Episode 23: A Business Owner’s Mindset: Should you just stay employed or on contract?

June 14, 2021

Small businesses make up a large % of the businesses in Australia and most people either know someone who runs one or someone who is thinking about it. But how do you know whether being a business owner is right for you and can everyone do it? These are some of the things that Sarah and Trudi dig into in this episode.

They discuss whether all people that are very good at their job can make the transition to business owner and is there a difference? Being a business owner is not just about being technically good at your job, but also having the mindset to run a business – which can be an entire job in its own right. Many small business owners will tell you that they are the CFO and the marketing manager and the IT help desk and etc. Not everyone has the mindset and the skills to take on these additional aspects.

Sarah talks about the changed mindset that is needed to be a business owner, that it is not just about doing the job well but also taking on the mindset of running a successful business, being a strategic thinker and being able to forward plan out all the things. Sarah and Trudi work through some of the key skills a business owner has and some questions to ask yourself if you are either considering taking the plunge, or have already done so and aren’t quite sure if it’s right for you.

Podcast Transcript Available Here

Duration: 25:55

Sarah Eifermann: Hello, hello welcome back to today's episode of Financial FOFU.  Trudi Cowan: Hi. Welcome Sarah Eifermann: Hi, we've got a very interesting episode to talk about today. Trudi Cowan: We do indeed one of Sarah's favorites. Sarah Eifermann: I wouldn't say favorites, it's just something that seems to come up a lot in terms of strategy consulting.  Trudi Cowan: Yeah, sure.  Sarah Eifermann: And it is, whether you should be a business owner or not, should you just stay in your current job and be really really good at it, and not become an owner of a business.  Trudi Cowan: Some people can do both.  Sarah Eifermann: Some people can, and they do it really well if they are business orientated that way, but others they really flap and they fail at the ability to transfer their skills across the things that need to happen to be a business owner. Trudi Cowan: So where do I start? Sarah Eifermann: Well, let's look at the difference between being a business owner or an employed or a contracted industry specialist. So what is an industry specialist? Trudi Cowan: Well that's someone really good at what they do, has very particular skills in the area that they work. And they're seen as an expert in that field.  Sarah Eifermann: And that could be in any industry though, right? It's not linked to a specific industry. Trudi Cowan: It could be a marketing expert, expert mechanic, you could be  Sarah Eifermann: A doctor Trudi Cowan: A doctor. Yeah, lots of different fields.  Sarah Eifermann: It could be financial services. You could be a sports coach.  Trudi Cowan: Yep. Right, it could be really really really really good at that specific job role, and all of the encompassing details that go with that job role. But those aren't the same skills you need to be a business owner. So what is a business owner, well they're the person that actually runs a business. Yes, so, you know, it's more than just being the technical expert, it's doing all the things to operate their business to make a profit out of it. One of the things I first noticed when I went out on my own was that I'm not just focusing on my clients and providing my services anymore, it's all the other bits and things that I have to do, whether that be making sure my registrations and insurances are up to date, doing some marketing, getting those clients in the first place, looking after my tax my financials.  Sarah Eifermann: The obligations,  Trudi Cowan: All of those sorts of Sarah Eifermann: Business owner and having the business owners mindset, yeah, that leads them to be a priority. So you no longer can just do your job and do it well. Trudi Cowan: No, I have a new job I’ve got these others growing the businesses and looking after the business aspect to my job. Sarah Eifermann: It's a completely different challenge, and it has a completely different skill set that goes with it. So, some of the things that a business owner needs to be able to do or must have as a skill. There's a big, long list of them. So the first one on our list is utilizing leadership. So it includes oversight and business vision so it's able to see in the future, see where we're going, that's that planning and focus and all of that sort of stuff that we've already talked about till the cows come home. The second thing is developing their business acumen skills and thriving in the categories of broad scanning and foresight, so we've got another episode on business acumen, go and listen to that if you're not sure what they are but effectively, they're your ability to see what's coming your way and move the boat in accordance with those needs.  