Now, while the overall number of self-employed is growing, many fall by the wayside in their attempts to run their own businesses. A great sounding business idea does not necessarily translate into a viable business.
There are countless factors that can bring a business undone, though the general consensus among small business researchers is that the main one is “management inadequacy”, associated with around 90% of business failures. Other major contributors to failure are poor accounting records, deficient accounting knowledge and lack of management advice. These business hazards are joined by many more including: inadequate financing; excessive debt; low sales; high costs; high interest rates; market collapse; lack of market knowledge; overwhelming competition; poor product; service or quality; economic downturn; excessive optimism; production inefficiencies; poor planning; poor forecasting and sheer bad luck.
Thing the proposed business through
By doing your homework very thoroughly, however, which involves seeking considerable professional advice and preparing a proper business plan, you will address and resolve many of these hazards before you even pass “Go”.
You may even discover during the research phase that your proposed venture is unlikely to work. As disappointing as this may be, it is infinitely preferable to go back to the drawing board at this point rather than be forced to bail out one or two years into the business. You’d be amazed how many businesses have been set up simply off the back of an idea without any dispassionate research being done. Of course this ad hoc approach can work, sometimes spectacularly, but mostly it doesn’t
Consider the following points because they will help you focus on the issues critical to business success (and note, this list is far from complete).
- What is the main reason why you want to become self-employed – either by buying an existing business or by setting one up from scratch? If it is basically to “buy” yourself a job, think again. Working for someone else who is established is generally more secure, easier, and initially better paid than working for yourself. (It is also less exciting!)
- Do you have experience or training in the type of business you wish to establish or buy? If you don’t, I strongly recommend you spend some time in paid employment in the area you want to enter in order to discover more about the industry’s dynamics and performance, and whether it is really for you. This experience will also help reveal how much sheer physical energy and drive you will need to succeed in the industry.
- What are your people skills like? Success in this vital area call for integrity, wisdom, leadership, authority, humour, patience, intelligence, tact, empathy, fairness, and an ability to listen just as much as an ability to get your message across clearly. Do you believe you can judge people well, and could you recognize merit in a potential employee? How would you motivate staff, win their respect and trust, get the best performance from them, and retain them?
- What about the people closest and most important to you – your family? Their support is vital and can’t be taken for granted. You must give first priority to this relationship and be sure that it is sound before you embark on self-employment, because there are times it will be strained by the demands of the business.
- Do you have the financial know-how to run a business? Do you know what the costs of setting up your proposed business would be? Could you construct a cash-flow analysis and predict when the business would generate profits? Having adequate capital to tide you over the early lean times is critical. Where will the money come from? From personal savings, from an equity partnership, or from a bank loan? If a loan, how and when do you intend to pay it back?
- Do you understand marketing? Do you know what competition you will be up against? Can your product or service evolve to meet changing market conditions?