When it comes to modern working, many people now are setting up as independent contractors. This can be seen in many sectors but certainly in areas such as IT and construction. Of course, as well as being handy for the clients who use them, working as a contractor is also an attractive proposition.
Not only do you get to be your own boss and work in an industry that you feel passionate about, but you also get a real freedom that is hard to beat. It is thought that the UK now has around 2 million self-employed people, 1.77 million of which are contracting as a full-time occupation. With freelance and contracting work bringing a staggering £119bn to the UK economy, it is an important sector.
Of course, many will also begin working for themselves to hopefully earn more money than in a standard job and be able to save more for later in life. This is very important so that you can live well now and in the future. While this is entirely possible, there are some common money worries to think about before entering this world.
The most common money-related issues for contractors
Before we look at the most common money worries for contractors, it is worth knowing that you can get help to deal with many of them. Using the correct umbrella company is a great option to help ease any financial issues you could face when contracting. These companies help to manage your payroll and invoicing along with giving you access to the rights of a standard employee. If you do begin contracting and come across any of the below problems, then be sure to seek out the right help to overcome them.
What are the issues that most independent contractors face financially?
- Not making enough –this may sound overly simplistic, but it is probably the main financial concern that most contractors have at some stage. In simple terms, you may find that you are not getting enough work and not making enough money to pay your bills or live. To overcome this, you may need to look at how you tender for work and also find ways to attract new clients directly through marketing.
- Tax costs –many self-employed contractors worry about the annual tax return process and then finding the chunk of money needed to pay their bill from HMRC. Very often, this can cost thousands, and failure to pay on time will lead to fines. Even if you use an accountant to prepare your annual return, the task of getting all your paperwork and receipts in order is a real hassle. To avoid this, many contractors will sign up with an umbrella company, which then enables them to use the PAYE system instead.
- Being off sick or on holiday –another very common financial worry for all contractors is not earning money while off ill or on holiday. As contractors do not qualify for statutory sick pay or get paid leave in their own right, it can leave them concerned with lost earnings when not working. Once more, this can be avoided by working through an umbrella company. This option will give you access to the standard rights of an employee, as you are officially employed by the umbrella company.
- Being undercut by competitors –another common financial concern for many contractors is being undercut by competitors when tendering for work. The issue here is that to compete yourself, you may be forced to lower your own prices. This could eat into your profits and actually see you struggling to keep your business going over time. Overcoming this is tricky, but it can be done by providing excellent customer service to build up a loyal customer base while also making it clear that your prices are higher because you do a better job!
- Equipment and training costs –one downside to being an independent contractor is that you have to buy your own equipment to work and also keep it maintained or get it repaired. This is a big worry for many as unexpected costs here can often be very damaging to your bottom line. The same is true of ongoing training costs that may be required for you to actually qualify to take on jobs. Getting the right training or certifications can costs thousands and is something that many worry about. The only advice here is to try to have an emergency fund in your business bank account to rescue the situation.
All contractors face the same financial worries
If you are a contractor who is facing some of the above issues, then do not worry. Although they may seem insurmountable, all can be overcome with proper planning or help from the right external agencies. Once this has been done, you will be free to enjoy the contracting lifestyle once more as your own boss.