Trudi Cowan: Yeah, you no longer just ticking off your list of today I need to speak to these clients and today I need to get this piece of work out, it's about saying in three months I'm going to have to have completed all of these tasks. Sarah Eifermann: There is a change in the market coming, staffing requirements tax laws and obligation  Trudi Cowan: There's a [inaudible03:46] coming, how do we manage that? Sarah Eifermann: Oh well, you know, COVID not going away anytime soon. So all of those things are really really relevant to all of that so that that foresight and broad scanning skills are the two I think fundamentals of the business acumen gauge and those skill set categories for a business owner, they're all relevant, yep, but they are specific. Trudi Cowan: Business owner also needs to build their key networks and relationships and look in some industries you might do that as part of being key specialists, you know, building relationships to get your clients Sarah Eifermann: You would probably do it naturally though,  Trudi Cowan: But this is different because it's not just about getting your clients in. I don't think it's also about having a network of people around you to support you, to help you develop and grow your business, and network of people that might refer work,  Sarah Eifermann: But it's also investing time in that network and spending time building those relationships because the relationships more valuable when it's your score. Yeah, then if you're working for somebody else and the works coming to you, you would still naturally build relationships, you'd have connections, but it wouldn't require potentially as much value placed on building networks and relationships. Trudi Cowan: Different kinds of investment. Sarah Eifermann: Very different. I'm a business owner who develops strategic analysis and planning. Trudi Cowan: Planning, we love that word. Sarah Eifermann: We're back there. But I mean honestly, it's very, very true right so if you're now the business owner, you're not the job role, operator, your job as a business owner is to make sure that the strategic plan and therefore any investments from key personnel, including yourself, is very strategic in its placement. Yeah, it doesn't just come flying by the seat of your pants, he really got to think about this and take time to think about this and plan it out. Trudi Cowan: Yeah, that's right. Business Owner also needs to invest in culture, and their staff, you know, people often say a culture is a top-down approach, and as the owner, you are the top, so you're the one that set the culture for your business, both internally about how your staff feels about working there and being there. But also externally and the perception that others have about your business, you're responsible. Sarah Eifermann: That's right as a workplace but also as a business reputation. Completely. Trudi Cowan: Yep. Yeah, and in terms of staff, you know, you may have staff as an employee that works under you, and you manage them and you're responsible for them. But as the business owner, you're doing the hiring, you're doing the firing, you're doing the performance management. You're the one that needs to make those decisions around, are these the right fit and the right employees to help my business move forward. Sarah Eifermann: Ultimately, it's your business, and the buck stops with you. The impact affects you the most. So your responsibilities to maintain and manage all of that, whether you like it or not, yep, which is why some people should just stay in their role. If it's not something that you've considered previously and you're thinking about going out on your own. These are the things that you should be considering when it comes to running a business. Trudi Cowan: Yep, a business owner needs to set strong boundaries. Which I think links a little bit with your culture as well.  Sarah Eifermann: Absolutely.  Trudi Cowan: In terms of you setting a culture that you are going to pick up the phone every time a client rings you whether they ring you at nine o'clock in the morning or nine o'clock in the evening. Sarah Eifermann: Correct. Trudi Cowan: Or are you going to set a culture around your work office hours, and if somebody rings you outside of office hours the phone goes to voicemail. Yeah, that's part of setting your, your boundaries. Sarah Eifermann: 100% and that is a key failing for a lot of business owners, especially in the early years. Trudi Cowan: You want to do everything and take on every client, help everybody out as much as possible. Sarah Eifermann: Financially they need to as well but what happens is because they don't set any boundaries around that in the earlier years when they're trying to win as many clients, it just fades into so once they become successful, it feeds into the relationship of how they interact and then that can become really problematic. Trudi Cowan: It's very hard to reverse it once you've said that boundary.  Sarah Eifermann: Yes, a business owner communicates effectively. Now communication was my word of the year for last year or moving into 2021 and it hasn't changed. Trudi Cowan: How are you communicating? Sarah Eifermann: Well, you know, sometimes great and other times not great depending on what's going on around me I'm the first to put my hand up and say, it is a work in progress all of the time but something I have to be conscious of. And effective communication requires your presence at the moment to really think about what it is you're saying, and what you're trying to achieve when you say it. And how that will be received as well because you're the business owner now, you're not just an employee and you have to give two shits about these things. Because they affect your culture.  