Category Archives for "Self-Employment"

Working on Your Inner Capacities

Last time, in this series about self-employment, I touched on why paying for personal development is important.  As I approach the main body of this sequence, about developing a new business, I shall consider the inner capacities you need to build a business.

What are Inner Capacities?

An inner capacity is something behind the scenes that helps make your business viable.  Someone observing your working day, will see you do things to deliver your offer to your customer.  This may mean various meetings, technical work, paperwork, preparation, etc.   Your customer might not see all this but they see the results. Much of the work, behind the scenes, is not an example of an inner capacity.

Inner capacities are not activities so much as those factors that build your resilience to setbacks and keep you going.  So, here are three examples of inner capacities:

Emotions

You need to work consistently and so being able to handle emotions is essential.

Let’s say you have an interview with a prospect and it goes well but they don’t take up your offer.  Or they say yes and then change their mind.  It is difficult not to feel emotion when this happens but the key thing is being able to process it and move on.

Not dwelling on setbacks and being ready to keep going is essential to the success of any business.

There are several ways to deal with negative emotions and the one I use is to walk.  Walking allows my mind to settle.  There is some value in rehearsing what you said and asking if you could have done things better.  If you can take note and do things better in the future, that is good.  But there comes a point when dwelling on some event and going over and over it becomes counter-productive. You really must move on.

Expectations

Every internet guru makes promises of untold wealth if you follow their prescribed path.  Many have a lot to offer and can point to the success of their business and the businesses of those they have helped.

There is, however, a problem, rarely voiced.  Not everyone will get access to untold riches and more to the point most people don’t want to and don’t have to.  Why?  Lots of reasons:

  • Many people set up in business to deliver a service and gain great satisfaction from that. Making money is important because without it they can’t keep going but it is secondary.  They don’t want to know how to become mega-rich but how to make enough to keep going.
  • It is a statistical inevitability that some business will fail whilst others do very well indeed. The Pareto principle shows this.  The people who have done well have been in one way or another lucky.  They can share how they did it and sometimes it has value but it is impossible for everyone to make the same journey.
  • The issue is not for most people riches (a massive income) so much as wealth (being able to break even).  The main point is most people are happy to break even and perhaps save a little.  However, savings are not crucial if you have a regular and reliable source of income, which can come from trade or investments.

So, there is scope for variation in expectations.  I suspect most people would settle for a reliable income that covers their outgoings.  Their needs may vary over their working life but the key is understanding what you need and how to get there.

If you do exceed your current needs it is worth considering what you would do with any surplus.  Consider the following:

  • Invest in assets that guarantee future financial independence. Do this before you spend on things you don’t really need, ie while you’re still used to your current lifestyle.
  • Expand your business and offer others employment opportunities.
  • Invest in other businesses
  • Contribute to community projects and / or charities

If you get the first in the list right, you may find you are able to do at least one on the rest of the list.  These are expectations of not so much your own wealth but your contribution, as a business-owner, to your local economy.  If you get your financial affairs on a secure footing you are free to make sustainable financial contributions to the local economy.

Time

Patience is critical and most business people have stories about their failures before they were able to find a sustainable business strategy.  You can be sure you will fail, repeatedly and be frustrated by making the same mistakes several times.

Your vision for a better future will keep you going.  Remember your aim is sustainable wealth and not necessarily vast sums of money.  If you think in terms of wealth, for you and your local economy, you will know what to do should good fortune bring in massive riches.

If your focus is solely on making money, you will crash and burn.  Business owners need to visualise a future for themselves, their families and their communities.  Without that money becomes a numbers game, a game of power untempered by humanity.

I have been in business for a few years and these are some of my observations.  If you have other observations, please comment.

Your Business Outgoings

Last Wednesday, I described sources of income for your business and this week’s post is about your business outgoings. They can be divided into two main types; your drawings and the costs to your business.

How you manage these depends on how you structure your business.  For example, additional rules apply  for incorporated businesses.

