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Whether it’s a lifestyle choice, a new challenge, a way to generate a second income, or the next stage of your career, self-employment presents both opportunities and risks. Explore the issues around this increasingly common form of work.

Thinking about setting up a business?

If you are thinking about setting up your own business, there are benefits, such as being your own boss, and having more independence, and there are also risks: only one in three business start ups in the UK succeed in the first three years of business. So it is important that you do some research before embarking on this step.

Evan Davis, a presenter of BBC’s Dragons Den, suggests that the personal qualities a typical entrepreneur would possess are:

  • confidence
  • initiative
  • determination
  • resilience
  • teamwork
  • willingness to take risks
  • hard work.

What you need to consider

  • Will my personality and circumstances help or hinder my success?
  • What is the demand for the type of business I want to offer?
  • Do I have business sense as well as the ideas?
  • How can I market myself and the business?
  • How much money do I need to start up?
  • What other resources will I need?
  • Who will take care of the finances and administration?

Do you have what it takes?

To help you reflect on your own motivation and suitability for self-employment, try the Self-employment checklist provided by Prospects the graduate careers website.

Before you start anything, take time to think through and plan your venture.

  • Generate ideas – You first need to find an idea that interests and stimulates you, and also addresses a market need. You can start by having a look at Imperial College London’s Entrepreneurship Hub, which will help you to think creatively and develop your idea into a viable business.
  • Undertake market research - Before starting up your own business, you should carry out market research, for example into product development or potential markets, to assess the feasibility of your ideas.
  • Write a business plan - The market research information you collect is used to develop a business plan, which is essential if you intend to apply for funding. Free sample UK business plans are available at BPlans.
  • Finance your business - Consider the options for financing your business.

  • Get free business training and start-up advice - from government-funded bodies - see our Resources section. They will help you to write a business plan and inform you on matters such as assessing insurance needs, tax and national insurance, and check your legal responsibilities relating to issues such as health, staff employment and intellectual property rights.

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Deciding what types of business is for you

The form your business takes will depend on the type of customer you wish to attract, the number of people involved in the business, and whether you are seeking others to invest in your venture.

Purpose of business

First establish the aim of your business – is it primarily to maximise profit for shareholders and owners, or does it serve a social purpose? The answer to this question will determine whether you choose to run it along traditional lines or opt for a model based on social enterprise, where profits are re-invested for community benefit.

Mode of operating

There are several forms of self-employment and you should think carefully about the mode of operating that would suit you.

Your business could take one of three legal forms.

  • Sole trader– this is the simplest way of starting a business. Sole traders work on their own, receive income, and are personally liable for any losses or debts. While working alone can provide freedom and flexibility, it can also be somewhat isolating.
  • Partnership – under this mode two or more people run a business. The partners (who may be colleagues, relatives or friends) may or may not share equally in the business. Each person’s income and liability is proportional to their share in the business.
  • Limited company - under this set-up the business is a completely separate legal entity from the people who run it. The business must be registered with Companies House. Although there are more rules governing such companies, there are also tax benefits.

In addition to these three legal forms, self-employment can also involve various trading practices.

  • Co-operatives and social enterprises – the business is owned and controlled by people with similar aims, values and business interests. Their ethos is democratic and community-based. Members share in the profits, for instance through employee share schemes. There is no single legal model for social enterprises.
  • Franchises - a franchisee buys a licence to run a branch of a business that someone else (the franchisor) has set up. It allows individuals to start a business with the backing of an established brand and a proven business concept. The franchisor has some control over the way in which the products or services are marketed and sold, gets an initial fee and ongoing licence fees (e.g. by means of a share of annual turnover). Each branch is owned and operated by the franchisee, so this is a form of self-employment, but with support from the franchisor.
  • Freelance and consultancy involves offering a paid skill, expertise or service for specific projects or for an agreed period of time. Freelancers either work from home or travel as necessary to the individuals or organisations that hire them. It is often necessary to have gained extensive experience and expertise to make a successful living in this way.

Sources of help and support

You will find useful general links to starting up a business in the Resources section. There is also information on relevant study from the Open University.

