You may or may not think of yourself as a business owner, but the fact is that if you earn any sort of income outside of paid employment or a pension, then in practical terms, there’s a good chance that’s exactly what you are. As such, it could be very wise for you to take steps to protect your business from potential risks.
Hobby business which earns you some pocket money
If you are simply running a hobby business for a bit of extra money without which you could still live comfortably, then you might not have to worry too much about protecting the income. Depending on your business model, however, there may be other areas of risk where you do need protection. For example, if you sell directly to customers (as opposed to using an intermediary platform such as Etsy), then you will need to ensure that any customer data you collect is appropriately protected. You may also want to think about whether or not you would benefit from insurance to protect you against being sued by your customers for any other reason. You may think you are doing everything right and perhaps you are, but the cost of an insurance premium could be a very small price to pay to know you have the support of an insurance company in the event that something does go wrong (or that a scammer tries their luck with you).
Small-scale businesses which make a meaningful contribution to the household finances
If you have a side-hustle which provides an income you could afford to lose, but would very much prefer to keep and perhaps turn into a full-time income at some point, then you would be strongly recommended to take the idea of protecting your business rather more seriously. As a bare minimum, you should think about the previous comments regarding customer data and the risk of being sued (even if you have done nothing to deserve it). Ideally, you would take some time to think about how you could continue to run your business, or at least keep it ticking over if you become unable to work as usual. Even if you have the very best of health accidents can happen or you may want or need to take time out for another reason such as to take care of someone else or even for a holiday. You may also have bought equipment for your business, in which case it could be wise to insure it.
Businesses which provide your main income
If your self-employed business is your main source of income, then you need to take risk management very seriously. If you employ other people, or even if you simply sub-contract to other freelancers, then you will also need to think about their welfare and, it has to be said, the risks they pose to you. Part of this risk can be mitigated by good people-management skills, for example, if you give a freelancer an assignment which is important to your business, then you should probably select them with at least some degree of care (rather than just picking the cheapest bid) and communicate with them so you have reassurance that they are staying on top of your project (or the opportunity to take action if they are not). If you are actually employing people, then you may want to think about insuring them, especially if they are important to your business and/or would be difficult to replace. Quite bluntly, contracts can stop people leaving without notice, but they can’t stop people having accidents, getting ill or even dying. Insurance can’t do that either, to be fair, but it can provide a useful cash injection to help you over your difficulty.
Whatever your age, good advice can be invaluable
While looking after your finances is indisputably important, on a day-to-day basis, it may have to take a back seat to everything else you have to manage, such as work, family, friends, study and your favourite hobbies. That means you may not have as much time as you would like to think about your financial plans and financial planning and even if you do, the sheer amount there is to learn could feel overwhelming. That’s why it can be very helpful to get independent, professional advice regardless of your life stage. Here are some ways in which a professional can guide you.
Minimising your tax exposure
The more of your money you can keep in your own pocket, the better off you will be. One of the ways you can achieve this is by minimising the amount of money you have to hand over to the government in the form of tax. This can involve a little lateral thinking. For example, ISAs are an obvious way to shelter funds from the tax man, while the tax benefits of pension contributions may be less obvious. Of course, money saved in standard ISAs can be accessed at the present time if you need it (there are some limitations on specialist ISAs), whereas pensions contributions are locked away until your retirement. While minimising tax exposure is likely to be a financial goal for people of all ages, in practical terms, it may mean different things at different times. For example, people saving up to start a family may be best served by a Lifetime ISA so they can put down a deposit on a house, people with children might want to look at Junior ISAs as a means to save for their future, while people with grown children might be more concerned about minimising the impact of inheritance tax.
Saving for/in retirement
Ideally saving for retirement should start as early as possible so your money has the maximum possible length of time to grow. In practice, however, young adulthood can be a financially challenging time. Even without student debt, young adults are just starting out on their career and may have more immediate priorities such as buying a house and starting a family. Once children come along, disposable income may take a significant hit, especially if one partner stays at home to look after them and it must still be remembered that the home-making partner will have retirement needs of their own. As people age, the appropriate strategy for retirement saving may depend greatly on how much they have managed to save in their younger years. For some people it may be worthwhile to make a few sacrifices in the present in order to have a better retirement, for others retirement savings may be well on track, leaving them more disposable income for the present time. Once retirement starts, it may still be worth saving for the future, given that retirement can now last decades rather than years and, even if it does not, you can still leave behind a meaningful legacy.
Taking out appropriate insurance
Insurance may not be the world’s most exciting topic, but it matters and it’s better to have it and not need it than to need it but not have it. At the same time, however, over-insurance can cost you money and so you need to strike the correct balance depending on your priorities at any given time which can change as you age. For example, as a young adult, life insurance may simply be a condition of your mortgage but when you start a family it may become a crucial part of your strategy to protect your partner and children in the event of anything happening to you.