Trudi Cowan: Yeah, that's right. Again, and I think this one sort of came out a little bit earlier but recognizes trends in advance and acts accordingly. Yeah, so we sort of touched on recognizing that things are going to happen in the future and adjusting your business to cater for that. Sarah Eifermann: This sounds a little bit more strategic than the broad scanning or the foresight category because it's specifically talking about trends in your space, so it definitely plays into that, but it's more strategic in it. If your business is a business that is deeply affected by other things that are going around in the marketplace, but you can't see it coming, specific to your product or your service, you're in trouble. Yeah, because you don't have the income coming in to pay staff. Yeah, Trudi Cowan: So the next one is tracks will be tracking growth, which is really important for lots of reasons. If you're not tracking your growth while you don't know how to spend your resources, you don't know whether you need additional staff or contractors, do you need to be spending more money on materials. Do you actually have the capacity to be doing all the work?  Sarah Eifermann: So you can have negative growth, technically you know [inaudible09:38] as well you might not have any money. Trudi Cowan: You might not have any money. That's exactly right. Are you not growing at all when you need to be. Are you getting enough working in for the staff that you do have there? Sarah Eifermann: Yeah, so you need to let some people go yeah. Like tracking growth, whether it's positive or negative is so important. Yeah, in ensuring that you're on track, Trudi Cowan: And as a business owner, the growth of the business is going to impact your own earning capacity and how much you're going to make as well. Sarah Eifermann: Yeah, and you would not do that as a technical specialist or a contractor, you might track the work that you've got coming in that pertains to your role and your requirements but not the business as a whole. And that's a key fundamental difference that I think can be a failure for some people that become business owners is that they still get really stuck in that blinkers, this is my job. This is what I'm doing, and they forget about that and that's a fundamental one. Trudi Cowan: Yeah, and then developing systems and processes that provide productivity and profitability. So again, are you putting those systems and processes in place to make sure things are being done appropriately, efficiently best standards possible so that you can be making the most money possible? Sarah Eifermann: I mean, often but not always when you work for another business you walk in and you sit down at the business systems are set up the emails the telephones, the branding.  Trudi Cowan: What software you're going to use, all the tools you're going to use. Sarah Eifermann: You just walk in, and you sit down, and they might be great, or they may be terrible, but they're already there that there's some consideration to them. And when you become the business owner, you need to be constantly checking that the systems and processes that you've got are working for you. Trudi Cowan: And adjusting and changing I'm always looking at the different software packages that I use because that's my main tool. Yeah, and are they the best ones is there something that does it better or is there something that does it more cost-effective, sort of manner, is there a way that is there one product that can replace two or three? Sarah Eifermann: Exactly and just streamline your systems into one program instead of multiple ones. Yeah. Again, fundamental of being a business owner that's something you wouldn't traditionally do as an independent operator or contractor. So continually assesses the business flows and adjust for blockages, so it might sound like we're being repetitive here, but they are all slightly different and they are all perceived differently, and again this is not something that an independent operator would do. Yeah, it would be what a business owner would do. In that, they continually assess whether the income where the clients where the sales are coming from and adjust to make sure that what's going on in the marketplace or what's going on in their sales funnel or what's going on in the business and systems and processes are satisfactory to meet the business requirements to trade profitably.  Trudi Cowan: A perfect example over the last 12 months is there have been issues with shipping due to Coronavirus and things like that, you know, if a business that is selling a good hasn't adjusted for the fact that there is a longer lead time to get their products into the country, then that's going to impact on them having the products maybe for the right season or the right amount of products, did they miss the Christmas sales? Is it that you have a part that goes into some other sort of, a part for a car. Cars, therefore, can't be built. They built here in your caravan may be better. I know at the moment it's a huge lead time on caravans because they can't get the parts in. Sarah Eifermann: So I had a client yesterday I was speaking with a helix client, and they were saying that they're Queensland but due to lockdown, they couldn't most of their parts of the electrical stuff that they need to install this blitz system come from China. Yep. And then they said there was a delay on that and then there was a Wolfie strike right. Yeah, it was the Wolfie strike that causes the big problem because of the delay from Corona they could manage but they didn't expect or see the Wolfie strike coming and that really blew out everything. Trudi Cowan: So it's about managing having the foresight to see those things and then managing and adjusting your business to factor that in to keep things going.  