Have you ever asked yourself if you run a business or if you are self-employed, a freelancer, or a consultant? Is there even a difference between self-employment and business owner? To answer your question, I will like to pose the following questions:
- Are you able to walk away from your business, do nothing and still earn money
- Do you find yourself working more as you become “more successful”?
- Do you feel you are enslaved to your business?
If you answered yes to any of these questions then you are self-employed and not a business owner. But what really is the difference between self-employment and business ownership?
There is a big difference between having a side project, hobby, being self-employed and having a business. A business has systems while the others do not. A business generates income from assets; a self-employed individual generates income directly from customer. Generating income from your business is not the same as being financially independent. However, most people start out with side projects or self-employment and later build entire systems around it. If you intend to build a business it is important to set that goal from the onset.
Being location independent or a lifestyle designer is not the same thing as having a business or even being financially independent. True financial independence comes when your assets are providing enough income to meet all your needs. If revenue is coming directly from customers and you have not built any tangible or intangible assets that produce revenue, then you are not truly financially independent.
The diagram below shows the difference of having a business and being self-employed/ freelancer or consultant.
Businesses have systems which aid in the asset accumulation process. Income is derived from assets
Self-Employment/Freelancer/Consultant – freelancers get income directly from customers
So what makes a business an asset in order to make one truly financially independent? I am glad you asked. It is the collection of systems that becomes the underlying assets that produces true financial independence. If you have just a product or service you will eventually hit the maturity and decline phase. However, a business that has systems in place has the potential to outlive its founder. If you want to build a lifestyle business that endures, you need to understand financial systems and how to make the numbers work in your favor.
Understanding your financial systems is the first step to planning your way to financial independence. There are various tools used to plan your system such as:
- Building a map
- Financial Analysis
- Cash flow management
- Metrics Development and Analysis
Building a Map
Do you start out a journey by entering your car and driving without a destination in mind? Well it is the same with your business. Most people start their business with an idea without drawing a map of where they actually want it to go. If you want to move from self-employment to business owner then you need a map that will take you there. You have to start by imagining the kind of life you want and designing your business to fulfill that lifestyle. How this is done is going to look different for different people because no two people are exactly alike.
Once you have your map, the next thing you will want to do is design your budget according to your map. A budget puts numbers to the words in your map. Once you break down your map into measurable terms you begin to see how achievable your dreams really are. The journey from self-employment to business owner does not have to be a total mystery. It is well within your reach if you have the right processes in place.
So now you have your budget, don’t relax just yet. You still need tools to help you see into the future. Forecast helps you think beforehand problems that might come your way so you can deal with them before circumstances happen to you rather than you happen to them. Being able to foresee problems before they happen is a characteristic of a business owner. The self-employed person is often so busy getting work done and never spends enough time planning.
Financial analysis should be done at least once a month. This is when you look at your financial statements. When looking at your financial statements look for the following:
- Where have you succeeded?
- Where have you failed or could potentially fail?
- How does this compare to your plan and budget?
- Are you still on track?
These are the basic questions you will need to analyze at least once a month. Doing this regularly will help you see where you are faltering and help adjust your steps as soon as possible before it is too late.
Cash Flow Management
You have heard the saying cash is king. You could have all the profits in the world but without cash you will still be broke. Managing your cash is an essential part of the self-employment to business owner journey. In the beginning of this journey, they will be a lot of sacrifices you will have to make. However, with a plan and budget in hand, these become easier because you know they are for a purpose. If you are frivolous with the cash in your business, your business will be frivolous with you.
Metrics Development and Analysis
So you have a plan: How do you know how close you are to achieving the goals in your plan if you do not have metrics. Developing metrics to measure the success of the goals in your plan is paramount to your success. Metrics development deals with the development of relevant metrics and metrics analysis has to do with periodically coming back to check how you are doing.
In summary, the road to self-employment to business owner is not impossible but takes considerably planning and patience on the part of the entrepreneur. It is not a journey for the faint of heart. This article has barely touched the tip of the iceberg of all that it takes.
I am curious to know where you are on your journey. Post a comment below and share your journey with me.