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.