Franchises

Freelancers

  • Freelance: UK Contains information and advice for freelancers.
  • Professional Contractors Group A not-for-profit professional body representing knowledge workers who are self-employed.
  • Freelance enables freelancers to post their profiles and promote their services to prospective clients.

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What is a social enterprise?

Social enterprises are businesses with primarily social or environmental objectives, where trading surpluses are reinvested in the business or in the community rather than paid to shareholders or owners.

The social enterprise sector is extremely diverse

It includes organisations such as community enterprises, credit unions, development trusts, cooperatives, housing associations and social firms, which operate across a vast range of industries from health and social care to recycling, renewable energy and fair trade.

Jamie Oliver's restaurant Fifteen, The Big Issue, the Eden Project, the Co-op Bank, Fair-trade coffee company Cafedirect, Loch Fyne Oysters are all well-known examples of social enterprises.

Andy Ross is an OU alumnus (BSc in Environmental Studies, 2002) and Managing Director of New Caledonian Woodlands. He took part in The Scottish Institute for Enterprise’s 2006 Business Plan competition and received a special commendation for his social enterprise. In April 2007, Andrew resigned from his job to work full time in his company New Caledonian Woodlands Ltd, on projects such as tree-planting schemes, conservation days, team-building events and biodiversity weekends. Andy's company is run on social enterprise principles insofa as all profits are re-invested to finance environmental restoration initiatives, and the ultimate objective is to use the income generated to purchase land for a new nature reserve for Scotland.

More information on social enterprise can be found at The Social Enterprise Coalition, the UK's national body for social enterprise.

What is a community enterprise?

Community enterprises have a similar ethos to that of social enterprises. They are owned and run democratically, profits are returned to members, and typically they use employee share schemes. They are not focused on making large profits, but are frequently creative, practical or founded on ethical values.

Sources of help and support for social entrepreneurs

There is a range of funding bodies for social and community enterprises and charitable causes.

UK Wide
  • The Social Enterprise Training and Support Consortium provides an online information resource for social enterprise training, support, funding and relevant publications.
  • UnLtd is one of the largest supporters of social enterprise in the UK. It provides loans of £500-£20,000 for social enterprise ideas.
England only Scotland only
  • Firstport is a registered charity working to support new and emerging social entrepreneurs throughout Scotland.
  • The Social Enterprise Academy provides tailor-made training courses for people working in or towards a leadership role in the social economy.

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Finance your business

Do you have access to the necessary finance to set up and run your business? Funding and start-up packages are available from banks, trusts and charities, but also from business competitions, venture capitalists and business angels.

Loans and grants

  • Business Link (England, Wales and Northern Ireland) and Business Gateway (Scotland) offer an extensive finance, grants and support directory, as well as advice on various other means of financing your business.
  • The Prince’s Trust provides grants of up to £1,500 and low interest loans of up to £5,000 for those between 18 and 30 years of age.
  • Grantfinder is a funding database of up to 4000 UK and EU grants, loans, venture capital and advisory programmes.
  • J4BGrants provides a search engine for charity and small business grants and other sources of funding for your business.
  • UKbank24 is a useful resource for finding more information on what banks can offer you.
  • Business Finance Solutions (previously The Enterprise Fund) provides loans to entrepreneurs whose businesses are located in the Greater Manchester or Cheshire area and who are struggling to raise commercial loans from mainstream lenders.

Venture capital

A venture capitalist acquires an agreed share - or equity - in the business, in return for providing funding.

Business angels

Business angels are wealthy individuals who operate in much the same way as venture capitalists but are more likely to consider smaller ventures and to make investment decisions quickly without complex assessments.

There are a number of introduction agencies which try to match investors and companies, and these can be found on the following website.

Business plan competitions

Business plan competitions can provide an excellent opportunity to both raise money for your idea and receive feedback on it. Business plan competitions often invite guest lectures from a range of relevant professions, and events sometimes attract business angels or investors, or useful contacts for networking.

