So you want to be your own boss'
Passion, patience and perseverance doesnt necessarily always lead to profits, says Andrew Toumazis
The transition from employee to being self-employed can be both exhilarating on the one hand and overwhelming on the other. To some people it gives a sense of freedom, creativity, independence and financial security. To others, it can be an obligation, sense of drudgery, loss of freedom, entrapment and financially zapping. Fitting in between is where a lot of small business people seem to lie.
Small business enterprises (those businesses with an annual turnover of less than $2 million) are generally referred to as SMEs. SMEs are the life blood of the Australian economy and contribute more in the way of pay as you go (PAYG) tax to the ATO, employ more people and create the trends and competition that the Australia economy and environment that we know today, enjoys.
There are several advantages and disadvantages of being involved in an SME.
If you are there now or have been there before then you will relate. If you are contemplating starting off a SME, then make sure you do it for the right reason and without the emotion that might have set you off in the first place.
- non-dependant on a fixed wage or salary, so therefore you can enjoy profits of fruits of your labour
- accomplish your dreams and aspirations; enjoy what you do instead of counting the days
- report to yourself (and your partner or adviser)
- staff, having them to help you and achieve your goals is by far one of the best reasons for being in business. They can indeed become your greatest asset if you treat them with respect and involvement.
- financial security and ability to grow your assets to a different level.
- try something different, rather than what you originally trained for, for example buy a franchise
- contribute and involve your family (careful, some say this could be a disadvantage.)
- your independence allows you to be entrepreneurial by expanding and promoting new products and ideas.
Now write a list of advantages for yourself and see if you come up with additional ideas and reasons for being self employed. Remember to take the emotion out of it and keep it simple and effective to start with. Common sense can sometimes beat experience many times over. Your list can be further elaborated on or expanded as you go, this comes with experience.
- Working capital. This can be the biggest problem in:
(a) getting an idea off the ground
(b) buying assets to start off
(c) buying a pre-existing business
(d) funding stock and work in progress
(e) setting up a shop front, fit out etc.
(f) legal and structural costs
(g) risk insurance set up
(h) estate planning matters (may need changes.)
If you are young and have limited credit history, then this may cut you short before you start. The type of finance available may therefore be critical in determining cash flow & tax effectiveness for any start up SME.
There are also some questions that you should think about before you decide to start a SME.
- How many hours do you want to work? Once your day is finished, then theres the bookwork, chasing up debtors, paying bills, organising the staff (if you are retail based, then even stocking the shelves and reordering of stock.) What if the stock doesnt turn up, what do you sell?
- How many hours did you work before, and how many do you work now?
- What if the business doesnt work out and you lose your working capital? The truth is, you may walk away from the business with debt, lost family, lost friends, bad credit rating and a perhaps a debt that has to be paid off for many years to come. The best thing here is to make sure you have a proper plan, a cash flow, a break even and a good adviser by your side.
- When do you pay yourself? You cannot usually control this - sometimes all of your hard work is tied up in stock or work in progress. Sometimes the landlord gets the first payment, otherwise you may not have a business to run.
- Are you a jack of all trades?
Not only do you think you are the best at what you do, for example Im the best electrician or best plumber or best IT guy, but you will need to be continually involved in all aspects of your business, such as:
- solving daily problems, (staff suppliers and the like)
- loss of clients and building up more clients
- car problems
- What if you wake up one day and scream, “I cant do this anymore!”
You simply just cant walk away from something you have created (its yours remember!) What about your staff, the lease on the shop, the car, the equipment leases? If you are still indebted, then you may walk away with debt, loss and possibly the stigma of failure.
Always be careful in choosing your motives and reasons for wanting to take that big step in small business. Always defend your process with good, simple common sense. If you are inexperienced, then seek an adviser. Good advice comes from someone who have been there and done that. Remember they are in business as well!
For more small business advice and office services from local Northern Beaches businesses
- Allan Hall - Reach and exceed your business and personal financial goals
- My Office Services - Runs your office while you run your business