Drawings

Your drawings are the money you spend on your private life so this covers food, housing costs, transport – everything you need to live.

The point to remember is if your business breaks even on costs, it may not break even when you include drawings.  So, it is important to think of your drawings as you would staffing costs.  You need a business plan that takes your drawings into account.

Your business will break even when your income equals or exceeds your business costs plus drawings.

Remember though your drawings are not counted as business costs for tax purposes.

Business Costs

The costs counted for tax purposes depend on the tax legislation local to you.  And it is always best to refer to your tax authorities’ guidelines direct and not through a blog.  Your accountant will do this for you.

So, avoiding the fine detail of your tax returns, how can you decide what makes up the costs of running your business?  You will need to find some or all of what follows to keep your business going, irrespective of whether you can count their cost against tax.

Business Development Costs

These are the direct costs to your business and most people recognise them as legitimate.  They include things like supplies, office costs, staff, marketing, travel and subsistence.  Some trades need special tools, clothing or premises.

In short this category covers everything necessary to actually do the work.  If you are unable to do the work without something, it is a business cost.

Personal Development Costs

These are expenditure on what you need to keep up to date or learn new skills.  They might include books, DVDs, training courses (live or online), coaching.

This may be a grey area but make sure you budget these costs because personal development is essential for all business owners.  It’s all very well arguing you shouldn’t set out in business unless you have the necessary knowledge and skills but in reality, you cannot manage without personal development.

  • Keeping up to date with changes in your chosen area of work.
  • Whilst you might be equipped to deliver whatever you are selling, it does not follow you can do all the other things necessary to make your business a success. Marketing is one example of a skill you need to learn as you develop your business.
  • Keeping going through difficult patches is a big issue for self-employed people and there are many self-help courses that provide support by teaching techniques to help you keep going.
  • Someone with coaching support of some kind leads most successful businesses. If you are successful you still need to invest in support from others.

The Case for Self-Development

How much development does anyone need to keep going? It is possible to spend a lot of money on personal development.  Some offers are better than others but commitment to personal development is important and if you can find something that works for you then build on it.

Being in business is about marketing and marketing is primarily educational.  If you are setting out to educate the public, it is important you commit to self-education.  You need to create space for strategic thinking.  Daily pressures of keeping your business going can overwhelm good intentions to do essential thinking.

Some coaches offer not only organised knowledge or tuition in skills but also space to do your thinking.  It introduces accountability.  If you’re paying a coach, it helps to do the work if you want your money’s worth!

Many businesses get stuck because whilst they are able to work in the business, ie delivering their offer, they are poor at working on the elements of the business that will make it work in the market place.

This is why I offer a consultancy to local businesses and organisations, where I help them take their first steps in understanding what is involved in marketing their business.

Can you show how self-development has helped your business?

Income for Your Business

It is impossible to write about how you finance your business because every business is different.  But there a few things about business income everyone should consider.

Keeping Track

Keeping track of your finances, income and outgoings, is paramount.  This is where many businesses fail.  You need to monitor your financial situation carefully because:

  • It is not only unethical but illegal to continue to trade when you have no money, so it is a good idea to know how you’re doing and take action before your business fails
  • You need to keep evidence for tax purposes. This is not only knowing your income and outgoings but proving your figures
  • Management accounts are vital for all businesses, they help you see potential problems in advance.
  • You need to keep track of money owed to you. This depends on how you organise your business but you should not lose track of fees and if possible get them paid in advance.

I keep my evidence in plastic pockets for each month and keep them in a ring binder for each tax year.  Every month I enter my income and outgoings in a spreadsheet and use this to calculate my balance of income and expenditure.

My business is fairly simple and should my finances become more complex, I would pay an accountant to keep track and prepare a monthly cash flow.  The cash flow can project likely trends and so help monitor overall performance.  The accountant will advise me on further steps as my business grows.

