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Statistics show that there are two million freelancers in the UK, with freelancers being the main source of income for the majority of freelancers. However, there is a sizable minority of freelancers who do freelance on the side to get a bit of extra income while doing a traditional 9-5 job.
The question is, what if freelance activities take up more time than the main 9-5 job? Perhaps it is time to go freelancing into a full time job. If you want to turn your hobby into your career, you should register as a sole proprietorship.
What is a sole proprietorship?
A sole proprietorship is a person who works for himself, he is self-employed. Perhaps they were a former employee or a part-time freelancer who decided to run their own business.
Advantages of starting a sole proprietorship
Keep track of your winnings
The big advantage of being a sole proprietor is that you can keep all of your after-tax profits. When you work alone, you don't have to share your profits with others, which means that more is meant for you.
However, it should be noted that some of the profits you make will have to be reinvested in the business.
Working for yourself = control
When you're an employee, regardless of your position, there is often very little control. You may have a great idea or vision that is quickly suppressed by top management or internal labor policy. This can be very frustrating.
The advantage of being self-employed is that you are your own boss. The only person to be consulted is yourself. This means that you have a choice in which direction your business should go. This allows you and your company to be more flexible and adaptable. You can choose where and when to work. This can be very useful for balancing work and family.
When you are in control, you can make faster decisions because no other form of administration is required.
Easy to set up as a sole proprietorship
Setting up and registering as a sole proprietorship is a really simple and free process. It doesn't take long and just requires registration with HM Revenue and Customs. The registration process can be completed online so that you can complete it from the comfort of your home.
If you choose to become a sole proprietorship, you must inform HMRC that you are registering and paying your tax through Self Assessment. This means that you have to file a tax return every year.
There are of course some rules and responsibilities when registering as a sole proprietorship. So make sure you follow government and HMRC rules when setting up your own business. For more information on setting up a sole proprietorship, visit the government website.
Great place to start as a new entrepreneur
One of the perks of being a sole proprietor is that it's especially easy to change your mind. As mentioned earlier, those looking to start a business often need to balance this with a full-time job. Working as a sole proprietorship can be a good place to start and allow an entrepreneur to start a business. As your business grows, you still have the option to form a limited liability company that offers benefits like limited liability, tax breaks, and more.
For more information on starting a sole proprietorship or a limited company, see the Useful Guide to SME Loans.
Disadvantages of starting a sole proprietorship
The main disadvantage of a sole proprietorship is that you will be fully liable for the finances of your business in the event it goes into debt. This means that in the event that you have to repay your loan, your personal wealth is at risk. Unlimited liability extends to all aspects of the business, so you are also liable for accidents such as property damage. Therefore, being a sole proprietorship can be more financially risky if something goes wrong.
Taking a break can be difficult
One of the disadvantages of self-employment is that if you stop working, you stop earning. As an employee, you are entitled to vacation pay, which means you don't lose any money. In the case of a sole proprietorship, there is no one to delegate the work to, which means you are effectively stopping doing business. This can be daunting for those who don't want to worry about finances while on vacation.
Of course, this does not mean that you cannot take breaks, it just means that you need to plan them carefully in advance and potentially take fewer vacations.
Restrictions of a Retailer
As a sole proprietorship, you mainly work alone. This can limit certain business opportunities. For example, if there is a large order that requires a lot of work, a sole proprietorship may be overlooked in favor of a limited company that can do the job more efficiently. This can be very daunting and can leave you with less fertile jobs.
Securing external and internal funding as a sole proprietorship can be difficult. A retailer's business structure is viewed critically by most traditional lenders such as banks, which makes it difficult to secure external funding sources. Traditional lenders believe that a sole proprietorship is a risky customer and less inclined to offer credit. When they offer loans, they are often a fraction of the amount required and have shorter repayment terms and a higher interest rate.
Raising funds in-house can be just as difficult as the sole proprietorship often needs to dive into their personal finances to secure funding.