May 2007
This factsheet gives introductory guidance. It:
- discusses key issues to consider before moving to self-employment
- suggests some questions to ask to assess if you are suited for self-employment.
This factsheet is primarily for those who are considering becoming self-employed HR consultants, although those already working in that capacity may also find it helpful.
Self-employment can be a viable and exciting career option. But moving into self-employment requires commitment and careful planning, and those who have doubts about their ability to work outside corporate environments should probably think twice before committing themselves.
There are a number of key issues to consider before making the move to self-employment. Naturally, money is important, as are marketing and networking skills. Work-life balance issues will come into the equation for many as well.
What if I am being made redundant?
Don’t think about self-employment just because you are being made redundant and you can’t find another job. You have to want to work for yourself. That said, a survey conducted in 2000 suggested that a third of the CIPD’s self-employed members do enter self-employment as a result at least partly as a result of redundancy. If you have been thinking about self-employment for some time, and the offer of redundancy comes along, that makes sense. The redundancy package may ease the financial burden when it comes to starting the business and you may be able to use your notice period to develop thoughts about the business and contacts. Your (ex) employer may be able to offer some work to get you started (but be careful about the tax situation: if your former employer is your only customer in the first year, or even your main customer, there will be questions about the legitimacy of your self-employment).
Money
The survey showed that the majority of the CIPD’s small business members earned between £20,000 and £49,000 – around the level of corporate salaries at that time. A fifth had turnover of less than £20,000, but a further fifth were turning over more than £100,000 annually (of course many of these would have been employing others, presumably also with the expense of running premises). For most CIPD members, self-employment is not the route to riches.
Banks will advise people considering starting a business, so what follows is just a brief summary of the main points on finance.
- Assume that in the first few months, your income will be down from what you are used to. Business usually takes time to build and there will be start-up costs. Budget for what you can afford and accept a reduction in income at the start. Work out carefully what you absolutely have to spend and calculate around that. Discuss things carefully with your partner and enlist their support.
- Find an accountant you can trust and get on with. A good accountant will be able to give you money-saving advice that is worth their fees. But be sure to present your books in good order; don’t waste money by having your accountant do basic book-keeping. Use a software package for this and do the books regularly.
- Consider registering for VAT immediately. Your first year’s turnover may be unlikely to meet the VAT threshold but registering saves 17.5% of much of your expenditure which, with the purchase of equipment, is likely to be highest in the first year of trading. Although the book-keeping is a little more complex for VAT, the discipline of doing a quarterly return ensures that you keep the books up-to-date. A VAT number also gives the right impression to clients.
Lifestyle and work-life balance
The change in lifestyle imposed by self-employment can be difficult for some, while others enjoy it. On the plus side can be the lack of commuting and the ability to work (to some extent) when you want to do so. Some women (and men) have taken the decision to go into self-employment to enhance their work-life balance. It can, with careful planning, be possible to ally self-employment with running a family.
Against this, self-employment can be lonely. Many people like going into an office to talk to colleagues. Not only are the social aspects valuable, it helps to keep them up-to-date. Some people find it difficult to motivate themselves, especially if they are working from home; there always seem to be diversions and domestic chores. And remember that being your own boss means, in effect, having several bosses (they’re called customers), each of whom needs to be kept satisfied. Some people find it easier to handle one boss than many.
Marketing, selling and networking
The CIPD survey mentioned above found that, for most members, marketing was the biggest problem. Most CIPD members, like consultants in other areas, mainly rely on personal contacts to get most business. Those who have tried other routes like advertising, mail-shots or cold-calling say they rarely work.
Before making the final decision to be self-employed:
- Contact as many people as possible to discuss your ideas with them (for obvious reasons it may not be realistic to talk to some current work colleagues). Ask if they can recommend people to talk to. Those people in turn may recommend others.
- Use the CIPD. Many CIPD branches have Special Interest Groups for consultants or self-employed members. Some of them produce directories of members’ services. Others have SIGs for trainers (some branches may have both). Enquire if your branch has such SIGs and, if it does, go to the appropriate meeting. A few of the SIGs have mentoring schemes to link would-be or newly self-employed members with experienced counterparts. Not only does attending such meetings counteract loneliness and professional isolation, it can produce contacts which might lead to business or help you get to know people with whom you might work.
- Look for other sources of contacts and networking. It is worth enquiring whether there are business clubs in your area, perhaps run by the Chamber of Commerce or Business Link. Don’t confine your networking to the personnel profession. Other professions can be a useful source of work.
Initially you will probably find yourself working in areas with which you are familiar, because that is where you have the contacts and knowledge. But once you are established:
- Look to expand into other areas, because contacts may move on or sectors may contract, and also because part of the fun of being a consultant is new challenges; what is learned in one area is transferable and can provide new insights for customers who may be too used to ‘the way we do things round here’. Sticking to the familiar may be good advice for companies, but individual consultants can be more flexible.
