blame everything that’s bad in your life on your job and employer while overlooking some of the positive aspects of employment.
The perks of employment like being able to switch off after work and being able to call in sick when you are unwell are often ignored while the time consumption of working or having a 9 -5 is over exasperated.
When becoming self employed there are plenty of hurdles to overcome, including getting established in the market and building a client base on top of having to do all of the work.
What many self employed people will realize over time is that they have really just created a new job for themselves with more stress, more responsibility and longer work hours for a limited pay rise.
To make it to the next level, you will need to start outsourcing certain business functions.
* Pro Tip: Learn about outsourcing as much of the work as you can as quickly as possible and keep on eye on scaling the business with new employees when the time is right.
No. 6 – No Structure In Your Day
When you are in employment, you can often go through your days in autopilot when your time structure is set in stone,
You start at 9 go for breaks at 10:30, 1:30 and 3pm before finishing up at 5 and moving into your evening routine.
When self employed, you need to set your own schedule and that sense of routine may not be available, giving you another set of options to consider.
When you are in work, it can be easy to hit the gym afterwards but you need to pick a time for the same activity when self employed which make it more difficult to work on your fitness.
* Pro Tip: Get into a routine of finding when you work best whether that is early in the morning or later in the evenings.
Make plenty of time from breaks, take on a hobby and ensure you look after your health in the course of your week.
No. 7 – You Have To Give 100% All The Time
When you are the only one responsible for the success of the venture, there is no switching off, leaning on your teammates while you take a break or taking sick days to watch old movies at home.
To be successful, you need to be giving it 100% all the time and it can be hard to switch off after work is finished.
Giving 100% can increase your stress and with the limited chances of success, you may end up wishing you stayed in employment instead.
I guess, one of the advantages of this on the flip side is that, you can always go back to employment if it doesn’t work out.
* Pro Tip: Avoid burnout with plenty of breaks, going to the gym and changing you environment, but be aware of how difficult the task of starting a business can be.
No. 8 – What Got You Here Won’t Get You There
To grow your business from one level to the next is going to require and new set of skills and going to the next level from there is going to require a new set of skills again.
All this leveling up is going to require a huge amount of personal development and learning as you go.
The first steps of getting to the next level of business is in outsourcing certain business tasks.
The first outsourcing is usually in the finance department with an accounting being the first port of call for the self employed.
The next port of call is employing others to do the operations work like fixing the cars, building websites or another coach to train others etc.
Beyond this point, you are looking at hiring a manager, hr department and focussing yourself on hiring to remove yourself from the business completely over time.
Businesses are like systems and eventually your job will be to make a system and remove yourself from the day to day operations, focus on Strategy and eventually hire a CEO to completely remove yourself from the operations completely.
* Pro Tip: Self Improvement & Knowledge are two keys to getting ahead in business.
Reading business books on scaling businesses, how to books and biographies of successful entrepreneurs are great ways to get ahead alongside educational content on Youtube and other sources.
No. 9 – Isolation
One of the perks of employment that we often overlook is in begin part of a time and having companionship/friendship with your work mates.
Once you become self employed, it can be isolating as you have nobody to chat with, eat with and deal with life’s ins and outs with.
Once you do make a hire, there is a different dynamic or even being in a partnership is not the same, as you will expect more from these people within your organization and it can be a barrier to true friendship and camaraderie.
Isolation can be a big hurdle for people starting out, especially when they are extraverted people who like to have people around that they can converse with and make friends with.
* Pro Tip: Connect with like minded people and networking and entrepreneur events, set time aside for your personal relationships or take on hobbies where you can meet like minded people.
No. 10 – Debt Collection
An often overlooked part of self employment is actually collecting the money you are owed from various different companies.
You will quickly realize that companies are not as eager to pay you quickly as you are eager to be paid quickly.
While it can be the best feeling in the world to take on a big new client, it can be a different story chasing up invoices with the companies finance department.
One of the best ways to deal with this is to be up front and direct in regards to your payment terms and always getting paid before the work is done.
* Pro Tip: Be up front with your payment requirements up front, use invoicing software where you can send easy reminders and a monthly direct debit if possible. Don’t start any work until an initial payment has been received.
No 11 – No Safety Net
As an employed person, you will have a huge amount of security available to you.
If you get sick and are unable to work, you are likely to be paid anyway which is certainly not the case if you are working on your own.
There are also a lot of perks that you get when in employment like a paid pension, company cars and generous overtime payments. You are likely to lose a good chunk of these as you venture into self employment.
Another perk of employment is that when you lose your job, you can get unemployment
* Pro Tip: Start off with some money set aside for emergencies and try to build this pot as time goes by. Eliminate this risk by starting to earn while you are still in employment.
No. 12 – Affects Your Personal Relationships
This one is a lot more common than it may seem on the surface, you start your self employment full of energy and nothing but good intentions, but relations can often quickly determinate as you start out on your journey.
The truth is that your self employment will have to become your number 1 priority over any girlfriends you are seeing at the time and they can quickly end, that is what happened to me.
If you are married or in a relationship with kids, this can get particularly messy, especially if you are working from home until you can afford an office space etc.
If you are lucky, you can have a partner that suitable to being an entrepreneur’s partner and things can work out much better.
* Pro Tip: Find a way to involve your partner in the business so it feels like more of a joint mission you are taking together.
Set time aside in the evening for your relationships and try not to go broke at the start.
No. 13 – The Tax Man, Collection & Payment
When you are an employee, the tax man and your company are likely to strip you of any tax due before you even see the money although it can be quite a shock when you see how greedy they are on your pay slip, especially in the higher brackets.
With Self Employment, you are going to have to work out the tax liability and arrange payment of it yourself, whether that is working with an accountant or doing it by yourself.
The tax is likely to come due only once a year and you will need to have that money set aside which can be difficult when you are just getting started.
On the flip side, setting up a corporate structure correctly can provide you with a lot of tax advantages and ways to spend the money and eliminate the tax burden as you will only be taxed on the profits.
*Pro Tip: Get familiar with the tax brackets as quickly as you can and find the optimal levels of salary and retained profit to minimize taxes.
Find out what expenses qualify for a tax deduction and speak with a professional if needs be.
Set up tax accounts in your bank where you can move the tax liabilities as soon as the money comes in.
On The Flip Side
Setting up your own business and becoming successful is a feeling like no other.
It develops you as a person and lifts your spirit to the next level but it doesn’t come without hard work.
There is no limit on your earnings and you can remove yourself from the business with key hires and systems to make passive income, you can even sell the business and go lie on a beach for as long as you want.
The longest and most difficult paths often lead to the best views and that is certainly the cases with entrepreneurship, especially when you can make it to the next level.