Business Brain: There's a difference between the self-employed and a real business owner creating jobs
We are living in a time of difficult economic conditions and that may continue for quite a while. It might not seem, therefore, like the most opportune time to consider setting up a business.
But at times like these, owning your own business may be a much better use of your talents than scrambling to obtain employment. But there is much more to owning a business than simply becoming self-employed. Business creation is not just about one job for one person. It's about building a wealth-creating asset that delivers value and employment for the owner and others.
We need to offer more support to budding entrepreneurs to help start real businesses and not just create a job for themselves. Many self-employed people have just a job – not a business. Their job is difficult, precarious, badly paid with very poor conditions – no holidays, sick leave or benefits. That's not desirable and to be avoided. So what is the difference between just being self-employed or being a real business owner?
To the self-employed, income is the whole point, as they need it to live. To the business owner, profit (and positive cash flow) is a resource for reinvesting in the business and elsewhere.
A business owner works on the business rather than in it. The self-employed are likely to be busy working to deliver products or services. The business owner, by contrast, is focused on building an enterprise that can run without the owner – a business with structure, systems and processes, a concern with clients and customers who don't relate only to the owner. In short, the business owner is building something which is independent and ultimately saleable.
The true business owner has a plan for what the business (however small at inception) could become. They are already thinking about the eventual nature of their business, how it could grow, who might ultimately buy it (or manage it) and how it would be distinctive.
A business owner develops goodwill. The self-employed are usually much too busy doing their work to focus on where they are headed. The business owner, on the other hand, knows that ultimately a great deal of the wealth they generate will come from goodwill: the intangibles that belong to the business. The kinds of things that make up goodwill include:
* brand awareness;
* good management practices;
* competent and loyal staff;
* good supplier relationships.
A business owner is seeking returns. The primary focus for many self-employed people is selling their time and skills. Business owners, by contrast, are looking for much more than a wage: they are seeking a return on their investment commensurate with the capital, skill and time they have invested in it.
A business owner wears a strategic hat. The self-employed person thinks like an employee and often regards administration, management and finding new customers as interruptions to the work they have to do. Business owners, on the other hand, are thinking about leadership, management of the business and development of capital. One is tactical in outlook: "Where is my work coming from today and what will I get from it?" The other, the business owner, is strategic and thinking longer term about what the business needs to thrive.
Financial freedom is that happy state where both your money and your time are your own. Your money is your own in the sense that you have low or no borrowings; your time is your own in that you no longer need to drive your business hard on a daily basis.
To become wealthy enough to have financial freedom you must have a 'wealth-creating asset'. This asset (your business) is either generating enough cash or growing enough capital to make you wealthy enough to be free sometime in the future.
Unfortunately many business owners work for nothing. Not only do they not pay themselves a proper salary from the business, but they don't even count the value of their time. This matters because to build wealth and become financially free you need to think very clearly about whether you are getting a return on your time from the business as well as a return on the capital you have invested (and risked) in your business.
Every business owner thinks their business will be a success, but the evidence says differently. Look at how many businesses go under and how few are still around after five years. The purpose of business is to create value and capital – to be a wealth creating asset. Once your business is creating wealth, make sure to take some of it out and don't risk all you have by keeping it in the one place.
The next steps for growth and job creation in Ireland are to focus on what is really working and strengthen and expand these initiatives and stop investing in what is not working. Ireland is a great place to start a business and entrepreneurs will help get this country off its knees.
Joanne Hession is an entrepreneur and founder of QEDTraining. www.qedtraining.ie