Business Planning

It helps to have a financial plan for your business from day one.  For small businesses this need not  be elaborate:

  • You need to understand how much money you need annually to cover business costs and drawings. Drawings are what you take out of your business to pay your household bills.  You must distinguish business costs from drawings because business costs count towards tax relief.  You’re taxed on profit and that is income less your business costs.
  • You need to budget for your tax payments.
  • Your overall costs, business plus household, gives you the minimum income you need to break even. This enables you to calculate how much business you need to do.  Simply divide the average income per client or customer into your overall costs and the figure will be the number of clients you need in the year.
  • This will help you understand your pricing. You may need to increase your prices to generate enough income from the clients or customers you can manage.  Of course there are other factors, eg competition but you must know your basic figures before you take them into account.

Sources of Income

So, as a self-employed person, you need to work out where your income will come from to cover both business and household costs.

There are four main sources of income available to you.  They all have their pros and cons and some are more important than others.

Earnings

This is the obvious one and the one that entails most work.  Most of your work will focus on increasing earnings.

Beware this is not as straightforward as it may seem first.  If you are self-employed you must do everything.  This means your product or service is only one demand on your time.  There are other things you need to do and pre-eminent among these is marketing.

If you’re excellent at what you do but can’t market it, then you do not have a business.  You need to plan things so that you balance what you do with your marketing.

Let’s assume you have a service and can handle 6 clients at any one time.  They pay upfront for a 6 month contract.  If you have 6 clients at a given time, you’re living off the fees they have paid upfront for 6 months.  If you don’t have time to market because you have 6 clients, you will have no new clients at the end of the 6 months.  This can play havoc with your cash flows.

Also consider, if you do have time to market during that 6 months, what happens if you land a new client and don’t have space in your schedule for them?

The good news is this problem comes with success but don’t let success draw your attention away from your business, you need to work on it as well as in it.

Investments and Loans

If you can persuade someone to invest in your business you are in luck.  You have something for which someone else is prepared to risk their income!  The chances are they will not only offer financial support but also expertise.  This needs to be agreed before you accept the money.  Will they offer support?

It is worth agreeing in advance the type of support they will offer.  Are they going to advise you or expect you to make changes to your business?  If so, what is the nature of these changes?  Their expertise may be really helpful but it is always better to be prepared.

If you don’t want someone who expects a say in your business in return for investment, you may be seeking a business loan.  Loans are more arm’s length.  Where an investment grows or shrinks with the business fortunes, loans are repaid to an agreed schedule with interest.  Loaners demand interest irrespective of the business performance.

Grants and Other Support

Some ethical issues apply to grants and so they are not usually a source of income for businesses.  They are generally available for social enterprises and so there is a temptation to become a social enterprise to qualify for grants.

There are generally two criteria for social enterprises; if either or both apply, you have a social enterprise.

It is a mutual or self-help group.  This means a group of people work collaboratively to improve some aspect of their lives or community.  So, a group of people who share a disability might work together on an enterprise that benefits their community.

The second is to have a charitable object, such as providing a service for people with a disability.

Sometimes businesses with no track record go down this route before they have a proven market.  This may be more of an issue for the second type, the first type will be a group of people who clearly exist and will benefit themselves.

Funding bodies often focus on financial management and not so much on the effectiveness of the business.  I have seen businesses receive awards for their planning whilst unable to show a market exists for their products or services.

The other issue is cash flow.  A cash rich business can quickly spend its money if its focus is not on reaching its market.  Front loading a business is not always the best way to approach it.

Savings

Savings support some businesses.  Obviously, this cannot continue indefinitely but it is a way to get started.

The downside can be the business owner lacks urgency.  They know they can keep going  and hope that they’ll work it out in time to recover financially!

However, savings can be an advantage because they allow a business time to experiment.   Many businesses fail because they run out of money and others fail because they run out of patience.  If you have savings, you have independence to try things, learn from mistakes and so build a business on sound foundations.

