Recent years have seen a marked increase in the number of people becoming self-employed. There has been much debate about why this is. Whatever the motivation, self-employment is inherently risky. These risks need to be given serious consideration. But the good news is these can largely be managed.
Running Out of Funds
The biggest risk of all is the newly self-employed run out of funds. It’s easy to underestimate the amount of working capital needed. In an ideal world your business will be structured according to the level of funds you have available. In doing so, you should also factor in having a slow and fast start as this is likely to impact the funds you need. You should also set aside ‘contingency’ funds. There will come a time when a customer doesn’t pay or you have to replace equipment or fork out for something else.
Being unable to work for any length of time can also eat into funds. Most likely your contingency fund will only cover you for a month or two. It’s worth considering taking out insurance to protect yourself (and consequently your business). Consider income protection cover. This provides you with an income if you’re unable to work for any length of time.
Self-employment and chronic uncertainty go hand in hand. And with that comes instability. There are ways you can protect your business from being at the whim of customers. Put in place proper marketing programs where you are actively looking for customers rather than waiting for them to come to you. Think about price promotions to get you through lean times. Consider signing up customers with formal paperwork to make it more likely they will stick to the timing of their project.
Financial control is also essential. Pre-payment works in some sectors but otherwise unpaid bills are a source of frustration for small businesses. Think about hiring a third party to bring more formality to your billing arrangements.
Limited Professional Development
Similarly to working for a small company, self-employment can stunt your professional development – but only if you let it. Even if you plan to remain a one person business keep up to date with the latest developments in your sector. This is more obvious in some sectors than others but nearly all sectors evolve in some way whether it’s new advances in technology or the evolution of their discipline. Attending trade shows, courses and conferences eats into your productivity but is worth it long term.