Apparently, a global pandemic that, temporally speaking, follows on the heels of a Global Financial Crisis, has a tendency to make people think twice about what they want to be when they grow up. Case in point: if you read the news, you know a lot of people have been quitting their jobs recently. Recently, I read in the NYT that four million did exactly this in April alone.
Over the last several years, there has been a palpable shift in the energy of workers to leave the world of employment in favor of self-employment. Life is short. As Blind Faith put it so eloquently, “do what you like.” But as it did with so many aspects of day-to-day life, the pandemic accelerated the pace of this trend substantially. We think a lot more people will seek this path in the years to come, for one reason or another.
Whether you’ve received an unwelcome email from Michael Scott telling you all employees must return to the office, your annual raise/bonus/review did not meet your expectations, or you’ve just grown tired of punching the clock for The Man and want to live your dream of writing that book, the grass on the other side of the self-employment fence can be very green. But before you climb over without a ladder, consider the following.
Most Mom-and-Pop Businesses Fail
It is an integral aspect of the American dream, but the law of large numbers and human nature dictate that many will not survive. According to data from the Bureau of Labor Statistics, about 20% of U.S. small businesses fail within the first year. By the end of their fifth year, roughly 50% have faltered. After 10 years, only around a third of businesses have survived. And while the pandemic shuttered an unusually high number, the long-term failure rates have been pretty consistent.
Without Proper Fertilization and Water, The Grass Can Turn Brown
The numbers above support the fact that in the first year, new business owners are jazzed to take on the challenges and throw themselves into the work it takes to get the ball rolling. Some come out too hot and burn out, though. If the ball doesn’t start rolling more than an inch or two, energy (and money), can wane, and the grass back where we were starts greening up again.
I Owe the Government What?!?
Folks who have been employees for all/most of their adult lives often don’t understand that their employer pays half of their FICA (Federal Insurance Contributions Act), tax bill every year. FICA is a federal payroll tax, and the employees’ share is deducted from each paycheck. The employer essentially matches that contribution every pay period. The Social Security Administration then tracks these payments and produces that history of earnings on your SS benefit estimate. Unsurprisingly, when new business owners are presented with their first self-employment tax bill (the dysphemism of FICA Tax), many grumble that Social Security is a Ponzi scheme and curse the government.
Always Look On the Bright Side
Here’s the good news: while the above disclosures are all too real, a little effort and self-reflection can turn a nightmare into dream. Every business owner has ideas and visions of what they want for and from their business. Therefore, every business owner has a business plan. But science has proven that plans work better when they’re written down. When we draw those ideas and visions out of our minds and write them down on paper (or electronically), the odds of them becoming reality go up exponentially. Then when we share that cocktail napkin or Excel plan with others, the odds of the vision becoming reality go up exponentially AGAIN! It’s not magic. It’s manifestation of the power of human nature (one of the good parts).
We are perpetually bewildered by the number of business owners we talk to that do not have a written business plan. Generally, we aren’t taught how to make one. So, because it’s unfamiliar and takes real effort, it’s overwhelming. So, it doesn’t happen.
Plan to Write a Business Plan
Now, if you’ve read this far, here’s the big juice from your squeeze: if you don’t have a written business plan that becomes a part of your regular business routine, you will spend money you didn’t have to and pay more tax than you had to. And as a consequence, the odds of your business meeting the fate of the Mom and Pops referred to above go up exponentially.
So, if you’re tempted to tell Michael and Dwight you’re not coming back, and you’re tired of breaking rocks for the man, know that self-employment is hard, too. Really hard. But it can be very rewarding with some effort to plan.
It’s not rocket science. As Tony Little said, you can do it! And we can help.