Assets

By assets I mean anything you own that generates income.  Assets cover things like stocks and shares, rental income, intellectual property and so on.  Pensions may be included here although they come into play in later life.  Assets do not include possessions such as your home, car or other things.  These are really liabilities because most of them depreciate in value, add to your expenditure or both.

Some people add to their assets consistently during a lifetime of work because they understand assets allow financial independence.  Anyone who has assets that cover their business and lifestyle costs are in an enviable position but they will be a small minority of the self-employed.

The Power of Routine

Last Wednesday, I wrote about work life balance and suggested the problem most self-employed face is poor accountability.  It is difficult enough if you have only a partner who demands accountability but just imagine how bad it is if no-one does!

After my mother died, my father, who suffered from MS, had to structure his life around the home.  He was on his own and his movements restricted.  He appreciated routine.  Routine is actually a powerful tool for anyone, especially if self-employed.

Here are some of the advantages of routine:

  • It brings structure to your day and your week
  • You know what you need to do next and so you don’t need to think about it
  • This can lend emotional support during periods of stress
  • It helps you remember things, eg shopping lists
  • You can ring-fence your best working times

The point is the more you do routinely, the better you can focus on the time dedicated to your business.

Allocating Time for Your Business

There are probably 4 or so hours in the day when you are at your best.  You can work at other times but your mind is sharpest during those hours.

So, when you’re at your best, do the creative work you need to do: preparation for clients, package design, blog posts, etc.

At other times you can answer emails, edit blog posts, monitor your marketing.  These important tasks need your attention but they do not need you at your peak.

The other things you need to do, such as housework, need to be scheduled into the day as breaks or when you’re tired.  Sometimes a break, doing something else can refresh you.  So, tired after a working day, you may find cooking tea a refreshing break!

Housework

Look it’s probably not that important.  If you have a room for meeting clients, it must appear clean and welcoming but your family and friends are not that bothered.  Indeed your shabby home may reassure them about theirs!

Obviously there are things you must do daily and weekly and these should be part of your routine.  Things that should be kept clean include you, your clothes and pots and pans.  Most other things can be cleaned when necessary, that is when you can’t bear it any longer!

Another thing to remember is when you move to another room, what can you take with you?  The term I use, from chess, is en passant, in passing.  Things circulate around the house and whilst you can organise hunting parties from time to time, it is more efficient to make sure you have something in your hands.  If you have something in your hand, it harder to forget about it!

Finally, as soon as you can afford it consider paying someone to do cleaning, decorating, etc.  This is a service you can provide for the local economy!

Have you any suggestions to how to work more efficiently whilst developing your business?

Relationships and Your Work Life Balance

Perhaps I’m the last person to ask about relationships and work life balance.  I’m single and have rarely been in relationships.  It’s a lifestyle that suits me and I’ll write about its advantages towards the end of this post.

It is possible though for people who are not in long-term relationships to contribute.  Not always of course, because there’s no guarantee that our take on the world is relevant to people who live entirely different lifestyles.  But here are a few pointers you may find helpful.

Balancing Your Relationships and Your Work

Self-employment is an attractive option for people with childcare responsibilities.  The implications for your business are there are times in the day when you are not available.  This is usually early morning (which rules out breakfast meetings) and late afternoons onwards.

As children age, these times become more flexible.  Also, as children age, they may be able to co-operate to some degree with your business.  So, long as you keep your word, turn up when expected and can explain your absences it may generally work for you, your family and your business.

You are not dependent on the whims of an employer and that can mean you are able to control the times when you are present to your family.

This does depend on co-operation from your spouse and a good routine that includes regular communication is essential.

You need to create space for spontaneous activities and the best way to do this is to schedule them.  This may sound bizarre but actually it is what many couples do in practice.  If employed, it means certain times are ring-fenced and so your employer determines your spontaneous times.  So, why should it be a problem for you to plan the times when you do stuff together, when you’re self-employed?