Your website
A web ‘presence’ may be necessary, not so much to attract customers (unless they already know about you, they are unlikely to find you among the thousands of similar organisations) but as a kind of electronic brochure, so you can say to potential clients, ‘Look at my website’. A website can be updated much more easily and cheaply than a brochure. While planning the business you will need to get the domain name and business email addresses sorted out. The website should be quick to download (not too many flashy graphics) and contain all the vital information on the first page. And update it frequently; nothing puts off potential customers more than outdated information.
Associates
At some point there will be a job prospect that is too large to do single-handed, or that lies partly outside your competencies. Don’t turn it down. Put in a bid with one or more associates; independent CIPD members have won work in competition with the big consultancies in this way. So look for associates at an early stage. Remember, though, the importance of mutuality. If you hear of the possibility of work which might not be appropriate for you, perhaps because it is not in your area of expertise or it is in an unfamiliar sector, let associates and potential associates know. Not only is this the right thing to do, it makes it more likely that at some point they will reciprocate.
Should I employ anyone?
This is probably not a question for the person starting a business - people are used to voicemail, so there will be no need for a secretary answering the phone when you are out – but if and when the business grows, should you take someone on or use associates? Because business goes up and down, many feel that it is preferable to use associates (who may well also employ you as an associate at some point). Having, in effect, mouths to feed is quite a responsibility and many may find the change from being an HR professional to a salesperson for the business unwelcome. But there may come a time when you need to employ someone, perhaps part-time, as an administrator to look after the books and the diary, and to help in (for example) preparing training materials.
Where do I work?
If you have a houseful of children, there may be no choice other than to rent an office. But if there is a spare bedroom, you might decide to use that, at least initially, and install a separate business telephone line. According to the CIPD survey mentioned above, 80% of self-employed members work from home. It saves office rent, and travel time and costs. In addition, you can claim an element of the energy costs as a business expense, although you must be sensible. If you try to claim (for example) a sixth of your domestic electricity bill in a six-roomed house in which one room is being used as an office, the HMRC may want you to pay business rates on top of council tax. But if you only claim a percentage of that sixth, there should be no problem. Ask your accountant for advice.
One potential problem about working from home is where to meet customers and others. But most self-employed professionals working from home don’t have a problem meeting on customers’ premises (it may be useful to see their set-up anyway), or on neutral ground such as a coffee shop.
What should I charge?
What to charge is a worry for many. Charge too much and there is a fear of pricing yourself out of the market; too little and you may appear to be a cut-rate alternative. There is no such thing as an established rate; this varies according to the sector and, probably, geography. What may seem under-priced to a City firm may look exorbitant to a manufacturer elsewhere or a charity. Fee levels will thus require some thought and negotiation.
Am I suited to self-employment?
Finally, not everyone is cut out for self-employment. Here are some questions to ask yourself, in no particular order of importance.
- Can I handle uncertainty and a certain amount of loneliness? How far do I rely on the social network that regular employment provides?
- Do I have the self-discipline to work on my own? Are my time management skills sufficient? Will I be able to handle the peaks and troughs?
- What minimum income do I need? How important is money?
- What support can I count on from family and friends?
- If I leave my current employer, might I be able to count on them for at least some initial work?
- Which people might be useful to me in my new career? Do I know them all yet?
- How much fun am I going to have?
Useful contacts and sources of help
There is plenty of information about marketing for small businesses with a high street presence, but very little about it for self-employed consultants. Banks’ websites may be worth looking at, as are the following – the websites have links to local branches:
Also try the following which have self-assessment tests for those thinking about working for themselves:
Further reading
Some might find Charles Handy’s The empty raincoat inspirational – CIPD library has copies which can be loaned to UK-based CIPD members - tel: 020 8612 6210 or email us at lis@cipd.co.uk
HANDY, C. (1994) The empty raincoat: making sense of the future. London: Hutchinson.
CIPD members can use our Advanced Search to find additional library resources on this topic and also use our online journals collection to view journal articles online. People Management articles are available to subscribers and CIPD members in the People Management online archive.
Other books
BRIERLEY, E. (2006) Talent on tap: getting the best from freelancers, interims and consultants. London: Chartered Institute of Personnel and Development. Available at: http://www.cipd.co.uk/bookstore
JOHNSON, M. (2005) The independent consultant’s survival guide: starting up and succeeding as a self-employed consultant. London: Chartered Institute of Personnel and Development. Available at: http://www.cipd.co.uk/bookstore
Journal articles
ARKIN, A. (2001) Free association. People Management. Vol 7, No 15, 26 July. pp24,26-29.
This factsheet was written by Mike Cannell, who was CIPD Adviser, Learning, Training and Development, having been previously self-employed. He is now self-employed again.