How to prepare for self-employment

You don’t have to arrange everything perfectly to become successful working for yourself. Many successful freelancers and business owners were able to build their careers despite early mistakes and setbacks. But knowing how to prepare for self-employment will make the transition quicker, easier, and more likely to succeed.

Like most things in life, investing more time and effort in your preparations means you’ll be less stressed and rushed when it comes time to put your plan into action. That allows you to focus on the most important tasks, and also lets you respond to any unexpected opportunities that might pop up.

Whether you’re becoming a contractor, planning to start freelancing for yourself, or intending to lead a world-changing start-up, the challenges and preparation will be broadly similar. Taking these steps could prevent months or years of struggling at the beginning of your self-employed journey.


Preparing yourself mentally for self-employment

While much of your preparation will be practical and financial, it’s important to approach self-employment with the right mindset. Even if you’ve been successful in senior roles for global companies, it can still be a shock to the system when you go solo.

There are a huge number of benefits to becoming self-employed, with freedom and control over your business and the options to choose how, when, and where you work. But you’ll also become responsible for everything, which means developing your tenacity and resilience. Whether it’s solving client problems, dealing with financial matters or just getting the office printer to work for the first time in months, it’ll all be down to you.

Asking yourself some simple questions can help you weigh up your preparations

  • Are you confident enough about managing the various aspects of your business?
  • Will you be happy operating largely alone, or will you need to find social spaces to work in?
  • Can you balance taking risks and seizing the initiative with pragmatic problem solving? Even when the advice and evidence you have may be ambiguous or contradictory?
  • Are you able to sell your products or services to clients and customers? And maintain good communication with them to build working relationships? Are you comfortable networking and meeting new people?
  • Do you get nervous at the thought of financial instability, unpredictable incomes, and losing employee benefits such as sick pay and pensions?
  • Can you bounce back after setbacks, and maintain your belief and self-motivation?
  • Are you flexible and adaptable enough to respond if your initial attempts aren’t working, clients change their demands close to deadlines, or existing routes to your customers stop performing as well?

You don’t have to provide perfect answers to every question to become successfully self-employed, but it’s important to consider where you might benefit from training or support. You may just need a quick meeting with an accountant to settle your financial worries, some personal training to boost your networking confidence, or the reassurance of IPSE membership to provide illness cover, insurance discounts and advice on pension plans.

Being realistic about your weaknesses means you can plan around them, whether that’s outsourcing some tasks or tailoring your business to focus on your strengths. One of the great things about self-employment is that a wide variety of people and personality types are able to find success. 

How to prepare -  Image 01.png


New to self-employment?

Find out how IPSE's range of member benefits provide expert guidance, vital protection, and real connections, so that you're never in doubt.

Find out more


Start saving a financial buffer

Even if you’ve got clients lined up from day one, if you’re able to save and build up a financial buffer before becoming self-employed, it will make life easier. Especially if you’ve got existing financial commitments. 

Recommendations vary, but between one and six months of income will give you a valuable safety net if clients or customers don’t materialise as expected. And when you’re starting out, there are always unexpected costs and expenses which are likely to crop up. Can you cover the cost of a new computer if your laptop suddenly fails? Or travel and accommodation for a last-minute meeting with a potentially huge client?

Start tracking and planning your personal budget to find expenses you may be able to do without. It’s easier than ever with a range of good free and low cost budgeting apps for both individual and business use. 

Even if you’re forced to start self-employment without any savings, start building your financial buffer from day one by putting any excess client or customer revenue into a separate, higher income account. Just make sure you can get quick access to those funds when needed. And take time to regularly check if you can cut unnecessary costs and save money as a freelancer which can be better used to build up your finances.


Understand your business and tax liabilities

How to prepare -  Image 03.png

If your income from self-employed trading is more than £1,000, you’re required by law to register with the UK government and pay the applicable tax. But you might want to register before that if you want to claim relief for any losses, pay voluntary Class 2 National Insurance, or access Childcare and Maternity support based on your self-employment.

The steps are slightly different if you want to register as a sole trader or a limited company, but in both cases you’ll need to know your self-employed tax and financial obligations. Whether that’s filing a Self Assessment tax return, claiming expenses for working from home, or taking dividends from a limited company

As a sole trader, you’re personally responsible for debts associated with the business. With a private limited company or limited liability partnership this isn’t generally the case, but you can find financial products come with a personal responsibility or guarantee in the small print. So don’t always assume you’ll be exempt if you fail to meet your repayments.

The other liabilities to consider are insurance, particularly if specialist cover is required for your industry sector, and ensuring that you have suitable contracts and statements of work in place. The latter is important to minimise late payments or making a loss on projects. And is also a big part of avoiding issues with IR35.


Choosing between a sole trader or Limited Company

It’s fairly quick and easy to set up a self-employed business whichever route you choose, and it’s possible to switch if your situation changes. But there will be a cost in both time and money, so it’s more simple and effective to pick the right route from the start.

As a sole trader you can get started quickly with little paperwork required other than the need to file an annual Self Assessment tax return. You don’t need to register with Companies House, so your personal details aren’t made public. And your finances don’t have to be separate from your business (although it’s generally a good idea to set up work and tax accounts), along with access to easier accounting and expenses schemes.