Real problems can arise when one partner has a demanding job that is resilient to alteration.  A manager of a business or organisation may have to be there at certain times.  This means the other partner has to fit in as best they can.  If one partner is the main bread-winner, the arguments to fit in with their schedule can become over-whelming.  Your business may be under your control and so can in theory fit in with your partner’s employer’s requirements but on the other hand the employer’s requirements can overrule yours.

There can be other advantages.  If you are building your own business and can rely on income from your partner while you are building it, this can be an opportunity.  But even with the partners consent and active support, it is easy to feel beholden to them as the junior partner.  This can become frustrating where you know you are good at what you do but need more space to do it.

It is hard to suggest what to do under these circumstances because every family is different.  Certainly communicate and explain to your partner, what you need and the extent to which you are encountering barriers to success.

Partners can be towers of strength.  Some couples run their business together, combining their strengths in creative ways.  This can have its own disadvantages.  A couple can be domineering and difficult to negotiate with for other businesses.  It can be confusing if it is not clear the person you’re talking to is able to decide.  So, agree who makes decisions and how you make it clear, if you do need to consult.  For some business people, if you both need to decide, they would rather meet you together and pitch to you together.

Work Life Balance in Isolation

Contrary to popular fantasies, people on their own do not have to be sad losers.  There are many advantages to working alone and it can be a good place from which to run a business.

The obvious advantage is you are in charge of your own time.  You can make decisions, good and bad, on your own without needing to consult.

If you’re used to living and working on your own, it can work very well.  However, be aware you may have difficulties working with business partners or staff if you normally make your own decisions.  It is easy to forget the obligations you have to others if you usually make your own decisions.

The big problem for the solo worker is accountability.  This may seem odd, given I’ve just explained the freedom the lone worker experiences.  However, the issue is accountability to yourself.  If you plan a day off work on Friday, do you actually take it?  If you’ve promised your partner, you have to run your reason for back-tracking past them.  A promise to yourself may be harder to keep.

Accountability is not solely a problem for singles.  Everyone has the problem of knowing what they should do and then actually doing it.

So, in my next post, I’ll outline a concept that will help anyone who is self-employed and needs to manage their life as well as their business.

What issues do you encounter as a lone worker?

Your Personal Work Life Balance

This post is about your personal work life balance; keeping yourself together. The next will explore work life balance and relationships.

Your Body

Aerial view of people walking on paved area

Walking is a natural part of the working day, if you do it! Unsplash / Pixabay

Keeping fit is essential for any self-employed business owner and you have many options.  If you have a sport or exercise regimen, use it.  You may need to cut overheads and so gym membership may be a luxury for the first few years, so think about how you can keep fit.

One simple way to keep fit is to lose your car.  Cars are very expensive and if your business does not depend on carrying huge amounts of stuff around, you may find you can manage without.  This saves money but also opens up opportunities to walk.  Walking is good basic exercise and easily taken into your daily routine.

Walking is not empty time, it is an opportunity to work on problems away from your desk and often brilliant insights will occur while walking.

When employed full-time I did not take opportunities to exercise and this made me ill.  If you use self-employment as an excuse to sit in front of a screen all day, your health will suffer and ultimately, so will your business.

So, schedule physical exercise into your day.

Your Mind

It is important to understand how your mind works and it doesn’t work to its capacity whilst in front of a screen, day in and day out.

Your subconscious works on problems even during times you are not aware of it.  Taking a break can make a big difference.  Exercise allows the conscious mind to rest and if you are alert, new ideas will pop into your head.

So, get to know how your mind works and what it feels like to come up with a solution.  Many people get stuck because they don’t know how to listen to their own mind!  Create spaces during the day for your mind to work on problems and then listen to it.

Most people find they know a lot more than they are aware of and the aim should be to cultivate confidence in your personal knowledge and insights.  You may feel stuck this evening but in the morning the solution may present itself modestly and without fanfare.

How do you keep body and mind fit?

