Innovation At Work - Self Employment

TUTOR’S NAME HERE

Innovation At Work - Self
Employment

Learning Objectives
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Unit 1: The Pros and Cons of Self
Employment
Unit 2: Generate An Innovative Idea
Unit 3: Implementing your Action Plan
Unit 4: The Practicalities Self Employment
U. 1

The Pros and Cons of Self

Employment
The ‘Pros’
• You:
 get to be your own boss
 get to do what you’re interested in
 get to set and meet your own deadline
 can get to express yourself
 can realise your potential
 can be proud of what you do
 can gain control of your own destiny
 can be creative
 can have a second career
 can cut out the commute
 can hand on a legacy to those you care about - posterity
 can gain recognition from family, peers, community
 can deploy your skills
 can get sense of fulfilment in meeting the challenge
 can design your lifestyle rather than have it dictated to you
 can achieve financial independence

• It:
 can be profitable
 can be varied
 The ‘Cons’

• It can be lonely
• If you don’t work you don’t earn – no ‘sick leave’; holidays
cost you in time away from the business
• Owner/Managers have to fulfil all roles – a huge time
commitment – long and irregular hours
• Expect the unpredictable.....
• Can be a long period before owner/managers can draw wages
and thereafter additional profits – or before shareholders see
a dividend
• Can be ‘feast or famine’ – takes a long time to smooth out the
peaks and troughs
• Over-trading (trading in business much of which won’t be
delivered) can often be a bigger problem to manage than
finding the sales
U. 2
Generate An Innovative Idea

• To Create Value and Generate Income

• Steps from idea generation through to operating
a profitable business....
• What is
innovation?
 Innovation is a Frame of mind:
Always question WHERE are you
going?
 Action

Creative thinking – the ‘inner innovator’

Personal motives – the ‘inner innovator’

The journey of innovation

The “Inner Innovator” :

•Knowing yourself...

- Self-awareness
- scope for self advancement
- recognise then overcome your personal barriers

•Influences good and bad...

•‘Push and Pull’ factors ....

‘Push’ = necessity
‘Pull’ = opportunity
-
Innovative thinking:

• Observe……..
Imagine:

Thinking…..
• Acting on your
idea…..
Planning for innovative self
employment.....
A Self Employment ACTION PLAN…
implementing an idea to do
something new
WHY? WHEN?

HOW?
WHO?

WHERE? WHAT?
U. 2
Exercise:

• Devise An Action Plan

For An Innovative Self
Employment Proposal
U. 3
Implementing your Action Plan
 Being innovative about innovation…..

•No individual has all the answers

•Lone wolves starve!

•‘Co-opetition’ - Collaboration is an effective

response to competition
Benefits of collaboration .... You
can access resources:

Problem Solving Access to Expertise

Specialised Enhanced credibility

Benefits
Equipment

Research
International R&D
Networks
How to make collaboration
work for you.....

• Collaboration takes time and energy

• Cultivate the RIGHT collaboration!

• But HOW?
 How to make collaboration work for
you.....

•Draw up a formal agreement: who does

what for what return
•Agree targets
•Record work activity; measure progress
against targets
•Agree a timetable for regular
communication
•Involve a mutually trusted third party to act
as mentor/buddy/ honest broker as required
Distinguish good collaboration from bad by....

• estimating the return on a collaborative

project... against the cost of opportunities
foregone... + the ongoing costs of supporting
the collaboration
• defining and agreeing your SHARED PURPOSE
• Committing to transparency
Managing the collaboration
Managing the collaboration

• Scope out the challenge

• Structure the boundaries
• Sort tasks for execution
• Be prepared to accept and learn from
failure
Tools to ensure a successful
collaboration
Step 1: Situation analysis

Step 2: Partnership formation and project design

Step 3: Consensus building

( roles/responsibilities)

Step 4: Implementation
U. 4
The Practicalities Self Employment
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• Different Self Employment Options

• Sources of Finance
• Profit
• The Importance of Cashflow
Self Employment Option 1 - Sole
Trader

• Disadvantages
Advantages
– Fully
Easy to
liable
set for
up debts
– Income
You have taxfulliscontrol
paid on profits not
– drawings
No audit required
– It
– can prevent
Minimal reportinggrowth due to lack of
capital
Self Employment Option 2 -
Partnership

• At least two partners

required (but can be
a larger number)

• It is advisable to
seek legal advice
and draw up a
partnership
agreement
Self Employment Option 2 -
Partnership

• Disadvantages
Advantages

– Each
– partner
Pooling fully responsible for all
of skills
debt
– Increase in resources
– Difficult to introduce new partners
– The risks are shared
– Personality clashes can become a
– Easily
problemset up
Self Employment Option 3 – Limited
Company

• The company is owned

by ‘Shareholders’

• The Company is
managed by
‘Directors/Executives’a

• Company is seen as a
separate legal entity
from the individuals own
it and the executives
who manage it
Self Employment Option 3 –Limited
Company