The main disadvantage is that you’re fully liable for any debts and losses, meaning your personal assets could be at risk. 

Setting up a limited company isn’t massively more difficult than starting out as a sole trader. But the financial obligations are more time consuming, as you’ll need to manage shares, wages and dividends. And this means filing a set of accounts, confirmation statement, and a Company Tax Return every year, alongside a personal return for each director.  

Benefits include the fact a limited company is legally separate from the owners of the business, so you have more limited liability to losses and debts. And while your details will need to be registered with Companies House, the name of your business will now be protected. You’re also likely to get access to a wide range of allowances and tax deductions, along with making it easier to source future investment. 

It's possible to also save on the overall tax you pay by opting to operate as a limited company, although this has been reduced in recent years due to changes in corporation and dividend tax rates.

Other alternatives if you’re becoming self-employed alongside someone else include Partnerships, Limited Partnerships, and Limited Liability Partnerships (LLPs). Or if you plan to use your profits and assets for the public good, you may want to look at becoming a Community Interest Company (CIC), for example.

The right option will depend on your individual circumstances, how you're operating your business, and your plans for the future, so it’s well worth speaking to a qualified professional when you’re just starting out. Getting expert advice could save you a substantial amount of money, particularly if IR35 is likely to be an issue for you.


Draft a business plan

Even if you’re intending to be a sole trader offering simple products or services to clients you already know, going through the process of drafting a business plan can be massively useful.

You might have already discovered unknown strengths and weaknesses by asking questions about yourself. Now you can do the same for your new self-employed business.

It allows you to set targets to measure your progress against. And provides a focus which will help you understand when to accept opportunities, and perhaps more importantly, when to turn them down.

Unless you intend on using it to secure financing, it won’t have to be a professional formatted document. And it should be flexible, allowing you to adapt and fine tune your plans as your experience grows, and situations may change. IPSE members can access a helpful business plan template to make it easier, along with a full Guide to Freelancing, but some useful questions to get you started include:

  • What is your business objective? What will it offer? What’s your ‘elevator pitch?’
  • Who are your target clients or customers?
  • What products or services are you providing? Do they match with what your potential clients or customers may want or need?
  • Who are your main competitors? Which existing businesses aim to solve the same problems for clients and customers? 
  • How is your business different?
  • Your plan to attract new clients
  • Ways you can keep clients
  • Your goals, targets and timelines
  • The budget and financial plans for your business

Once again, you don’t have to supply perfect answers for every question when you’re preparing to become self-employed. But it can highlight strengths and weaknesses before you start investing time and money into your idea.

The important thing is to be honest with yourself about your business plan. Your objective might be to earn a sustainable income and have more free time away from work, rather than raising millions to become the next global sensation. But having a basic framework for achieving your aims will help you to make it a reality.


Check the help and support available

There’s a wide range of help and support available when you’re new to self-employment, and it’s easy to miss out on relevant grants, coaching and other resources when you’re caught up in getting your business underway.

Funding and grants are available from the UK Government, local authorities, charities and private businesses ranging widely in terms of the money available. But even small amounts can make a big difference when you’re starting a new career. For example, the Prince’s Trust Enterprise Programme offers support for 18-30-year-olds living in the UK, while the UK Government offers four venture capital schemes at the time of writing, which could raise a maximum of £12 million or more over the lifetime of your company. 

Another alternative is to sign up for dedicated early-stage support, such as the IPSE Incubator, which gives you access to templates and documents essential for your business, advice, and a network of other people also starting out on their self-employed journey.

A lot of funding will only be available in the first few months or years of your business, so it’s worth researching the opportunities as early as possible. The experts available via incubators and other small business support services will often have knowledge of what is currently open for applications and could apply to your particular situation. You can also find useful tips from other freelancers and self-employed professionals who may have used the same routes in the past, including within the IPSE community, and our Facebook group.


Making the most of starting self-employment

Becoming self-employed is one of the most fun and exciting experiences in the careers of many people. Whether you’ve diligently prepared for months or jumped into working for yourself, it’s important to try and enjoy the new challenge as much as possible. 

As our member stories show, everyone makes some mistakes in their early days. And even experienced freelancers or contractors will face new tests throughout their careers. But overcoming and learning from fresh obstacles is part of what keeps self-employment fresh and exciting after years and decades of building your business. And they’ll provide you with insight and anecdotes to share with others as you become established.

Understanding how to prepare for self-employment will make things easier, but it’s never too late to rectify anything that you missed. And you’ll benefit from revisiting your business plan and finances regularly throughout your career.

How to prepare -  Image 02.png



Looking for more advice? We can help.

We have a dedicated advice page to help you navigate directly to specific sections including brexit, coronavirus, business insurances, and ways of working.

View all advice pages

Coronavirus advice

Coronavirus is a real concern for all self-employed, from a lack of support from government to the real impact this has on everyday life.


IR35 advice

Off-payroll working rules, otherwise known as IR35 or the intermediaries legislation, is a damaging taxation law from HMRC that IPSE strongly opposes.


Winning Work advice

Tips and advice to help you grow your business no matter what industry or sector you work in.


Ways of working advice

There are many ways to work as a self-employed person, from operating as a sole trader, limited company director or as part of an umbrella organisation.