Going self-employed or changing career? Ask yourself these seven questions first.

So you’ve discovered doing something you love, and you are ready to make a career out of it. It’s an exciting time and there’s plenty to think about! Whether you’re switching profession or preparing to start out on your own, here are some important questions to ask yourself before you get started.

1) Are you ready for a challenge?

It’s no secret that starting a business or changing your job takes a lot of hard work and motivation, even more so in 2021. Above all else, you need to be a self-starter.

Throwing yourself into a new industry can often mean starting over. You’ll need to re-build your network (probably from home) and learn the acronyms and inner workings of somewhere new – which could be a shock to the system if you’re used to being the expert in the room. This is no bad thing of course. You’ll still be able to draw on previous experiences to bring new ideas to your role, which could help you stand out and add value right away. Changing your routine and learning new things is also how we keep our brains switched on, happy and youthful, according to a recent study. So, if you’re seeking personal and professional growth, getting out of your comfort zone is the only way to do it!

If you’re going self-employed, you’ll probably need to learn the basics of every role in business. Each hat you’ll wear – from sales and marketing to finance – will require a different range of talents. Even though you’re the expert in your field, you might find it difficult to negotiate fees or chase late payments at first. That being said, being your own boss is exciting and a dream for many. Being able to decide how, where and when you want to work will allow you to get up to speed in your own time – and the freedom may be just what you need after following so many rules in the last year!

If you’ve got the go-getter mind set, then you’ve conquered one of the biggest hurdles already!

2) How will you manage changes to your income?

As well as preparing mentally, you may also need to consider the financial changes that come with taking a career leap.

When you first start your business, it’s possible you’ll be taking a pay cut before things start to pick up – many start-ups simply list survival as their primary objective. You need to be sure you can cover your mortgage payments and any other bills so you don’t run into credit problems down the line – you’ll want to start your new venture on the best foot you can.

If you’re changing your career, there’s a chance you’ll be starting at an entry level position, which could see your pay decrease (in the short-term, anyway). Again, you need to make sure you can afford your current lifestyle before you decide to go for it, or plan ways to reduce your spending.

3) Have you done your research?

Taking your career in a new direction brings a lot of unknowns. Arming yourself with as much information as possible about your market or sector (if it’s new to you) can help you regain some control.

If you are researching a new industry or position, use job listing sites to find where the opportunities are, and list any key words and skills you come across to help you build your CV. You may also benefit from reaching out to recruiters or mentors within your network for advice.

Before you launch your start-up, you’ll want to make sure you understand how to position your product or service. Does it solve an obvious pain point? Are you clear on who your target customer is, and where to find them? Who are your competitors, and how do they market their services? These questions will help you put together your business plan and pricing strategy.

Remember though, it’s completely normal for this to evolve as you go along. Over the last year, many businesses have had to change their strategy completely – so it’s important to be flexible as much as you are prepared!

4) Do you need a qualification?

Through your research, you might have found that you need a qualification to be taken seriously – by potential employers or potential customers.

Luckily, courses are extremely flexible nowadays. Studying online or in the evenings could allow you to keep your current job while you retrain, which could help to alleviate some financial pressure.

And many qualifications can be funded through student loans, which you’ll only start to pay back in manageable amounts once you start earning enough. You might even be able to find an apprenticeship to support your course, which could also help you start to meet the right contacts in your chosen field. Your University or training provider should be able to discuss the best options with you.

While there’s no upper age limit, having completed a higher education qualification before could affect your eligibility for certain Government schemes. If that’s the case, you may need to source alternative funding, which leads us onto our next question.

5) How will you get the money to get started?

The cost of starting your own business is likely to vary depending on your situation. You might need stock, transport and premises before you can even get going (if you are setting up as a florist, for example). But even if you’re offering a service that is entirely virtual, there’s registration, website, and insurance fees that all add up.

Using any funds or inheritance you’ve already saved might be the cheapest option, but this could leave you short later on. It’s important to leave something in your rainy day fund if you can.

If you’ve built up enough equity in your home, you could apply for business purpose secured loan to make your ambitions a reality. Also known as a second charge mortgage, a loan secured against your home is an alternative to remortgaging if you don’t want to give up your existing rate. You’ll make payments each month so you don’t need to worry about a large upfront cost. If you’ve not been trading for very long, specialist lenders like us can often accept other income streams to assess affordability – such as your spouse’s salary or income from a rental property. A financial advisor or a broker will be able to help you work out the best option for you, and help you find the best deal.

6) How will you deal with large bills or unexpected costs?

Despite best intentions, most businesses will come across cash flow issues at some point or other.

When you’ve just started out, you may need to invest in raw materials to complete a large order before your invoice will be paid. You may also run into difficulty if many of your clients have bought on credit, or are late paying their bills.

These are usually short-term problems, which could be solved if your bank has granted you an overdraft allowance.

If this doesn’t cover your expenses, a bridging loan might be a better option for you. You’ll repay whatever you've borrowed in one lump sum, as soon as you're able to. As with all loans, you'll be charged interest which is calculated on a monthly basis – so the less time you have your loan, the less it will cost. Again, a financial advisor or a broker will be able to advise you.

When you’ve been operating for a while, you may have to deal with larger costs such as your annual tax bill. When you’ve got a regular 9-5, your tax and national insurance is calculated and paid for you. But once you’ve set up on your own, you’ll need to complete a tax self-assessment and familiarise yourself with the rules and dates set out by HMRC.

A larger than anticipated tax bill can catch out even the most experienced businesses. It’s good practise to forecast your expected income and expected tax bill in advance so you can set the correct amount aside throughout the year. Hiring an accountant to help you may seem like an unnecessary cost, but making sure you get it right could save you a lot of money in the long run.

If you still get caught out, this is another scenario where access to fast funding could support you. Your priority is to make the tax payment immediately so it doesn’t accrue hefty interest, but you can spread the cost over a longer period of time with a secured loan.

7) Will you want to get a mortgage soon?

If you’re planning to purchase a property in the near future, you need to be aware of how changing your career could affect a mortgage application.

You’re deemed a little riskier if you’ve started a new role because during your probation period – usually three to six months – your employer could terminate your contract without notice. However, most lenders only need three months’ worth of pay slips, so this shouldn’t affect your application significantly.

You may experience more push back if your new role offers a lower base salary with a higher percentage made through bonus payments. Many lenders only take into account your basic pay when assessing affordability. If this is going to be a problem for you, a specialist lender like us may be able to help.

The self-employed often have a harder time getting a loan or mortgage, and need to prove more income history than those in full-time employment. Most high street lenders will request two to three years’ accounts, and require squeaky clean credit. But we know that’s not always the way life works.

There are a number of ways – and people to turn to – to get the best possible outcome.

Get your paperwork together

You may need to provide payslips, SA302s, submitted tax calculations and other documents to prove affordability. Having this prepared ahead of time, and using an accountant to help you get your books in order, can make the process easier and less stressful.

Use a broker

Just because you’ve set up on your own, doesn’t mean you have to do everything alone! The support of a broker’s knowledge will get you more information than internet research alone on the full range of lenders and mortgage products available to you.

Work with a specialist lender

If you’ve recently become self-employed and don’t have much income history yet, your broker may recommend talking to a specialist self-employed mortgage lender like us. We accept one year’s accounts and in some cases, projected income when reviewing loan applications – whether that’s to purchase or borrow against a commercial or residential property.