• In the UK and Ireland

Companies are registered
with Companies Registry

• Audited accounts and can be

accessed online
Self Employment Option 3 –Limited Company

• Advantages  Disadvantages
• Owners are not personally • Much more legal
liable for the debts of the regulation involved
company

• Tax position of company

• So protection of personal
assets (some exceptions) separate from the
Shareholders
• Simple in the UK and
Ireland : Normally set up • Subject to an annual
as a “Shelf company” Audit / Report – this can
be a substantial expense
• Limited Company status
may be a pre-requisite for
certain contracts /
tenders
Key costs for a small business
Key costs for a small business

• Equipment / Vehicles
• Stock
• Legal / Professional
• Advertising
• Accommodation costs
• Interest and charges
• Wages or drawings
• Other unanticipated
costs
Sources of finance

• Personal/family
investment
• Bank finance
• Business Grants
• Asset Finance
• Alternative loans
• Investors –
Equity/Angel
Personal Investment

• Personal savings
• Family & Friends
• Use of equipment
Bank finance

• Overdraft Facility
• Credit Card facility
• Term Loan
Bank finance

The Banks will consider an

application under the 5 C’s:-

- Character
- Capacity
- Capital
- Collateral
- Conditions
Bank finance
• Character – Good character - honesty, integrity ,
reliability , hard working……

• Capacity – Ability to repay: Does the business have the

cash-flow to meet the repayments? Are the projections
realistic?

• Capital – Extent of personal commitment (‘skin in the

game’) How much has been invested by the promoter and
what percentage is external debt?

• Collateral – What security is available in personal or

business assets should things not work out?

• Conditions – What are the market conditions and trends

in this sector and what may be their impact on this
business?
Bank finance

• Overdraft Facility

• Overdrafts are a short term borrowing

facility
• There will be ‘Arrangement Fees’
• Interest rates can vary over time
• Personal financial guarantees may be
required
Bank finance

• Credit Card Facility

• Very short term! This is in effect a one

month borrowing facility
• Full balance should be cleared monthly
• Interest rates are very high
• Defaults incur high penalties & charges
Bank finance

• Term Loan

• This is a longer term borrowing arrangement –

can be from 1 – 15 yrs
• Interest rates are fixed – agreed monthly
payment
• Personal guarantees (security) are required in
most cases
• Arrangement fees are charged
Business Grants

• UK: •Republic of Ireland

• Invest NI •Local Enterprise
Offices
• Princes Trust
•Enterprise Ireland
• Local Councils •Local Employment
• Department of Agriculture and Partnerhips
Rural Development - LEADER •Bord Bia
•LEADER Companies
•Udarás na Gaeltachta
Alternative Loans

• Credit Union Loans

• Government Loan Funds
• NGO/Philanthropic
• Hire Purchase/Leasing
• ‘Crowd funding’
Costs Involved in a Business

• FIXED COSTS
– Costs which are not affected by the
level of activity of the business:
premises (rent, rates), vehicles,
equipment, insurance, bank interst...
• VARIABLE COSTS
– Costs which are directly affected by
the level of activity in the business:
staff, inputs/raw materials,
electricity, fuel (eg: delivery costs)....
Examples of Typical Profit Margins

• Low 20% - Supermarkets

18% - Newsagents
25% - Music Stores

• Medium 32% - Toy Store

33% - Printers
35% - Pet Shop
45% - Florists
45% - Fast Food Outlets

• High 65% -- Opticians

The importance of Cashflow

• “Cash is the oil

that lubricates the
business engine”
The importance of Cashflow

Survival chances
• Profit with Good Cashflow
Excellent

• Loss with Good Cashflow

Medium Term

• Profit with Poor Cashflow

Short-term
• Loss with Poor Cashflow
Doomed to Failure
Purpose of a Cash Flow Forecast

• To identify
potential cash
shortfalls before
they happen.....
Do the sales of the
business have a
seasonal nature?
Purpose of a Cash Flow Forecast

• To act as a
management tool in
making decisions.

– Example:
Expenditure may be
deferred until cash
position has
improved.
Purpose of a Cash Flow Forecast

• The Cashflow
forecast
confirms for the
bank .... How
much finance the
business needs and
that the business
the ability to repay.
Indications of Cashflow Problems

• Overtrading –
failure to fulfil
orders on time

• Returned Cheques

• Bank Letters / Fees

• Supplier problems
Meeting Your Legal Commitments
•Registration with Government (UK - HMRC;
Ire - Revenue)
•Income Tax – tax return every year - severe penalties for
non-disclosure and interest on late payments
•Business (Corporation) Tax – charged on the profits of
Limited Companies – annual returns
•National Insurance
•Tax on goods and services: VAT (turnover threshold UK =
£82k p.a.) – usually quarterly returns - supported by full
records of all transactions – costly penalties
•Accurate record-keeping is vital – sales and purchases.
invoices -also allows you to monitor & control-5/6 years
 THANK YOU

invest time in your future.