Our CEO, Barry Whelan, featured in the Sunday Business Post to answer a Question of Money.
After more than 20 years working as an employee in the public service, I’ve decided to go out on my own and set up my own food business. What are the big financial changes/challenges I need to be prepared for when moving from employment to self-employment and how best can I manage these?
Inconsistent or Irregular Income
One of the biggest challenges you’re likely to face when moving from employment to self-employment is inconsistent or irregular income. As you’re working for yourself, it is up to you to generate your own income.
Your business will need to make a profit and in order for it to make a profit, you must be able to get customers. So, it’s important to think carefully about the kind of business you’d like to set up and to do your market research.
Find out who your customers will be, what they need, what they usually pay for your product or service, the size of the market, and what kind of competition you’re up against. Check in with your local enterprise board for advice on starting up your business, as well as information on any grants, financial or other supports that might be available. Be sure to choose a business that you have the time and skills to run.
Loss of Employment Benefits
Another big financial change you need to be prepared for when moving from employment to self-employment is the loss of employment benefits. For example, self-employed individuals generally don’t qualify for state sick pay (illness benefit) though they may be eligible for supports like the invalidity pension or disability allowance.
As a self-employed individual, you would also lose the annual entitlement to paid holidays which you had as an employee. So, you would need to budget for holidays when self-employed. Saving money into a holiday fund through the year is one way you could do this.
Loss of Pension Contributions
Another important benefit you could lose out on when you leave employment is a company pension. If you had a company pension as an employee, when you leave that employment, you will no longer be able to contribute to that pension or benefit from any employer contributions to the scheme.
The self-employed are not eligible for auto enrolment either. As a self-employed individual, you are very much on your own when it comes to pensions and you will need to make your own pension arrangements.
Tax Responsibilities
Another thing you will be responsible for as a self-employed individual is filing your own tax returns. This will be new to you as previously your employer would have deducted your income taxes, PRSI and universal social charge through payroll.
You will need to register with Revenue for self-assessment, file your tax returns and pay any tax due by the relevant tax deadline. You may also need to register for and pay Vat, depending on your turnover and the nature of the services you provide. You may find it helpful to hire an accountant or tax advisor to help with your tax returns, particularly at the outset.
Start-Up Costs
On setting up a business specifically, other costs to prepare for are start-up costs. You don’t always need a lot of cash behind you to start a business. Start-up costs for a small business could be into the hundreds or a few thousand euro, though can run to several thousand or more, depending on what exactly you establish.
To be able to start a business without much cash behind you, consider setting yourself up as a sole trader or self-employed individual who does not require a business premises.
If you can set up and run your own food business from home, that will be an immediate saving to you as you will save on rent. If you do need a business premises at some stage, explore low-cost rental options. You may be able to rent an office, hot desk or meeting room in your local enterprise centre or a local resource centre for a fraction of the cost of renting elsewhere.
Food Business Costs
You don’t mention exactly what your food business will do. If you intend to produce food, some of the main costs you’ll face include the cost of making the food and the cost of equipment. If you need equipment, see if you can buy second-hand equipment or if you can rent equipment out as this will help keep costs down.
If any friends, relatives or others would be in a position to lend you equipment, that would help too. Other costs you are likely to face include insurance, marketing and packaging. Insurance costs can be substantial, even for a small business, though there are a number of brokers who specialise in insurance for small businesses so it’s worth getting a recommendation here.
Packaging and Compliance
Good packaging will be key to attracting customers to buy your product. There are cost-effective packaging design services which could help save you money here so shop around. As you’re setting up a food business, it’s important to be aware of – and to meet – the rules around food hygiene and food safety, and this is another cost you need to prepare for.
Even if you run your food business from home, you must still meet the various requirements around food hygiene legislation and you must usually register your business with the HSE.
Conclusion
While there are many financial changes and challenges associated with becoming your own boss, once your business is established, you could find running your own business to be hugely rewarding. Getting advice from your local enterprise centre and/or an experienced, successful entrepreneur is key.
