Freelancers Sometimes Make More Sense than Employees

When you are supplying a service or a product, that's what you need to concentrate on if you are to make any money. But running a business involves all sorts of other jobs that have to be covered and can keep you away from your core activity. That's why you need to employ other people to deal with all these intricacies, allowing you to get out there and make a profit.

When Cash is Hard to Come By

But what if you have a very young business where funding is stretched, or the recession has hit you so hard you've had to let people go? You simply can't afford to take on permanent employees.

That's where freelancers come in. You accept or negotiate their charges up front and employ them for as little or as long as you can afford. They know that you will review their performance before you call them back, so they will do their best for you.

Use of Freelancers is Soaring

Recent research has shown a phenomenal rise in the use of freelancers by small businesses. The rise in the year to July 2011, compared to the previous 12 months, was reported to be 68%. And around one in 20 workers in the UK works as a freelance. Many of them have specialist skills and experience that can be a real benefit to your business, and would command an extremely high salary if you were to take them onto your payroll.

Benefits of Using Freelancers

When you use freelancers, you pay for the time they work for you, not for their holidays or when they are off sick. And remember, you are under no obligation to offer more work than you can pay for. Just make sure this is all agreed in writing before they start work.

Whether you want admin help or assistance with a marketing campaign, you'll find experienced freelancers who won't need training except for a quick induction. They will be accustomed to finding out what they need to know about each business they work for, and they won't take up too much of your time. And they can often bring a fresh perspective to the tasks involved, so you can benefit from ideas you may not have thought of yourself.

This is particularly helpful when you've outsourced your bookkeeping if you are concerned about credit control or meeting regulatory deadlines. It's always worth considering a freelancer who doesn't have to go on the payroll.

Sole Trader or Limited Company?

Many micro businesses start life as a sole trader. In the first year at least, if the profit is likely to be less than the owner's personal tax allowance, this is the sensible thing to do. If you anticipate significantly higher earnings, or if your start-up really takes off, you should consider setting up a limited company to maximise your personal profit and reduce your personal risk.

What are the Risk Factors?

As a sole trader all the debts of your business are your own. If things go wrong, you risk losing any or all of your personal assets. If you own a limited company, the debts belong to the business, not yourself personally, unless you have signed any personal guarantees. You are not in danger of losing your home in the worst case scenario.

What are the Tax Factors?

As a sole trader all the profits of your business are your personal income and you are taxed on them accordingly. You will also need to pay Class 2 National Insurance (NI), currently set at £2.50 a week, and Class 4 NI on profits over the current threshold of £7,225.00.

If you set up a limited company, you could add members of your family or others as directors if you wish, or you could be a sole director. You do have to register as an employer and submit the relevant employee returns.

On profits of up to £300,000, the company pays corporation tax of 20%. It pays salaries to directors and dividends to shareholders. You will pay no tax or NI on a salary of £589.00 a month, which is an allowable expense against profit. If this is your only income and your personal tax allowance is the normal £7,475.00, as long as there is enough profit in the business, you could also pay yourself a dividend of up to £38,934.00 without incurring any income tax.

Get Professional Advice

On the face of it, as soon as a business becomes reasonably profitable, it would be wise to set up a limited company. Under some circumstances, it might even be wise to sell your sole trader business to the new company.

But things are rarely as simple as this. Most people have other income to factor into the equation, even if it's just bank interest on their savings. You should always seek advice before setting up a private company. Discuss it with your outsourced bookkeepers, and if it still seems feasible, talk to your accountant.

Small Businesses: Get help with Problem Solving

When you have a business problem to solve, what do you do? Do you mull it over for as long as you can and then make a decision because there's no time left, even though you're not really sure about it? Do you ever discover when it's too late, and you are briefing your staff that someone actually had a better solution, but they hadn't known it was needed?

Problems come in many forms. It could be how to deal with a customer's complaint. Perhaps it represents a significant opportunity, if only you knew the best way to respond to an invitation to tender or invest. Or is it that a competitor has the edge on a product, and you must find ways to develop something even better?

Getting a Handle on the Problem

You may have to make the decisions for your own business, but that doesn't mean you have to make them in isolation. The first thing you have to do when a problem arises is make sure you have a clear definition of it and what caused it. You need to clarify it in your own mind before you can communicate it to anyone else you might decide to involve. Sometimes a problem might be raised by someone else on your team, and if you haven't already recognised it yourself, this aspect is really crucial. No problem can be effectively solved unless it is fully understood.

Who Can Help?

For something really serious, if you can afford it, you might want to call in a consultant who specialises in your sector and market, as well as in problem solving. Or you might prefer to look closer to home. Arranging a group brainstorming session can be less time consuming for you than talking to people individually. You'll only have to explain the problem once and make sure people understand its parameters.

When you come to evaluate the ideas you'll be really surprised at some of the things that come up. Make it plain that you value everything that has been suggested, even though they can't all be used at that time. If you get everyone to award points to the ideas after they've been discussed, you might come away with a clear winner.

All kinds of people could be involved, from senior managers to the office gopher. You could even invite your outsourced bookkeepers to take part and offer some independent wisdom. Don't struggle on alone. Even just talking through a problem for ten minutes can help you see the light.