Being your own boss has a good ring to it, but there are Risks of self-employment.

Making that transition to being self-employed is what millions dream about. It's filled with excitement, nerves, and a whole host of other emotions.

I still remember clearly making that transition over 25 years ago. It was good decision for me, not without its mistakes, successes, highs, and lows.

In this episode of I Hate Numbers I am going to run through 10 financial and business risks you are likely to face on your self-employment journey. Buckle up!

Risks of Self-Employment

If you have an idea of your business future, a plan, and the challenges and actions then you have choices. You can figure what you need to do to minimise risk and maximise opportunities. Avoiding bankruptcy becomes a lot easier!

Here is a flavour of some of those business risks, more are covered in the podcast.

Business structure.

Number one is the structure that you choose for your business. Main choices come down to sole trader vs. limited company.  We've dived deeper into this in our last podcasts Have a listen and get up to speed.

Saving and hustling.

Who knows what lies ahead ? Certainly, the current pandemic has shown how life can be turned upside down .

Cash flow is what keeps you going and enables you to survive and thrive . Put money aside for those times when things are slow, don’t stop marketing, hustling, and selling.

Taking care of yourself.

In the early days of your business money is not going to be plentiful.

When you become self-employed, you don't have the benefit of holiday entitlement, sick pay, or pension schemes. You must take care of all that, you are solely responsible for earning your living. No work, no money, at least in the early stages of your self-employment. Insurance may help.

At some point when you might be slowing down or when you want to change direction in your life, you need to have funds built up to sustain yourself.  Pensions, savings, whatever your choice, think and act now.

A personal survival budget, with your business budget are recommended.

Working Capital.

Working capital is the money that you need for the day to day business operation and activities. Imagine your business as a beautiful car. The car won't get you anywhere without fuel into the tank to make it run, to make it operate.

Your working capital is the fuel that will keep your business going so that you reach your destination. Poor working capital means your business will be running hand to mouth, and on the edge of stopping!

Even if you run a business from home with a simple laptop at your kitchen table, you need to make sure you've got money to pay those ongoing bills.

Take action!

Here are just some of the risks involved with your self-employment start-up, and ongoing. Have a listen to the rest of this podcast episode to learn about more challenges that lay ahead.

Grab a drink, make yourself comfortable, sit back and listen.

I love doing this podcast and sharing my love of Numbers with you. Check out the links below to subscribe and do not miss an episode. Help me spread that Number Love by downloading it, listening, commenting, and acting!

Coming up!

Next week I'm going to be looking at the personal and lifestyle risks that you have when you're your own boss. Stay tuned!

In This Episode

• Preparing yourself for self-employment.
• Understanding the risks involved with going out on your own.
• Managing your personal and business finances.
• Understanding what you need to sustain your business.

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

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https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Excitement, nerves, anxiety, and I have to confess, the occasional blues bowel movement. What am I talking about? While that was running through my mind, my thought pattern as I made my transition to self-employment over 25 years ago. Millions of individuals dream about being self-employed. Millions of people make that transition from that dream into action.

I, myself, from a kid, always dreamed about being self-employed, running my own thing. I didn't have a clue what it was going to be, but I had that dream within me. The main risk of self-employment is a theme of this week's podcast episode of I Hate Numbers, a show that wants to get business owners closer to their numbers so they can survive, thrive, and make money.

What's not to love? I want to talk about risks, not to put anybody off self-employment. For me, it's the best decision I ever made, but it's also to make sure that you are clear of the opportunities that self-employment offers you, the challenges and the actions that you need to do to cut down the risks, maximise the opportunities, and make sure that you don't end up in the bankruptcy court.

There are a bunch of risks involved with being self-employed. In this episode, I'm going to focus on 10 of the financial and business risks that you are likely to encounter. I'm from the school of thought that says, if I've got some awareness, some understanding of what lies ahead, then I can take action, I can prepare and not be caught out.

This week's podcast is focusing on the financial and business risks. Next week, I'm going to be looking at the personal and lifestyle risks that you have when you are your own boss. Let's get on with the show. Risk number one is the structure that you choose for your business. I'm going to mention it here briefly.

It's about whether you should be a sole trader, a limited company. We've covered that in previous podcasts, so quick reminder, the main choices are between sole trader and limited companies. Highly recommend you check out the previous podcast recordings. There's great value in there. Really useful. It is cliche to say, but the future is uncertain and none of us will be absolutely clear what lies ahead for us.

So, after our projects are being completed, the current one is finished. There may be gaps between taking on the next project, the next client, the next commission, the next sales coming in. We need to consider our next opportunities and put money aside for those quiet times when you need to be marketing.

We need to be hustling and selling to keep the cash flow coming in. Certainly at the start of self-employment, money is not going to be very plentiful. There's going to be time gaps. There's going to be delays between customers giving you money, customers believing in you. It's tough. Starting up costs are heavy.

That's that moment where that excitement slowly puts to one side, those early days of business. Do you need to get a part-time job to supplement your income? Make sure you do a personal survival budget as well as a business budget. When you become self-employed, remember you have no employee benefits.

You don't have the benefit of holiday entitlement, sick pay, pension schemes. You won't be covered normally if you take time off of work unless you want to take out insurance. You are solely responsible for earning your living. Just to make sure you've got enough money to cover your holiday. Again, insurance can step in to cover for those periods of illness when you take time off.

Again, think about a pension scheme. Many self-employed people I come across don't necessarily plan for the future by putting something aside. This is not a pensions advice column. So, again, think at some point when you might be slowing down, when you might want to change direction in your life, do you have funds built up to sustain yourself in your retirement?

