For many, loss of job satisfaction can lead to a fork in the road: Look for another job, or becoming self-employed. This article covers important things to know in preparation for becoming your own boss.
Reasons for becoming self-employed
Your reasons for becoming self-employed can follow any number and combination of themes:
- You want independence with your finances or to better them; want more control of your time
- Take on a new challenge, learn new skills or deploy the ones you have better
- You may want more money and better work conditions
- You may have been retrenched, feel unfulfilled by your current job, or can’t find a job in you area
- You may have spotted an opportunity in the market or want to have a greater impact on your community
- You may want greater flexibility in your day to see to family responsibilities
- More control who you provide business to
- You may want to pursue your passion and create greater meaning in your life
- You may not be ready, able, or interested in retiring.
Whatever your reasons for wanting to be self-employed, it’s important to know what they are, as these reasons will influence the kind of business model you create, and serve as motivation as you start and grow your business.
Related: Do You Speak Start-up?
Are you suited to be self-employed?
The next thing to assess is whether you’re cut out to be self-employed. While not everyone can be entrepreneurial greats like Richard Branson or Mark Shuttleworth, there are endless opportunities for individuals to kick-start small businesses and life fulfilling, financially secure lives.
Here are some characteristics that will help you figure out whether you’re suited to being self-employed:
Preparing to be self-employed
Before you print your resignation letter and put it on your boss’s desk, there are a few things to get in order on your quest for self-employment. You need to have a plan, so have these ducks in a row before taking any big leaps:
- Increase your savings. A business is going to require capital, often much more than you anticipate. So make sure you start saving. There will be unexpected expenses, months of little or no income, personal bills that need to be paid etc.
- Scaling back on expenses. If you’re leaving a salaried job to pursue self-employment, you’re going to need to reduce your expenses as much as possible. Not only with this help you with saving for your business, but once it’s go-time, there will be less pressure on the business to float your lifestyle. You may need to trade in the fancy car, scale back on luxury spending, skip a holiday or two. Make sure your family is on board with these sacrifices to avoid conflict.
- Can you start part-time? It’s not always necessary to quit your current job in order to become self-employed. Let your employer know of your intentions and nine times out of ten they will support you provided you’re not compromising your productivity, abusing company resources or poaching clients.
- Learn, learn and learn some more. Take the time prior to starting your business to analyse your target market, the demographics of your surrounding community, take courses or self-study to up-skill yourself, write a business plan, and get a mentor if you can.
- Crunch numbers. If you already have a business idea, take the time to carefully figure out your finances. How much capital will you require? What are your (conservative) projections? How long is your sales cycle? What kind of profit margin can you achieve? Will you require a loan?
Finding a business product or service to provide when you’re self-employed
Thanks to globalisation and the Internet, you needn’t always rely on your local community to support your business idea. If you’re passionate about a particular interest, search the Internet for forums or groups with similar shared interests. See if you can set up an e-tail business to tap this interest.
If you have spotted a need in your area that you have the skills and interest to tap, take the time to understand your market, their needs, income, expectations etc. As an example, if you spot a need in your community for a trustworthy and reputable handyman service, you can meet that need by setting up a handyman business that trains and deploys handymen around the community.
At the core of every single business on earth that has ever achieved sustainable success is this philosophy:
Every successful business (1) creates or provides something of value that (2) other people want or need (3) at a price they’re willing to pay, in a way that (4) satisfies the purchaser’s needs and expectations and (5) provides the business with sufficient revenue to make it worthwhile for the owner to continue operating. – Josh Kaufman
Implications of being self-employed
Also known as ‘the dark side of being self-employed,’ there are a number of implications that can be pushed aside during the excitement of having a business idea and getting it off the ground. Here are the top considerations to put some thought to before starting your own business:
Family considerations for the self-employed
The start-up and growth phases of a business are incredibly demanding. This means much of your time and energy will be devoted to the cause, while family can take a back seat.
You may find that being your own boss actually means more work time than if you were an employee, suddenly evenings, weekends and holidays are work-time too, primarily because of the knowledge that your business success is down to you and you alone.
Because of time and financial restraints, you may have to make unpopular sacrifices like annual holidays to the coast, reducing your children’s allowances, relying on your spouse to carry the bulk of living expenses.
