What
Be clear on what the potential risks and differences to employment are, so that you’re able to make a more informed decision on whether self-employment and freelancing is right for you and your circumstances.
Why
Many people step into freelancing without adequately considering the risks which self-employment comes with.
Understanding the very tangible risks of freelancing is important to ensure you are entering self-employment with your eyes open.
None of the risks are insummountable - indeed, millions of people are self-employed, enjoy the way of working, and have put things in place to reduce the risk, or protect themselves should something happen.
A risk doesn’t mean that it’s definitely going to happen, but it does mean you need to be prepared for it to be happen, be aware that it could happen, and evaluate whether you’re willing proceed, in spite of the risks.
How
Review the common risks of self-employment, using our guide below, and resources from across the ecoystem.
For each risk, consider whether you’re able to put things in place to mitigate the risk, or are willing and able to take the risk on.
Remember to balance a healthy dose of realism as you review the risks - they’re not all likely to happen, but they could, and you need to ensure you recognise how likely some of the risks are for your circumstances.
Create a potential “mitigation plan” for each risk - how you might consider putting protection in place, and reflect upon how you might deal with such a situation.
Remember some risks are managable and within your control, some risks are more outside of your control, and may happen no matter how hard to look to avoid them.
Risks.
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Risk
Likelihood
Impact
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Risk
Irregular income
There's no guarantee that you'll be generating an income every week of the year, and you may have periods of time where you're not working. The market can fluctuate significantly, certain periods of the year can be quiet and economic factors can make finding work harder.
Likelihood
High
Most freelancers will experience irregular income, and not entirely within your control
Impact
Irregular income can make it harder to forecast your finances, or require you to dip into savings
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Risk
Unable to work due to illness
You'll no longer have access to statuatory sick pay, which means if you're unable to work for any reason, you may be at risk of losing your income.
Likelihood
Medium
Incredibly hard to predict if you might be unwell - this will depend on individual circumstance
Impact
If you cannot work for an extended period of time, this can be a huge financial risk. Although it is possible to get income protection insurance
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Risk
Late payments
Around 50% of small business invoices are paid late, and this can lead to cash flow issues, and increased stress
Likelihood
High
Almost half of invoices are paid late, and over 80% of freelancers have had to deal with this.
Impact
Late invoices can cause cashflow issues and can put your other payments such as rent at risk
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Risk
High investment costs
You may need to purchase your own equipment or invest in services to run your business, such as laptops or professional subscriptions, before you are earning
Likelihood
Low
Most businesses can 'bootstrap' to get started, and invest over time.
Impact
Higher startup costs can lead to starting with debt or having to outlay before income is generated
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Risk
Client ending a contract
Clients often end contracts sooner than expected, or planned projects might go away before you get started.
Likelihood
Medium
Most freelancers will aim to have multiple customers or revenue streams, and contracts which have some protection clauses in them
Impact
If you're reliant upon a single client for your income, you're at risk of that client ending the contract, and having no other sources of revenue
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Risk
Market competition
Increased number of freelancers can make finding work harder, and there are increasing numbers of freelancers going for the same roles.
Likelihood
High
Building strong relationships is essential, and broader range of sources of new business will be required
Impact
Freelancing will be increasingly competitive, and finding work is likely to get harder or day rates lower
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Risk
Higher legal risks
You are less likely to have significant legal protections in place, or will have to deal with contracting and legal issues, possibly leading to increased liability and cost
Likelihood
Medium
If you're sensible the risks of legal issues will not be too high, but there's always contracting to be dealt with, and you'll need to understand your responsibilities
Impact
Increased stress and financial costs around managing contracts or dealing with disputes
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Risk
Less professional development in role
Many freelancers say their career slows down because they have no-one investing in their professional development and training, and you'll need to spend your own money on learning and developing new skills. Also, many clients will only hire those with demonstrable experience, making it harder to step into new areas
Likelihood
Medium
You can invest in your own development but this may come at a cost of time and money
Impact
You may find the trajectory of your career slowing down if you do not have others to learn from or training opportunities
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Risk
AI
Many roles and capabilities are at risk from radical disruption by AI over the coming years, and the landscape and demand for some roles may be significantly lower
Likelihood
High
AI is set to transform the freelancing market in the coming years.
Impact
Some roles may be in lower demand, or day rates significantly drop
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Risk
Emerging, diverse and mature talent faces discrimination
Those earlier in their careers may find it harder to find work without a developed portfolio, those from under-represented backgrounds may find it harder to access opportunities due to many roles being 'word of mouth', and more senior talent may be discounted due to higher-day rates or age based discrimination
Likelihood
Medium
There's minimal protection against discrimination when self-employed, and many are discounted from roles without recourse
Impact
Harder to find roles and opportunities or face lower day rates
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Risk
Isolation and loneliness
Freelancing can be isolating if you do not adequately put support networks in place
Likelihood
Medium
With effort, freelancers can build a supportive network around them.
Impact
Lack of peer-support and connection at work can lead to lower productivity and poorer health
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Risk
Lower confidence and resiliance
Dealing with rejection can lead to feelings of lack of self-confidence and self-worth can be challenged
Likelihood
Medium
With good support and mindset shifts, individuals can tackle feelings of low confidence
Impact
Lower confidence can spiral, leading to less work and further confidence issues
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Risk
Overwhelm and burnout
Dealing with the challenges of self-employment, lack of boundaries and structure, client conflict, shifting requirements and finding it harder to take time off can increase a risk of burnout
Likelihood
High
Whilst most freelancers say they feel healthier as a result of self-employment, the risk factors for burnout are higher
Impact
Working long hours, struggling to take breaks, taking on more responsibility, and minimal support can lead to health risks and in turn business failure