Self-Employment as Lifestyle or Business

There are two reasons people choose to become self-employed; lifestyle or business.  People are complex and the reasons they make decisions can be ambiguous.  But let’s pull apart these two approaches and see what they offer.

Lifestyle

The lifestyle option is perhaps surprising and yet it appeals to many self-employed people.  Many people no longer want to work for someone else and so choose their own business.

There is something attractive being in charge of your own time, able to fit your business around your life.  This might appeal to parents of young children who have a few hours a day of spare time. Also to people who have their own hobbies or pursuits and want to schedule their business around them.

Now, you would be right in thinking this is not necessarily a wise decision.  Unless you have some other source of income or savings to live upon, this can be a long road with little financial reward.  I know this because it is the road I have taken.

My Experience

After I became redundant, I attended talks about self-employment and found the business lifestyle attractive.  It allowed me to find time to walk every day, which is something I value.  I have a rhythm to each day that I enjoy and would never be able to maintain in employment.

However, even a brilliant business idea can take years to develop. Starting with my community development experience, it has taken me several years to identify viable offers.  I’ve invested lots in time and financial investment in training and coaching to get to where I am.

However, there are advantages.  It has pushed me into thinking very carefully about my market and the problems they have.  If I had a sure-fire business solution from day one, perhaps I would not have taken it so far.  Patience and persistence are the key to this and if you can make it financially, it is a viable approach.

The point is life should be enjoyable and the lifestyle approach potentially places life before work.

Business

But most people take up self-employment to make money.  If they have a good idea and they can plan it and market it, it is possible to make a living.

There are alternatives and these are government schemes and zero hour contracts.  The government wants to get people off benefits and so schemes that provide some financial support during the early months is one way they do this.  These grants are not massive and soon run out, long before the average business is up and running.  This is why so many self-employed businesses do not work out.

Zero hours contracts use self-employment to support the fiction that working as a taxi driver or deliverer of hot dinners is self-employment.  Often these fictions pay less than or equal to the minimum wage and allow business owners an escape clause to the demand they take on responsibility for their employees.

But if you have an idea, the time and the insight to make it work, self-employment can lead to a successful business.  Each self-employed person has their own unique tool box and has something to offer.  They need to package it and build a reputation.  They need to be able to show they have the unique insights required to make something of their business idea.

The reality is, someone with a good business idea may have an initial advantage over the person who chooses self-employment for lifestyle reasons but in a couple of years that advantage may disappear.

Investing in Lifestyle or Business

The power of self-employment comes not from having a good first idea so much as a person’s ability to market their idea, understand how their market responds to the opportunities out there.  To be self-employed means you are uniquely placed to respond to market demand and it is this that develops opportunities that can develop into viable businesses.

It is important to consider how you invest money to build an asset base to support you and your business over the long haul.  A good idea that brings in money is rare as it is; rarer still is the business person who knows how to invest their income so they and their business survive.  The incentive to do this is lifestyle.  You can fund your lifestyle if you work consistently towards it but this is difficult if you don’t know what you want!

So, whether you make the first decision for lifestyle or business reasons, the chances are you will soon need to develop strategies to keep going.  I’ll make a start on those next time.

Business Networks and Support

Last time, I discussed how self-employed people bring new ideas and financial gains to the local economy.  Another way self-employed people contribute to their local economy is through business networks and employment.

Types of Collaboration

Not all self-employed people have a collaborative mindset.  Some believe in competition and so frame themselves as hard-headed business people.  They find others in similar fields threatening and do not consider collaboration.

A beached whale

In the past, a beached whale was an opportunity for the whole community, to share the spoils of nature! WikimediaImages / Pixabay

This is a pity because few businesses work without collaboration.  The business that collaborates is likely to do better.  There are several types of collaboration:

  • Similar businesses working together to provide services to larger clients. The image of dividing the carcass of a beached whale springs to mind.
  • Different but complementary businesses can also collaborate delivering services to larger clients. A high-end coaching offer could be a few coaches providing a range of support together, for example.
  • Businesses can collaborate on R&D but compete through marketing.
  • Purchasing from suppliers is a form of collaboration. Where there is dialogue, the supplier can learn more of their final market through their clients.
  • Mutual support through exchange of services.
  • Sharing of resources, eg premises.

