Comparing employment and business
Comparing employment and business What are the key factors to consider when choosing between starting your own business and being employed? (File Picture).
Godknows Hofisi
Naturally, there are fewer people in business than in employment. In most cases, people venture into business from employment. I have listened to many discussions or even arguments over what is better between employment and business.
My view is that there is no obvious or straight answer. It all depends. It is situational.
Factors to consider
Some of the factors to consider include those listed below.
Financial considerations
Reliability of earnings
Growth
Flexibility
Level of responsibilities
Skills requirements
Personal preferences
Financial Considerations
This is by far the most important consideration. It needs one to be honest with himself or herself. Numbers do not lie.
I start by looking at the financial benefits of employment. It is important to account for all financial benefits, especially in the case of management or executives. Such financial benefits may include the following:
Salary
Allowances
Medical Aid
Pension
Company vehicle including insurance, fuel, repairs and maintenance.
Phone or cellphone usage.
Loans
Wifi
Subscription fees for professional membership or clubs.
School fees.
The total monetary value for all the above salary and benefits is usually much more than one may appreciate. This is why at times the value of a thing is defined as “the cost of not having the thing”. So an appreciation of the total cost of one’s employment is important to both the employer and the employee.
It is without a doubt that the higher one is in the organisational hierarchy the better the remuneration.
I now turn to financial considerations in the case of a business. In the case of employment, the risk is the failure to understand the total financial benefits one gets from employment. In the case of business, the risk is the failure to appreciate the net position of what one gets from the business.
So my advice is that a businessperson needs to be careful with financial numbers coming from his or her own business. One could be talking of a business yet it could be a question of being self-employed to the extent of being worse off compared to employment.
It is very good to be in business, for many reasons, but figures do not lie. I say this mainly for small to medium enterprises where, in my view, entrepreneurs may very well rely on cashflows from the business for their day-to-day requirements.
In the case of owner-managed small to medium enterprises the following ought to be considered:
Capital injection into the business. This is money from the owner into the business.
Revenue generated by the business.
Expenses paid by the business.
Capital expenditure such as a vehicle for the owner-manager.
Salary and benefits, if any, paid to or enjoyed by the business owner.
Overall net cashflow position of the owner-manager.
The business owner needs to compare the net cashflow position he or she enjoys from the business with what he or she could be getting from employment.
Numbers do not lie. Even in the case of some professional practices, there is need for that honest assessment of whether financially it is better to be in business or employment. In my learned profession, it is common for legal practitioners to move between practice and corporate (employment). Nothing wrong.
Reliability of earnings
Earnings from employment are more reliable yet in business you “eat what you kill”. This is why businesspeople tend to be aggressive in their approach to money issues.
Growth
In employment growth in earnings comes through going up the corporate ladder or
hierarchy. In business, once you get the formula, it is easy to grow the business for example through volumes. This is the sweet part of business. That is where the difference comes from. Such growth will increase the entrepreneur’s financial situation and potential net worth.
Flexibility
There is a view that when in business one is more flexible as he or she does not have to be in the office from 8 am to 430pm every day. One manages own diary.
Level of responsibilities
An entrepreneur has responsibilities over all aspects of the business from for example marketing, operations, finance, human resources, risk and compliance and others. It demands the entrepreneur’s time and attention. However, I agree that this can be eased through a good corporate structure, systems and procedures, hiring of the right personnel and delegation.
Skills requirements
One has to be honest whether he or she has the skills (technical and people) required in business or he is safer in employment focussing on particular responsibilities.
Conclusion
A comparison between employment and business boils down to financial numbers mainly. I reiterate that numbers do not lie. Other factors may also come in.
Disclaimer-herald