  • Shell LiveWIRE helps 16-30 year-olds to start and develop their own business and hosts a national competition for new business start-ups.
  • Scotland only: The ‘Business Idea Competition’ and the ‘New Venture Competition’ are run by The Scottish Institute for Enterprise(SIE). Contact for more information.

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Further resources

There is a wealth of information and support on self-employment options both from the Open University and other sources.

Resources from the Open University

  • Open University courses (modules) relevant to entrepreneurship are:
  • The OU's Learning Space presents free online study in Entrepreneurial Behaviour.
  • Open Learn, the online learning portal from the OU, contains a range of podcasts and links to BBC programmes on business and enterprise. Search for ‘enterprise’ and ‘entrepreneur’
  • The Open University Society of Entrepreneurs (OUSEN) is a supportive community of students, alumni and staff with a shared passion for enterprise. They run a programme of events to provide skills, knowledge and inspiration in Milton Keynes.
  • The Scottish Institute for Enterprise(SIE) is a collaboration between all Scottish universities, aiming to provide training and support in entrepreneurship and business skills. The Institute’s activities include free educational workshops and social and networking events, and access to business advisers. Scottish OU students can contact for more information.

External resources

There are many UK-wide organisations and online resources that can support would-be entrepreneurs.

A good place to start is the Prospects site which has a section on self-employment.

Business advice, training and information on start-up

  • You can download the AGCAS booklet Self-employment (PDF) which contains useful information and contacts.
  • HM Revenue and Customs has developed an E-Learning module for people considering setting up their own business. The course explains and guides you through everything you need to know to get started, and provides information on things such as self-assessment, national insurance, tax, etc.
  • Business Link (known as Business Gateway in Scotland) centres can offer tailor-made advice and generic business training. The website itself contains factsheets and online tutorials, as well as a Grants and Support Directory.
  • Flying Start is an initiative from the National Council for Graduate Entrepreneurship that provides online advice and guidance for graduates involved in setting up new businesses. They organise one-day events, workshops and other educational programmes.
  • VentureNavigator is a free business assessment tool aimed specifically at small to medium-sized enterprises (SME) and start-ups. It includes a 'General Business Viability' test by John Mullins, as well as providing a range of information and personal advice.
  • Start Ups provides a range of resources such as blogs, case studies, forums and podcasts to inspire would-be entrepreneurs.
  • Cobweb Information for Business publishes free practical information that helps entrepreneurs start up and run their small businesses.
  • The Prince’s Trust provides grants as well as help and advice to budding entrepreneurs between 18 and 30 years of age.
  • The British Library offers a suite of free online courses on intellectual property.

Support for entrepreneurs

  • Enterprise4all specialises in supporting entrepreneurs from under-represented groups, such as women, people with disabilities, older people and those from ethnic minority backgrounds.
  • Disabled Entrepreneurs Network provides networking opportunities and information services for self-employed disabled people.
  • PrimeInitiative is a government initiative aimed at people over 50 starting their own business.
  • The British Association of Women Entrepreneurs (BAWE) is a non-profit professional organisation for UK-based women business owners, aiming to provide opportunities for women to expand their business through networking, mentoring, training and accessing capital. It requires paid membership.
  • WiRE (Women inRural Enterprise) is an organisation for rural women in business, offering a member package of practical and specific business services and support for women in rural enterprise through their 70 local network groups. It requires paid membership.

Networking

  • Entrepreneurial Exchange is based in Scotland and offers information and support for entrepreneurs. It requires paid membership.
  • Business and Networking is a networking site that includes resources and practical advice on how to use business networks effectively.

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Test your aptitude for self-employment

Quotes from OU students

The attractions

Independence, excitement, adventure, learning, personal development, thrills and disappointments – an emotional rollercoaster which is never boring!

First steps

My first business plan was fundamentally wrong, but every journey must start from somewhere. The planning started a conversation with myself and others, and through that dialogue I learnt and grew.

A social purpose?

Only a small minority of entrepreneurs achieve great wealth but the great majority wouldn’t go back to a conventional job.

Study to succeed

OU study gave me the courage and confidence to go it alone in business.