Self-employment - why bother?

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In the latest UK200Group blog post Trevor Cook, Director, Baines Jewitt discusses the changing rate of business start-ups

Trevor Cook
Whether the uncertainty surrounding our future relationship with the EU is to blame, there has been a sharp fall in the rate of UK business births, according to official figures from the Office for National Statistics (ONS). The ONS states that the number of UK business births has decreased since 2010; falling from 414,000 in 2016 to 382,000 in 2017. This represents a birth rate of 14.6% and 13.1% respectively.i

In today’s economic climate being your own boss is not an easy option. This is highlighted by the number of UK businesses that have ceased trading, with an increase from 288,000 in 2016 to 357,000 in 2017.ii

Brexit aside, other contributing factors might include a general slowing of the broader economy and a reduction in business investment. A drop in the value of the pound is also cited as having a negative effect on business, due to the impact on the price of raw materials and import costs.

Many new businesses also face other struggles too, such as technological issues; recruiting people with the right skills and not knowing how to scale things up effectively.

Against this backdrop, you might ask why people choose self-employment in the first place.

Having worked with hundreds of entrepreneurs over the years, we are well placed to observe what drives people to start their own business. Reasons include the ability to work more flexibly or turning a hobby into a viable opportunity. There are also those who want to take advantage of a gap in the market.

The importance of small business to the UK economy should not be underestimated. Small businesses accounted for 99.3% of all private sector businesses at the start of 2018, where 99.9% were small and medium sized (SMEs).iii Official figures also reveal that the total employment in SMEs was 16.3 million; accounting for 60% of all private sector employment in the UK. In addition, the combined annual turnover of SMEs was £2.0 trillion, representing 52% of all private sector turnover.iv

Getting off to a good start!

Baines Jewitt is delighted to have supported dozens of business start-ups. Many have gone on to become some of Teesside’s most successful firms. We therefore know that being successful involves much more than a great business idea.

Planning ahead can help alleviate some business start-up pitfalls. Although each entrepreneur and new business is unique, we’ve noticed some common areas of good practice when it comes to getting things off to a good start.

1. Test the market - if you are already in employment, running a business might start as a side-line. This could mean working extra hours in the evenings and at weekends, but will provide an opportunity to test the market; do some research and determine whether the new venture is viable. It also provides an opportunity to: fine tune pricing; build a client base and accumulate financial reserves to support your business in its infancy.

2. Enlist an accountant – entrepreneurs might have the enthusiasm and focus to make money, but not necessarily time to get to grips with the figures and finances. That’s where a good accountant comes in. Despite the outlay, an accountant can save time and money in the long run. As well as keeping an eye on cash flow, an accountant can help keep your financial records in order; highlight anomalies; set up payment terms and systems for scheduling invoices, collecting debts and chasing late payers. They can also provide a sounding board for business ideas, act as a mentor, negotiate good deals with suppliers, draw up investment strategies and help you avoid unexpected tax bills.

3. Have a business plan in place – a well written plan helps focus business ideas, objectives and strategies, including highlighting strengths, pitfalls, competitors, opportunities, pricing, promotion, customer segmentation and forecasting. It is also a useful tool for securing backing from investors.

4. Set out a realistic working pattern – even if your aim is to have a better work life balance, it is likely that long hours will be involved, especially in the early days. To stick to a desired work pattern, people need to know the best times to contact you. As well as clients and employees, this includes friends and family who might not understand that a self-employed business venture is ‘real work.’ Time also needs to be scheduled for dealing with administrative tasks.

5. Know what to charge – although it is important to be competitively priced and offer value for money, it is also important not to undersell yourself. Businesses need to be profitable to survive. To help with pricing there needs to be an understanding of what people are willing to pay; whether your product or service will be positioned as a premium, mid-priced or budget option and how prices compare with those of competitors. In addition, cashflow forecasts will outline overheads, break even points and profit margins.

6. Find and retain ‘ideal’ clients – if your new business involves work you are already familiar with, it is likely you know potential clients. This can provide a good base on which to build. It also provides opportunities to gain honest feedback; share knowledge; provide a more personal approach; understand what is important; find a niche; reward customer loyalty and provide great customer service. If you get these elements right, word-of-mouth recommendations and repeat business should follow.

7. Tell people what you do – having researched the market; developed a product or service; identified who to target and with the right pricing, employees and systems in place, it is essential to become more visible. As well as getting the right messages across, consider your target market when it comes to communications and PR. This applies whether producing promotional material, social media posts, blogs, podcasts, news releases, directory listings or web content.

8. Find likeminded people – self-employment can feel isolating at times. Finding likeminded people, through official networking channels or something less formal, can help. As well as providing an opportunity to promote your business face-to-face, networking can build mutually beneficial business friendships; provide opportunities to discuss ideas and struggles and offer an alternative environment to gain referrals or advice.

i British demography, UK: 2017, Office for National Statistics – 21 November 2018
ii British demography, UK: 2017, Office for National Statistics – 21 November 2018
iii Figures published by the Federation of Small Business, from figures obtained via the Department of Business, Innovation & Skills
iv Figures published by the Federation of Small Business, from figures obtained via the Department of Business, Innovation & Skills

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