In contracting – as in most of life – timing is everything. While many successful contractors don’t jump ship so much as get pushed, it’s still important to tune into the currents that can make your life easier or harder out on your own. Going Limited has it’s benefits, but there’s a lot to consider.
Some of this is pretty obvious. For instance, it may not be wise to go self-employed at the same time as you move house.
Some is less obvious. For instance, when’s the right time to set up as a limited company? From the word go? After a few months, once you’ve found your feet? A few years down the line when you’ve got a strong trading history?
There’s really no easy answer, and my experiences are very subjective, but here are a number of factors that I think you should consider when deciding if the time is right for you.
If you’re pretty much just dipping your toe to start with, then setting up as a Limited Company is probably overkill. Especially if your earnings are unlikely to put you over the tax threshold. As your turnover grows, the reasons for going limited grow too. If you’re earning a robust liveable wage, or expect to very soon, then the time is probably nigh.
Your client base
Different contractors can have very different client bases, and historically many of my clients didn’t look twice at my trading situation. But the bigger my clients have become, the more important it has been for me to be able to trade with them as a Limited Company. I’ve never lost work through not being Limited, but I think if I had waited any longer I might have done.
Your enthusiasm for admin
Nobody loves admin (or if they do, then I’ve never met them). But some people hate it with a capital H. I only hate it with a lower case h – I grit my teeth and get it done. But if you really can’t face it, then you can save yourself all that hassle by choosing an Umbrella set-up. You won’t take home as much at the end of the month, but if it’s worth it to you, then why not?
Going Limited: Your plans for the future
It’s important to make realistic plans when being self-employed, and that means planning for the best as well as the worst. If you can see your client base growing and your income with it, and everything’s looking good, don’t be too cautious. Get organised and ready for the future with a robust company framework.
It can be tempting to keep waiting till things are busier. But the hassle of moving to a new way of working will be incrementally worse the busier you get. So in that sense, the sooner the better.
I don’t know any freelancers who regret going self-employed. Among them, I don’t know any who regret making the move to Limited. I only know people who wish they’d done it sooner.
I myself spent years as a sole trader before finally setting up as a limited company. I dearly wish I’d thought harder about it and got round to it sooner. My reasons for delaying now seem embarrassingly naïve. I thought it was too much hassle (it’s not, and every ounce of inconvenience pays off.)
I also thought it was less cool, a bit too formal. I wasn’t a business, I was a free spirit, man! *Shudder*
However, waiting too long is not as bad as doing it before you’re ready. If you’re still not sure, just seek out some good, specialist advice. The chances are, if you get your timing right, you’ll have no regrets.
To find out more information on setting up your own Limited Company, visit our New To Contracting page.