Nearly one-third of Australian businesses have fewer than five employees, according to the Australian Bureau of Statistics’ Counts of Australian Businesses 2016, and a good deal of those are sole proprietors. Unfortunately, sole traders top the list for business exit rates because it’s tough being self-employed in a competitive environment with fewer resources to address issues.
If being your own boss sounds like a dream, you need to be aware of the harsh realities of operating as a sole trader. Here are three of the biggest self-employment issues and how to manage them.
If you struggle to stay focused, you may find it hard to remain self-employed. After all, if you don’t work, you don’t get paid. On the other side of the coin, you might burn out from overwork.
Some people work well in a self-directed role, while others need external help to manage their activities. If you’re in the latter category there are some tricks you can employ to create a framework to become more disciplined.
Optimise your time: Having a set time for different tasks can help you stay focused on discrete activities. Block out your day based on when you’re at your best for each task. For example, if you struggle to be productive in the morning, perhaps you should read and answer emails then, and work on tasks that need more focus in the afternoon when you’re able to concentrate.
If you are more regimented, then develop a routine. If not, don’t be afraid to set time limits for tasks. Work-related time limits curb the amount of time you spend on a project, forcing you to become more efficient at completing it; recreational limits (e.g. social media browsing) allow you to have mental breaks that empower rather than derail your work.
Be accountable: While having clients means you’re largely accountable to them, they shouldn’t be micromanaging every task. If you’re a bit soft on yourself, employ external accountability measures. This could be a list of tasks you need to complete each day or week, or a friend, family member or fellow sole trader who will check in with you regularly to ensure you’re on target with whatever you’re working on.
2. Client management
Clients can be challenging in many ways – too demanding, too vague, too many, too few – but the best way to sum up what you need from them is ‘workflow’. Good workflow is the ability to find and maintain clients in a manner that gives you sufficient work without overwhelming your schedule or abilities. That means keeping project overruns to a minimum and ensuring you have more work lined up for when you reach the end of a job, all while maintaining a little breathing space to ensure you don’t burn out.
Client management also entails sound negotiation skills, not just for your fee but to defend your time and headspace. Know your value proposition and listen to what your clients want. Keeping the lines of communication open will benefit your ability to attract clients as well as strengthen your workflow.
3. Financial accountability
It can be daunting to realise that your income relies solely on your ability to attract and retain paying clients. Many sole traders find the pressure too much and return to regular employment, but those who can wear multiple hats – proprietor of your core business, plus accountant, plus salesperson, plus marketer – reap the most rewards from self-employment.
Sluggish cash flow remains one of the biggest pain points for small businesses, and it’s a key reason many sole traders fail. One of the most easily fixed issue is pursuing overdue remittance; a surprising number of small businesses hold debts for their clients. An accounting system like QuickBooks Self-Employed can notify you of outstanding invoices and help you devise a cash flow budget that projects future income and expenses, as well as the optimum timing of these payments.
Sole traders also incur a higher per capita cost to do business. While larger organisations can leverage economies of scale, sole traders don’t have that kind of muscle. You can try to negotiate with suppliers to reduce costs. If it’s for capital, non-inventory purchases, you can look for a co-op or consortium to see if you can manufacture economies of scale. There are buying groups for micro-business you can join, or you can simply create one using your network.
While sole proprietors remain the most endangered of all Australian businesses, there are many ways self-employed workers can meet the challenges of running their own enterprise by combining discipline, good client management and sound financial oversight.
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