Insufficient working capital is another risk that you are likely to face. Working capital is the money that you need for the day-to-day business operation, the day-to-day business activities. Think about this. Imagine your business as a beautiful car. The car in itself won't get you anywhere. You need to put oil.

You need to put fuel into the tank to make it run, to make it operate. Your working capital is literally just that. It's the engine oil, it's the fuel that keeps your business running, getting you to your destination. Even if you run a business from home with a simple laptop at your kitchen table, you need to make sure you've got monies to pay those ongoing bills.

Those bills will typically be utilities, money for yourself, your drawings, your wages, monies to pay rent, monies to pay utility bills, phone, money to put fuel into the car. And typically in a startup business, there's a gap between money coming in from customers and when those bills have got to be paid.

So, make sure you put enough funds, make sure you've got enough funds to keep the business going. It's amazing how many businesses don't have enough funds to run the business on an ongoing basis. We've covered five tips so far. We've talked about legal status. We've talked about uncertainty. I've talked about being money-minded, no employee benefits, and I've also talked about insufficient working capital.

We've got five more to go through. Number six is where we fail to price our service or product correctly. In an ideal world, we'd like to get inside the head of our customer, find out what they're willing to pay, and then perhaps price our products on that basis. Many people setting up business on their own overestimate the number of clients

they'll be able to work with at any one time. They typically undervalue their skills and the service they provide. We obviously need a manageable, a realistic supply of clients at the right level, at the right income level to make the business viable. Knowing your numbers, knowing your cost base, certainly helps you come up with the right pricing policy.

Always an easy thing to do, but value your business appropriately. Customers, depending on the sector that you operate in, make a correlation equate higher cost with higher value. So, undervaluing your product for service may not always be the best strategy for your business. We've dealt with six risks.

Let's remind ourselves what they are. Legal, uncertainty, being money-minded, lack of employee benefits, insufficient working capital, and failure to price our product or service correctly. We're coming to the last four. Overdependence, over-reliability on a single customer is a major risk that most self-employed businesses will face.

If you are starting on your own, typically your first client is likely to be the company that you may have worked for previously. First, that looks great. You know the organisation. You know you're going to get a steady stream of work from them. Fantastic. But then as time goes on, you realise that you might be at their mercy.

They are the ones who can dictate terms and conditions more so, and when you've got one customer, wherever that one customer comes from, there's a massive risk because you then get into a situation where losing them would actually make a massive difference on your business success or business failure. Having a wider pool, a wider number of clients

is a much safer option. Poor financial controls, disconnect from your numbers, ignoring the record-keeping, thinking that record-keeping is a pointless task, that is a major risk in your business. You've got to keep good financial business records, not just to keep the tax authorities happy, not just to suit the statutory authorities when it comes to finding, but if you don't know those numbers, if you don't have good financial controls, what you're spending, then you'll likely to be on the road to a major catastrophe, a major crash,

which we don't obviously want. The ninth risk I'd like us to consider is where we fail to clearly understand our customers, our marketplace, and our customers’ buying habits. One of the risks of self-employment is not answering some basic, fundamental questions. Questions such as, who are your customers?

Are they companies? What industry, what size, what location? Are they individuals, gender, age type of issues? And more particularly, what's the pain? What're the problems? What are the solutions you are offering to make them right? There's a school of thought that says largely your customers don't really care about you.

They care more about what you can do to help them. So, make sure you can identify that clearly in one or two sentences. Risk number 10, ineffective marketing. Unfortunately, setting yourself up in business, getting a website, perhaps some business cards, some social media platforms is not enough to get potential clients beating a path to your door.

You do need to learn the basics of sales and marketing. You do need to make sure you track the success or otherwise of each technique you use. So, we go back to that numbers theme. When you do something, you need to make sure you've got some idea of whether what you are doing actually has any benefit for your business.

So, look at the numbers. Do the analytics. Stop the ones that aren't working. Stop the ones that aren't actually driving customers to your doors in some way, those strangers to become happy customers. Think about an elevator pitch for your own business. So, in a 30-second window, can you summarise what your business is about?

Can you think about the pain that you are serving? The whole idea about the elevator pitch is the idea that you are in a lift, you go up to the top floor and you’ve got 30 seconds to describe to a stranger what your business is about. What solutions do you offer to your customers? What's the pain points you've identified that you can help with?

Now, it's not all doom and gloom. There are things that we can do if we are aware of the risks that we face, we can do things to mitigate those risks. It's full hardy to suggest that we can eliminate them completely, but we can certainly do things by planning, having good systems, having good record-keeping systems, making sure we keep on top of the numbers.

We've got a cash flow. We've got a financial plan. We've got a business plan that gives us a route map to get us to that end destination. I’ve recorded this week's podcast to actually turn anybody off self-employment, far from it. For me, it was the best life decision that I have made. It doesn't always suit everybody, but for me it was a brilliant thing that I did.

Having said that, over the 25 plus years, I've made a fair number of mistakes. I've got my fingers burnt. I still have occasional lapses. I've met my share of snake oil salesmen being convinced by them. I've had my share of doubters, negative and positive people. I've had the title of businessman. Probably what you might call imposter syndrome,

in hindsight, at the time, it was more book cover than substance. Whether it was self-belief, obstinacy, not fit to get a salary job, I stuck at it. I'm in a better position now than I was 25 years ago, which is obviously refreshing. Remember this. Overnight success tends to be several years in the making. In next week's show, we're going to be talking more about the personal and lifestyle risks of self-employment.

But for now, have a great week everybody. I'm not going to show any embarrassment if you review the show. Give me some feedback. Share it with friends, colleagues, if maybe we want to share it with your competitors as well. But for now, have a great week everybody. Look forward to speaking to you guys next week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.