Do you dream of being your own boss? If so, you’re not alone. Research by Enterprise Nation, found that in January 2025, nearly half of UK adults (47%) said they were considering starting a business or side hustle this year; a rise of 12% on 2024.
Yet, transitioning from employee to business owner can present unique financial challenges. So, it’s essential to be prepared before making the leap.
Here are five key financial questions to ask yourself before going self-employed to check whether you’re ready to do so.
1. What are the startup costs?
The cost of becoming self-employed and setting up a business will depend on many factors, but may include some or all of the following:
- Renting or buying work premises
- Putting financial protection in place
- Branding and marketing your business
- Purchasing essential equipment, technology, and supplies
- Hiring staff and covering related HR costs, such as training
- Professional fees, for example, paying a solicitor to draw up employment contracts.
Making a comprehensive list of all your potential startup costs will help you assess what funding you might need and establish a realistic timeline for transitioning to self-employment.
Remember to set aside a contingency fund for unexpected expenses. Even with the most careful planning, it’s likely that you may face some initial costs you didn’t foresee. These could include periods of low or no income as you build your business (more on this later).
2. How much are my ongoing expenses likely to be?
There may be some expenses you need to cover when setting up a business that you won’t have to budget for again or not for many years, such as buying premises or equipment.
However, there are likely to be various ongoing self-employment costs, whatever line of work you’re in. These might include:
- Staff costs, such as salaries and pension contributions
- Rental fees or maintenance costs for your premises
- Utility bills, either at home or in your workplace
- Buying supplies and maintaining equipment
- Professional services and subscriptions
- Marketing and communications
- Financial protection premiums
- Business travel.
It’s important to weigh these up against your projected income to ensure your business has the potential to turn a satisfactory profit.
3. How will I fund my business?
Once you have an accurate estimate of your startup and ongoing costs, it’s time to explore the funding options available. You might like to consider:
- Personal savings – If your startup costs are low or you have significant savings, you might choose to self-fund your business. However, using your personal savings is a financial risk that requires careful consideration.
- Government grants and loans – There are direct grants available to cover start-up essentials such as buying equipment. However, the eligibility criteria are strict and competition for this funding is often fierce. You could also apply for a government-backed Start Up Loan of £500 to £25,000 to start or grow your business.
- Equity financing – This involves selling a share of your business to investors in exchange for the startup capital you need. You might also benefit from your investors’ expertise and connections.
- Business credit card – Paying for day-to-day work-related costs with a business credit card could help you manage cash flow and track your expenses. This could save you time on bookkeeping and ensure that your personal and business finances remain separate. However, be mindful of high interest rates and, if possible, clear the balance each month to avoid debt building up.
4. Can I afford an irregular or reduced income?
If you’re currently employed, you might be used to receiving a fixed salary each month. As such, you know exactly how much money you have coming in and can budget accordingly.
Perhaps you’ve progressed in your career and earn a generous income that allows you to enjoy a comfortable life without any significant financial concerns?
Whatever your current circumstances are, it’s important to be realistic about your potential income when you move into self-employment – both in the short and long term.
When you first set up a business, it might take time to build a consistent client base, which could mean that your income falls initially. Building an emergency fund before you go into self-employment could provide valuable peace of mind that you have a financial safety net if there is a shortfall in your earnings.
Depending on the type of work you do and your business model, you might also find that your income varies from month to month. As a result, you may need to adjust your approach to spending and budgeting.
5. What are my tax liabilities likely to be, and how will I manage them?
If you’ve always been an employee, your income has probably been taxed at source via the PAYE system.
In contrast, as a self-employed person, you’ll be responsible for ensuring that you – and any staff you hire – pay the correct taxes.
How much you’ll pay depends on how you structure your company. If you’re a sole trader earning an income, your tax liabilities may be different than if you set up a limited company that pays dividends.
Either way, you’ll need to register as self-employed with HMRC and complete an annual tax return. You might benefit from hiring an accountant to ensure you meet your tax liabilities, especially if your business is likely to be large or complex.
Get in touch
Our financial planners have extensive experience supporting business owners. So, if you’re moving into self-employment, we can help you prepare financially and overcome any issues that may arise.
To learn more about how we can help, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
Approved by Best Practice IFA Group Ltd on 23/9/25