Making the transition from self employed to business owner is more difficult than taking the plunge to go out on your own, and failure to take this next step is one of the biggest reasons businesses fail in their first five years.
According to a study done at Waikato University in 2012*, of the SMEs started between 2001 and 2008 employing zero people – mum and dad businesses – 69 % failed.
Business coach – and author of the small business book Business Mechanics, a nuts and bolts guide for small business owners – Jerome Jacobs, says the failure rates of such “mum and dad” businesses is at least 20 to 25% higher than the failure of businesses that employ people.
“Many theories are advanced, but in working closely with hundreds of SMEs over the last decade, the ability to grow sustainably is the single biggest killer because it doesn’t take long for those owner operators to realise they have bought a grueling job and a world of uncertainty.
“Owner operators can’t afford to get sick or take holidays and very often they can’t even afford to work on their business because they are so busy running from fire to fire – it’s no way to live, and that’s why almost 70% of them throw in the towel,” said Jerome.
Taking the decision to employ staff may mean some pain to begin with, but it is unquestionably an investment in the future so long as growth is planned and sustainable.
“Owner operators fear that staff won’t do the job properly, may steal from them, won’t work hard enough or that they won’t have the cash-flow to sustain an employee. But with proper planning and process, all of these obstacles can be overcome.
Important considerations in the planning process include:
- Write out a job description list of what your new employee will do – every single task
- Write down what you will do with the free time (it should probably include a greater sales and marketing focus)
- Develop a new business plan complete with what the new employee will cost you, as well as how you plan to pay for that cost and what how much you need to increase sales by
- Figure out a plan to increase sales
“Alternatively you could outsource work to freelance contractors and, while they will be more expensive than employing somebody, it is a good way to teach yourself to delegate,” he said.
* Research thesis by a Master of Business Administration student of Ian Stewart, as reported by associate dean enterprise, of the Centre for Corporate and Executive Education Peter Sun, Waikato University – Stuff.co.nz