Should you start your own business as a self-employed tradie?
It’s a question that thousands of tradies ask themselves every year. Should they keep working for a wage, or take the risk of going out on their own?
The answer will depend on a wide variety of factors. We’ve put together a list of those factors to assist with your decision making.
You can think of the following headings at a checklist. Go through each one, have a good think and answer them honestly, then decide whether or not you still feel comfortable about going it alone in your trade.
Note: This checklist is for tradies considering the switch to self-employment. If you’ve already made the choice, you’d be looking for an entirely different checklist that is more practical in nature. We’ll work on that checklist next…
Why do you want to be self-employed?
This is the first question you need to ask yourself. The are no real right or wrong answers, but it will get you thinking.
Here are a few possible answers:
- I want to earn more money
- I want more flexibility
- I don’t like my boss
- I think I can do it better
- It’s just time
There will be plenty more, but these are probably the most common ones. Let’s take a closer look at each one:
I want to earn more money
This is a very common reason for a tradie wanting to go out on their own.
You see that your boss is making good money, or has an expensive house, ute, toys etc, and you want some of that for yourself.
Or maybe you see what your employer is charging you out for, and you want more of that money for yourself rather than making more money for the boss.
These are completely valid thoughts, but remember that your employer is doing a lot to earn that extra piece. They are taking on the risk of finding you work, of paying your wages and super, and the overall risk if something goes wrong on the job.
So if you want to earn that extra cash that you think your boss is making out of you, just remember that you need to accept the extra risk that comes with it too.
That’s not a bad thing at all. You might find that you really thrive with the added responsibility and risk. It’s not easy, but it can be rewarding in more ways than just financially.
I want more flexibility
This is another very common reason. Being your own boss means setting your own hours, which can be especially tempting when you have a young family to spend time with.
But if you see your boss enjoying all this flexibility and having time off, just remember that it might have taken him (or her) many years to build their business up to that level.
If they have plenty of great contacts keeping the work flowing in and an admin staff keeping the paperwork under control, of course they will have a little extra spare time.
If you’re going out on your own and need to constantly chase new work to keep the money coming in, and spend half the night doing paperwork, you might find yourself with less flexibility than you had as an employee.
But that’s life as a newly self-employed tradie right? You have to start somewhere and do the hard yards to get to the point your boss might be at.
Just remember that the flexibility and working hours might actually get worse before they get better.
I don’t like my boss
Don’t laugh as this is probably more common than you think!
Maybe you love what you do, but you just don’t like the boss you’re doing it for.
Have a good think first before jumping, because unless you’re cut out for life as a self-employed tradie, you might be better off finding a better boss rather than going out on your own.
I think I can do it better
This is another interesting one. As with the reason above, you might love what you do, but you just think you can do it better than your current employer is doing it.
You could always tell your boss or employer about your ideas, but maybe you’d prefer to use those ideas for your own benefit rather than benefiting your employer?
Have a good think about this one. Just because you can do something better doesn’t mean you’ll be a success running your own trade business.
But, if you genuinely can do it better and you have the skills to run a business, it could be a great opportunity.
It’s just time
For many tradies it’s just the natural progression. You’ve completed your apprenticeship, you’ve done a few years working for the man and now it’s time to be your own boss.
This is another perfectly valid reason, but make sure you’re still ticking all of the boxes that we’ll run through in this article.
Where will you get your business from?
Cash is the lifeblood of any business. If you’re not bringing in cash you’re not going to last as a self-employed tradie for long.
An ASIC report from 2012 indicated that 40% of businesses that failed did so due to cashflow issues. That report is a little old now, but cashflow has been the same important issue forever.
So you need to be consistently bringing in work to keep you busy and paid. Sure this seems obvious, but the majority of trade businesses that fail, fail because they couldn’t keep the work coming in.
There are two mains ways that a self-employed tradie will operate. Either you’ll subcontract to a few builders, or you’ll get your own jobs direct from the public.
Subcontracting to builders can be a great way of keeping the work flowing in, but your day-to-day working life mightn’t be much different to being an employee.
The other option is getting work directly from clients. This is more common for electricians and plumbers who can pick up maintenance work.
As a start-up trade business you’ll probably take work however you can, but the main thing at this point is to have a plan. Don’t think that a Google listing and some stickers on your ute will have the phone ringing.
If you’re unsure how you’ll find enough work to keep busy, have a good hard think about it before you quit your job.
Do you have the required business knowledge?
You could be the greatest carpenter in Australia, but if you don’t have some basic business knowledge you won’t be able to build a successful business.
You don’t need to enrol in a Bachelor of Business course, but you need to know some basics around cashflow, budgeting and quoting before you start.