Networks

Most of those bullets describe networks and mapping local economies builds a picture of a network of businesses.  In addition there are intentional networks of businesses, which open up opportunities for referral marketing.

Networks are a marketing concept; they rely on your ability to describe your business and to refer other businesses to potential clients.  There is a lot to doing this well and many business owners don’t get it.

The people in the room are not usually potential clients but they may know people who are.  There is an art to making a good referral and it is worth learning the art.

Support

Many business owners are generous with their time and willing to support other businesses.  Traders do this through local traders associations.  Local associations work because collaborating local businesses, are likely to increase footfall and other opportunities to do business.

Mentoring is one example of such support and can be informal or formal.  Other businesses may share skills, products or services.  Informal exchanges of goods or services can help businesses in a local area with what they need for survival.

A great deal of this is informal and takes place under the radar.

Are you aware of example of local informal collaboration?

Self-Employment in the Local Economy

Following my overview of the parts that make up the local economy, what is the role of self-employment in the local economy? What is the potential of the self-employed for local regeneration?

Innovation

New Invention

New invention, a road with many twists and turns! aitoff / Pixabay

What do the self-employed contribute to the local economy?  Last time, I suggested innovation, so let’s start with that:

  • New ideas are rare. Most new ideas are new takes on old ideas.  Once new ideas develop, they in their turn open up new possibilities.  Capacity restricts new ideas – the sole trader may need to manufacture a new product, for example.
  • Ideas imported from elsewhere may work where the idea is viable but the market is too small to support a business with a national focus. My experience in community development suggests ideas copied in an uncritical way are rarely successful.  Why?  Possibly because the first time they did their ground work and did not rush to action.  The random application of a successful idea from elsewhere can be a disaster.
  • A need identified for the first time may lead to adopting an idea new to that place.
  • Old idea managed better. Not all ideas fail because they are bad ideas.  Poorly managed or marketed good ideas sometimes deserve a second shot.
  • Ideas adapted for a new market work where there is a known market that fits the new idea.

Role

OK you have an idea and somehow you’ve got it to work.  What are you likely to contribute to the local economy?  Note these are possible contributions a successful business may make to the local economy.  Many businesses are not successful enough to make these contributions.  This is the nature of the risk self-employed people make.

However, this is where things get a bit slippery.  There are a number of scams which call certain activities self-employment that are not.  If you become self-employed to receive work from others, whether it is driving taxis, cleaning, delivering dinners; you may be exploited.  This is a way certain unscrupulous business people wriggle out of employment regulation.  Such employment may suit some people but it is not what I am writing about here.

What do genuine self-employed people contribute to their local economy?

  • Many self-employed people trade locally and so help maintain the flow of money in circulation.
  • Some do not trade locally, making their income from working for national or international clients. We may wish to discount their contribution to the local economy but all self-employed  contribute by spending locally.
  • A business that is in profit will pay taxes. Many business owners are happy to do so because it shows they have a viable business.  Taxes do not necessarily benefit your locality but they are spent somewhere and so result in redistribution between areas.  These are political decisions and so implies business owners have a stake in politics.
  • Some self-employed employ staff and so contribute more money into the local economy by that route. This is a serious undertaking because now more people will depend on the business.  The employer who cares for the local economy will pay at least the living wage because that will put more money into circulation.
  • Working in partnership with other businesses can increase effectiveness whilst being flexible.
  • Investment in other businesses is another option for the successful business.

The Adverse Economy

Potentially, the self-employed contribute significantly to the local economy.  In practice, many self-employed experiments do not result in a level of activity that will result in these roles.  The economic environment is extremely adverse, perhaps more so than it should be.  If too little money is in circulation, then many businesses will fail simply because there is not enough money in circulation to support them.