Even if you’re in a position to still enjoy these things, you may have a hard time switching off and enjoying family time, knowing that there’s always something in the business that needs to be done.
Financial considerations for the self-employed
While a successful business can lead to greater wealth in the future, there will be times where the business presents huge financial uncertainty – you may not be able to draw a salary, it hasn’t reached break-even, a return on investment is years off, and your life will continue to throw financial curve-balls like an unexpected medical expense.
You will need to look carefully at if and how you plan to continue medical aid and pension payments, how you will pay loans like your bond, car etc.
Work-life balance for the self-employed
For many new and experienced entrepreneurs, finding a work-life balance can seem like an insurmountable challenge.
The line between work and personal time becomes blurred, your sense of success and fulfilment becomes attached to your business success, and you may find it hard to switch off at the end of the day.
Here are some tips to help:
- Set a place and schedule. Choose a place to work that allows you to zone in and concentrate. It’s good for this place to have a door. Get up at the same time every morning and have a routine similar to what you’d have at a place of employment. When the work day is done, turn off the computer, close the door, and ‘go home’. Don’t fall into the trap of working in your favourite TV chair, of working all hours of the day, and trying to multi-task business and family.
- Build social contact into your day. Hanging about the house all day will lead to cabin fever and a sense of isolation. Allocate time in the day to leave the ‘office’ to have lunch, pick up the kids, run errands, visit clients, socialise etc.
- Keep some days ‘no work’ days. While it’s a tough decision when you’re business needs you as much as it does in the start-up phase, make sure you have dedicated ‘no-work’ days. Even if it’s just one day a week, you need this time to recharge your batteries and enjoy important personal time.
Isolation of the self-employed
One factor of being self-employed often takes entrepreneurs by surprise – and that’s a sense of isolation. When you’re your own boss, you are at the steering wheel and the weight of the responsibility can make you feel isolated.
If your family members are employed, they might not understand what it feels like to experience the challenges, responsibility and demands you do as a business owner.
At first, the idea of working by yourself can seem appealing, moving from a business with numerous employees to being a small business owner can also feel isolating because of lack of social engagement.
This is particularly common for entrepreneurs starting a one-man-business from home. While you no longer have to commute to your place of work, you also lose the daily interaction you previously enjoyed with colleagues.
For a boost to your confidence, some much needed entrepreneurial and industry advice, being exposed to potential business, spreading word-of-mouth referrals, and developing yourself as an entrepreneur, network, network, network. Join entrepreneurial organisations, attend industry events, and maintain good relationships in your network.
To get started with your small business, click here.
The Rising Cost Of Small Business
Many of the hidden costs that tend to surprise small business owners are related to the employment of people. However, the silver lining is that there are ways to mitigate the risks associated with scaling a business and several tools available to streamline HR processes.
A small business starts with a visionary dream fueled by energy and grit. Founders build on that and attract a small team of people who can help breathe life into the business. But not very long after setting out on course, the harsh realisation of rising costs like insurance, permits, licenses, equipment, maintenance, taxes, shrinkage and utilities suddenly appear.
Poor Labour Relations Management
Extensive labour laws in South Africa require dedicated overseeing and management, which generally lead to additional costs of employing labour consultants or hiring human resources managers that are not entirely relate to the core of your business. However, left unattended, labour relations issues can and will shut down your shop.
Labour relations issues cost South African companies R14 billion annually. Many companies have costly compensation orders from the CCMA due to Line Managers and HR employees not complying with legislation regarding disciplinary matters.
A surprising statistic from SEFA suggested that of the small businesses that fail, 40% of them can be attributed to poor labour relations management, therefore managing disciplinary processes by the book is critical. There are useful templates as well as step by step guides available online to help managers through disciplinary processes and to avoid incurring penalties from the CCMA.
By law employees are entitled to at least 15 working days’ vacation leave in every leave cycle. Employers could face substantial penalties from the Department of Labour if they do not allow employees to take leave. Planning for peak and off peak periods in businesses is a critical part of drafting job specs and these conditions must be communicated to staff early on.
The cost of poor leave management will contribute to the company’s leave liability i.e. the amount of leave an employee is owed is noted as a liability in the general ledger. Annual leave that employees do not take is a hidden expense for a business that if left unattended, will accrue and create cash flow problems for the business.
