Many people choose to start their own business when working for an employer no longer suits their lifestyle. But more and more people are starting out as freelancers or self-employed instead of registering a formal company structure. There are many good financial reasons for doing this:
No wages to pay
There might be no need to register for taxes until after the income starts to rise
No formal business premises might be needed
Possibly no outlay of stock or equipment
No cost to register a business
Unfortunately, your status as self-employed or freelance might be hindering your progress in the business world. For a start, there are many large companies that would welcome your work but only if you have a registered business number. This is for their own tax and accounting purposes. It is usually an internal policy rather than one governed by law, but you might still be pushed aside in favor of a formally registered business.
Does Forming A Company Mean I Have To Work Like A Formal Company?
In terms of your working hours, that remains entirely up to you. Have a look at websites like topuniversities.com/blog to see what the average hours worked are around the world. How many clients or customers you choose to work with is also up to you. How you manage your income will probably need to change though.
Usually, when you register a company, you need to have another person registered with you to formally structure the business. This person does not need to collect a wage. In some cases, they don’t need to have a share in the company either. But there is a chance that their finances might be checked should you choose to work with certain businesses in a professional capacity.
As for your wage? You should use a formal accountancy service, and make sure your books are kept professionally. You might be advised to hold profits in an account to help you grow the business. Your income is likely to be a fixed sum. When you’re a freelancer, you might not even use a business bank account. Those days are over when you register a formal company. Now everything is likely to be filed for public viewing. That might include your salary.
Isn’t Registering A Business Hard Work?
You’re probably used to making decisions about your business already. You’ve filled in a domain name application and chosen your company name. Registering your business as a formal company can be just as quick and easy. And the cost might be comparable. Visit websites like yourcompanyformations.co.uk to find out more about officially forming a company. There are legal responsibilities and obligations when you do so, but these might be in your best interests anyway.
What Are The Benefits Of Forming A Small Business Company?
As a freelancer or a self-employed person, you might have some cover in case things go wrong. This might include Personal Liability Insurance. But as a Limited Liability Company you have limited liability as a company director should something go wrong. Do you manufacture products or sell someone else’s products? You need to be sure you can’t be personally sued should those products be faulty and cause harm. And if your company falls into debts and can’t fulfil promises, then again you are unlikely to be personally liable for repaying them. You might not have that level of protection if you’re self-employed.
You might also find you’re more focused on long-term goals and achievements when your returns could be under public scrutiny. This could be the motivation you need to ensure that your business is growing and that you are making a profit every year. It can limit your personal takings from those profits but also ensure your income during a quiet month. Speak to an accountant about your business plan and how you can pay yourself from the company’s income.
Doesn’t Freelance Mean I’m Free?
As a freelancer, you are free to pick and choose which clients you work with. Business owners might feel obliged to serve every customer that comes their way. After all, the company reputation is at stake. But your reputation as an individual is at stake when you are your brand. You retain a degree of anonymity as an employee of your company. It is the company’s brand and reputation that counts in that case.
If you are earning over a certain amount, you might have to register for taxes anyway. Removing that risk of personal liability, especially when things are going well, could be a good idea. Are you ready to make the jump to company formation?