Many people dream of starting their own businesses — of being self-employed. Personally, I enjoy working from home, and being (mostly) my own boss. However, there are some challenges that come with being self-employed, and there are risks that come as well. Before you take the plunge, it’s important to consider the risks associated with self-employment.

Here are some of the risks you need to consider before you jump in to the world of self-employment:

Financial Risks

Some of the biggest risks come in the form of your finances. You are suddenly responsible for your own health care, two sides of the payroll tax and figuring out your tax strategies so that you can make your quarterly estimated payments. If you have a low cost home business, the financial risks aren’t quite as large. As a freelance writer, my overhead is pretty small. However, there are entrepreneurs who have bigger costs when starting their home businesses. If your business idea involves moving off site and buying or leasing building space, then you have huge costs. What happens if you can’t pay them?

Add to those concerns the fact that your business is likely to result in a variable income. You need to be prepared to budget accordingly. Some months will be great, and others will be lean. You need to be ready to save money aside during the good months, and cut the budget on the lean months. During tough economic times, you might have even more trouble, since your customer base might shrink as spending habits are curbed. These items can put stress on your family’s finances, and lead to concerns about debt, and may even eventually necessitate your spouse working part of the time in order to support the family as you struggle to keep the business going.

Emotional Risks

Realize, too, that there are also emotional and relationship risks that come with being self-employed. You have to work a great deal in order to meet the demands of your business. Sometimes you have to do a great deal of tedious work for little pay. If you are running a business outside your home, you are likely to spend hours and hours working late and missing your family. Indeed, it is important, as an entrepreneur, to make sure you do find some time for yourself and for your relationship.

In some cases, marriages have been ruined over efforts to start businesses. You also have to consider some of the other needs you might have when working from home. You might suffer from the isolation that you feel when you are no longer working in an office environment. It can also be stressful to deal with the pressure to succeed. Knowing that your family’s financial well being is on the line, or being afraid of what happens next can take a terrible toll on your mental and emotional state. And don’t forget the emotional strain associated with uncertainty — especially if you aren’t sure when you will be paid, or when supplies will arrive, or what will happen next with the economy.

Bottom Line

Working for yourself can be very rewarding. However, you do have to face the fact that there are risks associated with being self-employed. Make sure you know your own risk tolerance, and that you have a plan for dealing with the challenges that arise.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.