Employers are advised to make use of a leave management tool that enables both the employer as well as their employees to keep track of leave days owed to employees and brings some automation in to the process.
The Basic Conditions of Employment Act ensures that all employees are “entitled” to a minimum of 30 days (for a 5 day workweek) and 36 days (for a 6 day workweek) paid sick leave.
According to Occupational Care South Africa (OCSA), absenteeism costs the South African economy around R12 -R16 billion per year. This equates to around 15% of employees being absent on any given day. The answer isn’t to go on a witch hunt throwing policy at employees and demanding doctor’s notes for even a few hours off work (employers are not allowed to breach medical confidentiality by requesting a diagnosis on a sick leave note).
Alternatively, employers can be proactive in managing absenteeism by monitoring leave reports monthly and quarterly taking regular health interventions (e.g. flu shots) before a peak sick leave season e.g. before winter. Maintaining a positive work environment where employees feel acknowledged and are encouraged to perform goes a long way in keep workers present and absenteeism on the low.
Is Unmanaged Stress Killing Off Our SMMEs?
Most SMMEs don’t make it past their first year. This is worrying for an economy in which SMMEs are a vital part of growth. A range of reasons are given for what is stifling these businesses, from financing to access to markets, but one factor has been completely overlooked: Stress.
It is now widely understood that Small Medium and Micro Enterprises (SMMEs) are key to a country’s economic- and employment growth, but something is amiss in South Africa. Our SMMEs are just not doing what they should and understanding why this is – and fixing it – will be critical to the future success and sustainability of the economy.
The common conversations around SMME failure rates point at six main culprits: (1) access to funding, (2) access to markets, (3) infrastructure challenges, (4) scalability, (5) tough regulations, and (6) skills/education. The problem is that we have known about these for years, and for all the efforts to address them, we are unfortunately not seeing the growth in the sector that is needed.
A recent survey by the Small Business Institute (SBI) and the Small Business Project (SBP) put the number of formal SMMEs in South Africa currently at just 250,000. These numbers are alarmingly low – especially when compared with international benchmarks. SMMEs in Organisation for Economic Co-operation and Development (OECD) countries, make up 95% of businesses, and employ between 60%–70% of the working population, contributing up to 60% to GDP. In South Africa, while SMMEs make up 98% of the business population, they only employ 28% of the nation’s workforce, according to Chris Darroll, CEO of the SBP.
And yet the government continues to pin its hopes on the SMME sector. Initiatives like the DTI’s Invest SA and the South African Investment Conference this October, that claims to have attracted billions in foreign investment to the country, have foregrounded the role of SMMEs in economic revival. And the Government’s National Development Plan aims to have SMMEs contributing 90% of job growth by 2030. It is likely that more money will be channelled into support for the sector, to join the billions that have already been spent on incubators and initiatives to help small businesses.
This is a good thing, but it is not enough. The numbers speak for themselves. To date, none of these initiatives has borne much fruit and this signals that we may be overlooking something fundamental. Our collaborative research at the UCT Graduate School of Business suggests that what is being overlooked is something that most of us find difficult to define, or even talk about: Stress.
Stress is under-acknowledged by most people, personally and professionally, and for varied reasons. And this can have devastating effects. If ignored in business, the human devastation is likely to have larger scale effects on job loss, workforce disengagement, health-related days off, impaired teamwork, sub-optimal decision-making, lowering of productivity, and ultimately fuelling a declining economy.
While access to finance and markets, infrastructure and scalability challenges, tough regulations, and not enough educated and skilled employees are all valid hurdles tripping up SMMEs, the fact is that they are perfectly normal hurdles to have in a competitive, emerging economy. Our research reveals that good leaders, who are able to get their businesses over each encountered hurdle, are also able to manage their personal negative stress and harness their positive stress.
Stress can, generally, be quite motivating, however it is generally accepted that there are three kinds of stress: (1) positive stress, which is chosen and does not last very long (like writing an exam), (2) tolerable stress, which is unexpected and lasts a little longer, but then stops and there is time to process, and (3) toxic stress or distress. Toxic stress is tolerable stress left to run on and on without end, without rest and without time for healing and processing. It is this third and debilitating kind of stress that business leaders are likely to experience, and in SMMEs it can be even more severe.