Of course you can pay professionals to look after all of this for you, but for most start-up trade businesses it simply wouldn’t be feasible.
As a self-employed tradie you need to be an all-rounder who’s just as handy on a spreadsheet as you are with a nailgun.
Do you like responsibility?
A lot of added responsibility comes as a trade business owner.
As an employee tradie you’ll probably have all your jobs lined up for you, you’ll have materials supplied, most of your paperwork will be looked after and ultimately you’re not legally responsible in the same way that your employer would be if things went pear-shaped.
Switching to being a self-employed tradie means all of those responsibilities now sit squarely on your own shoulders.
And remember that on top of all these extra responsibilities you’ll still have to work just as hard on the tools. In fact, during the early years you’ll probably have to work even harder on the tools than you did before.
If you’re someone who enjoys extra responsibility and pressure you might thrive in self-employment. But if you’re someone who is easily stressed, then it’s probably not a good option…
Who is depending on you?
Given that half of all new one-person businesses fail within the first three years, there is a strong chance that your business won’t go the distance.
If you’re in the 50% that don’t make it, who is relying the income you’re supposed to be generating?
If you’re a young single with no dependants and no mortgage, the financial risk of quitting your job, then trying and failing in self-employment, might be quite low.
But what if you have a mortgage and a family who rely on your income? Throwing in that steady job to chase the business dream is a pretty big risk.
That extra responsibility might be what pushes you hard enough to make the business a success, or it might just bring added stress and pressure that only makes it harder to make the business work.
The easiest way to mitigate this risk, aside from being very well prepared, is to put aside a big chunk of money to get you through.
You might still fail, but at least you’ve still had money aside to keep the family fed and the mortgage paid.
One thing you should never do is switch to self-employment to get out of financial trouble. If you’re already struggling, there is a far greater chance that going out on your own will only make things worse rather than better.
Is the timing right?
Timing is everything right? There are so many factors that can affect the timing for a tradie to start their own business.
Is the economy strong? Is the building industry going well? Is it the right time of year?
All of these factors seem relevant, but in our opinion, your own ability to build your business will trump each of them.
Someone who is weak as a business owner is probably going to fail regardless of how good conditions are, and someone who is strong is probably going to succeed regardless of conditions.
A strong performer might succeed sooner by starting in good times, and a weak performer might last a little longer during good times, but the inevitable will probably still happen at some point during the cycle.
Also consider where you’re at in terms of your personal life. If things aren’t going so well, taking on the added stress of starting a trade business is perhaps not the best option.
If there was a perfect time to start a business, it’s probably when you have the lowest level of responsibility in your life.
Having no mortgage to worry about and no kids to feed will free you up financially. This could be when you’re young and have no mortgage or kids, or it could be when you’re older and the kids have left home and the mortgage is paid off.
Doing it when you’re older means you have the added benefit of wisdom and experience, but you’re also closer to the end of your career, which gives you less time to build and enjoy your business.
Doing it when you’re younger means you might not have all the necessary wisdom and experience, but sometimes being a little naïve in business can allow you to take the risk you need to take in order to succeed. It’s a fine line though!
Is it worth the risk?
I’m writing this article as the founder of Trade Risk, so my answer is going to be yes of course!
I took the risk and started a business from scratch when I was 31 years old, and almost a decade later there’s not much I would have changed.
Mine is an insurance brokerage rather than a trade business, but many of the fundamental risks are still the same.
It has been incredibly stressful at times, but also very rewarding. You need to persevere through the good times and the bad times if you’re to have any chance at building a successful business in any industry.
You need ask yourself though if it’s worth the risk for you. What’s your risk tolerance like? If a small amount of risk can get you stressed and anxious, then it’s probably not worth it.
Before you start you need to do everything you can to minimise the risk of failure for your trade business. Getting across the following will definitely help:
- Know that you’re doing it for the right reasons
- Know where your work is going to come from
- Know that the work is going to generate sufficient cashflow
- Know how to manage the business side of your business
- Know who’s depending on you and how you won’t let them down
- Know that the time is right for you
Of course you can’t really “know” each of those 100% for sure, but at least get to a point where you’re comfortable with each of them.
Next steps?
If you are pushing ahead and going out on your own, allow us to be amongst the first to congratulate you!
We have a few other articles which could be helpful if you are taking the next step and going it alone as a self-employed tradie:
- Starting a trade business
- Sole trader or company?
- Starting an electrical business
- Starting a plumbing business
- Starting a carpentry business
- How much do self-employed tradies earn?
We wish you all the very best for your new trade business.
Author: Shane Moore. Posted: 20/05/2019.