Our economy is in serious disrepair and it is for local businesses to seriously address how to repair it.  We know from decades of experience, politicians are interested solely in the big players, corporations or unions and don’t support small businesses.  The result is the self-employed must keep going on their own reserves, a wing and a prayer!

In your experience, what contribution do self-employed make to the local economy?

Self-Employment as Part of the Local Economy

This is the first in a new sequence about self-employment and the contributions it makes to the local economy.

What is the role of self-employment in the local economy?  To answer this question, let’s review the parts that make up the local economy.

It is possible to describe types of local business but nothing is ever clear-cut.  My working definition is a local business is owned locally and in net adds money to the local economy and so keeps money circulating.

A large supermarket that in net takes money out of circulation, will also put some money in by paying its staff, taxes, etc.  But they take their profits out of the local economy; money that no longer circulates.  It may be possible to argue for each company, whether its overall practice removes or adds money to local circulation.  It may do both, it may have a net beneficial effect but its decision-making is a long way off and does not consider local benefit.

This is modern capitalism, with power concentrated in fewer and more distant hands.  We have many examples of exploitation of workers, tax avoidance and investment that railroads local interests, leading to inappropriate developments and neglect of High Streets and local neighbourhoods.

Parts of the Local Economy

If we are not careful, it is easy to think of traders as the local economy.  This is far from the truth.  So, I suggest there are four parts that make up the local economy.  There may be more and it may be worth splitting some of these groups.  But this is a start and we’ll see where it goes.

Traders

Traders depend on footfall, whether they are a market stall or a shop on the High Street, their market is largely those who live in, work in or pass by their shop. Some practice other activities on the side and market their business outside their neighbourhood but running a shop or stall is a big undertaking and it is likely to be the main pre-occupation of the business owner.

The trader is the most visible element of the local economy.  They are visible because their business depends on visibility.  Reputation may draw people down a back street but a good sign may be a better investment!

When people think of the local economy, they think of shops because they are a sign of local economic activity.  Local traders will thrive where people are willing to use their services.  Some of them will work with other traders in the area, perhaps selling each others’ products and so, they are a sign that perhaps more is going on than meets the eye.

Businesses

Here I mean businesses that are visible in Yellow Pages but not on the High Street.  All these components overlap and some business will have shop fronts.

We tend to think of the local economy as small businesses.  This is certainly not true; there is no limit to the size of a local business.  Indeed most of the big corporations started as local businesses that grew bigger and spread to other cities and other countries.  Not all large businesses become corporations, some fail and some stay where they are.  It’s not compulsory to reach a certain size and become a corporation.  There are other growth models.

Self-employed

With this part, I have in mind the lone workers, perhaps occasionally working in partnership.  Some of these will see themselves as small businesses and some will grow into big businesses.  These businesses don’t employ staff and may collaborate to get things done.

A lot of what I’m going to say in this and future posts in this sequence may apply equally to small business owners.  Taking on staff doesn’t change the owner overnight.  These are overlapping definitions and we should not get too hung up on them.

The point about the self-employed and the reason why it’s worth looking at them is they are the innovators in the economy.  Now, yes even corporations innovate.  The difference is the corporation will innovate where it seems profitable to do so.  The self-employed can focus on small markets and take the risk.

Most self-employed businesses fail within the first 2 or 3 years.  Some will have chosen a business idea that was not viable.  Others may have not been good at running their business, perhaps failing to market their viable idea.  But this is where the traders and businesses come from, the people with a vision prepared to take a personal risk and try something new.

Non-Business

Finally, not all the components of a local market are businesses.  There is also infrastructure, community organisations, public bodies and all of these can add to footfall and help build a community that sustains its businesses.

Can you think of any other parts of the local economy I’ve missed or should separate out of the four I’ve mentioned?

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