Our research suggests that SMME owners tend to set very high, and often lofty, goals for themselves when setting up their SMMEs. And then they are constantly feeling stretched in either striving for these goals or ‘maintaining the course’. This can mean maintaining good business results, maintaining the customer base, where often 20% of the customer base accounts for 80% of the revenue, maintaining employment levels in changing political and economic conditions, maintaining pricing when squeezed for ever-lower prices while delivering good quality products and services, having their integrity challenged, and dealing with clients/customers who are not averse to replacing their products/services.
Another cause of stress for SMME business owners is that they mostly have internal loci of control, meaning that they take personal responsibility for outcomes and results and therefore blame themselves for every failure, and find it difficult to forgive themselves for deviations from intended results. In addition, an innate sense of accountability to their staff and their staffs’ families reportedly weighs heavily on business owners. Many feel similar accountability toward the broader stakeholder groups that their businesses serve.
All of these factors, which many argue are innate to the nature of business, place undue, long-term pressure (toxic stress/distress) on the cognitive, emotional, psychological and spiritual resources of individual business owners. This reportedly leads to drops in productive activity and motivation, withdrawal from relationships both personal and professional, low energy, impaired decision-making and ill health. And it also destroys resilience – leaving business leaders unable to ‘bounce back’ from personal- or business-setbacks, which is part and parcel of life and business. With a debilitated leader, the business is almost always likely to suffer, on a day-to-day basis and also in the long run. Like a virus, stress transfers to others.
An SMME’s success is inextricably linked to having an effective leader. And effective leadership is inextricably linked to effective stress management and self-care. It stands to reason, therefore, that improving the way SMME business owners manage their stress and boundaries could have a significant impact on improving business survival rates.
Along with offering business advice, funding incubators, opening up markets, attracting foreign investors, educating consumers, subsidising and improving infrastructure, the government should be looking at ways to encourage stress management and self-care into the daily operations of small to medium-sized businesses.
We need to get business owners educated about stress and self-care: about how exercise, sleep, diet, meditation, life-balance, self-forgiveness, and other-forgiveness affect them, their staff and their businesses. Effective self-care, of which stress management is a part, will enable business owners to courageously stay resilient in the ongoing stressful situations they will naturally encounter. This may, in turn, help to turn the tide in South Africa’s SMME sector so that it can drive the country’s economic revival like everyone hopes it will.
Many SMEs Start With Great Plans But Fail To Take The Big Leap
Most small-to-medium sized enterprises (SMEs) are aware of the benefits of good governance practice but, faced with limited time and resources, which could be costly in supporting growth ambitions.
- 27% of SMEs don’t have a vision that covers more than the next 12 months
- 45% of SMEs either don’t have a strategy, or one which covers only the next 12 months or less.
The latest global research, inclusive of Africa in supporting small business growth from ACCA, outlines the governance needs of SMEs. It highlights simple but effective practice over vision, strategy and human capital can provide them with greater flexibility, adaptability and resilience as they grow. This a huge factor in the long-term sustainability of the business, if put in practise.
“If you incorporate good practice for running your business from an early stage, your company is more likely to be resilient and is more likely to appeal to external investment,” explains Jo Iwasaki, head of corporate governance at ACCA. It is about leadership directing the company and being aware of factors both within and beyond their enterprise and build resilient organisations in the face pf the changing world.
The research also found that half (49%) of SMEs do not involve anyone external in their strategy discussions, despite the benefits experienced by those that do, which include additional experience and knowledge of the industry/sector (according to 46%), an independent perspective / constructive criticism (44%) and advice on their growth strategy (39%).
“There are a lot of daily concerns for the leaders of a small business, and often the biggest challenge is meeting day-to-day operations and cash management needs while thinking about the long-term future of the company. And while many leaders are keenly aware of the importance of resilience in the rapidly changing business environment and of buy-in from stakeholders, for example funders and employees, there often may not be the time to think or do much about it,” added Iwasaki.
“I hope that this research helps SMEs in focusing on some of the most crucial issues, and can be a resource not just to SMEs themselves but also to policymakers,” concluded Iwasaki.
How vision and strategy helps small business succeed is available at ACCA Global.
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