The aspirational theme of running your own business is one of freedom to do your own thing your own way and make your mark on the world. The reality is quite different when what you crave is a little financial independence as well.
This becomes more of an issue the older you get (significantly more so if you are single) and as you find yourself less satisfied with living in group digs or back home with your parents.
The early days of business will more than likely see you relying on some form of second employment, working tax credits to get you into the world of being an actual living, breathing taxpayer and the advantage of a whole host of legitimate expenses claims to keep you under the tax limit whilst you try to establish yourself.
Whilst keeping under the tax radar is a great idea in principal when income is low anyway, if you decide you’d like to own your own home, it can leave you in serious need on your application form.
If you want to own your own home, perhaps (as in my case) as an added advantage to keeping your business expenses down by working from home rather than hiring office space, all these things are against you when it comes to filling in that all important net profit calculation box – the holy grail of mortgage acquisition.
What you can legally claim lowers your perceived profit margin, PAYE doesn’t count on your profit sheet if you’re using it to boost your income, and despite the fact I now pay out a combined £670 a month in rent for a home and a studio including bills I still can’t get a mortgage that would probably cost half that and therefore boost my profits.
Now, whilst there’s nothing illegal about not declaring all your expenses on a tax return, it’s bad news when you’re heading to the bank to try and get a loan to buy a house.
To secure a reasonable mortgage with a 20% deposit (and if my expenses rise at the same rate as my income) I’d have to be earning about £70,000 before I could apply. And house prices are cheaper in my bit of the country. My suggestion (and one which I know others have done) get a mortgage whilst you’re working. Once you’re there, you can change jobs and no one will notice provided you keep paying your bills.
The reality is that being self employed is a risk, and you make big sacrifices along the way. If you are single, and if you don’t have financial back up, there are many things you will go without. Weighing up the losses with the benefits of running your own business, which are probably more psychological than physical, is something each of us has to decide.
You could have everything in the world financially, but if you spend your working life in a job you hate, you might look back on your past with less favour than someone who had less financially but had a satisfying work career. It’s your call.