Sarah Eifermann: Absolutely. So we've talked about this a lot, but understands the brand, the identity, the tone, the personality of the business, and then how to use that. Yep, and be consistent in the use of it. Yeah. Now when you're employed, you don't really care about that stuff. You may resonate with it you may really love the branding of the business, but it doesn't have any real emotional or emotive relationship for you. Because it's not your business. Right. Gary Vee is very famous for saying, you cannot expect employees to give as much care or concern about a business, as you do  Trudi Cowan: As you do because it's your business. Sarah Eifermann: Because it's your business, not theirs. And this is one of those points where it is relevant as a business owner. It is fundamental and I use that word a lot, but, fundamentally, you understand who you are in business and how you present that to your consumer. Because we get so many different signals about buying things these days, we are in a consumer society, massively right. And if you're not consistent with your brand and your identity. It is very easy to be forgotten about, or worse if you're not forgotten about. No one wants to buy from you though. Yeah, which is the whole purpose of being a business.  Trudi Cowan: Yeah, that's right. Now the next one is key to my own part being an accountant. Acutely nice the financial position of the business, including the profit loss. If you don't know how much money you're making, if you don't know how much money you owe other people or is owed to you at any point in time, then you not really running your business properly, like that's a key. Sarah Eifermann: Are you running a business?  Trudi Cowan: That's a key part you know if you don't know what's going on in your profit and loss, how can you be making money from your business, how can you be knowing that what you're doing is actually profitable. And if you're not all across the balance sheet side of things, of who owes you money, and who you owe money to. Are you actually meeting your debts? When you have to. Are you actually chasing the people that owe you money and are late?  Sarah Eifermann: Are you trading sovereignly? Trudi Cowan: Are you trading seldomly, You know it's really important to be across all these things, not just once a year but regularly, all the time every week. Sarah Eifermann: Literally every week. Yeah, people think, oh it's too much, yes you should look at your profit at month at least monthly. Trudi Cowan: It can only take a small event, to have a big impact on your profitability and if you're not tracking it then you not seeing that. Sarah Eifermann: But I know at all times with my businesses, exactly where they are financial. Yep. And if I can't see clarity in the finances something's wrong. Yep. Right, so the bookkeeping has been done incorrectly I know immediately. I'm able to contact my bookkeeper and say hey you've missed something here. If we're delayed on cash flow payments that haven't been made Wait who hasn't paid our invoices. Yeah, go and chase the invoices and in the banking sector we don't get to control it as much, but,  Trudi Cowan: But lots of people do.  Sarah Eifermann: Our Commission's missing, do we need to go chase Commission's because they haven't shown up in the timeframe, they're supposed to show. Trudi Cowan: If they've been calculated differently from what you're expecting. Sarah Eifermann: Correct but that's another one that we get stuffed around on sometimes. So, again, you know, I really feel that the things that we're talking about in this episode. If you're not across them, maybe you shouldn't be in business, and that some people will say that's a really harsh thing to say, Sarah, but, well, there comes a time where you have to say is this business worth it. Yep. And if you're not investing in these things as a business owner, are you even running a business? Trudi Cowan: And look, depending on the size of your business, it doesn't mean you have to be across the financials, but you need to have someone that is, and they need to be reporting into you, to keep you up to date. Alright, which kind of leads into our next one. Yeah, which is recognizing your strengths and weaknesses, and building systems and staff to compensate. Yeah, not everybody is good or actually, nobody is good at everything.  Sarah Eifermann: What do you mean? I'm amazing in everything.  Trudi Cowan: Sure Sarah. Nobody is good at everything everybody has their own strengths they have their own weaknesses, and you need to be able to recognize those in yourself and pull in people to help you with the aspects that you're not so good at. Yeah, you know, I'm an accountant, I am not a marketing person. Sarah will tell you that you asked me anything about catalogs and I just tell her to do whatever she thinks, right, it's not my thing. And I know that I'm not good at it and I can recognize that. So I am getting people to help me with those aspects of my business around marketing and Instagram and things like that. Sarah Eifermann: And I'm no marketer either, but I know the fundamentals of what goes into marketing, But I'm not creative, me trying to design something, looking at pre-school drew it like. Trudi Cowan: Yeah, but we get in the people to help us because aspects that yeah, you know, that aren't our strong suits, and that's part of being a business owner is recognizing that you need some help in certain areas and getting that help. Yeah. Sarah Eifermann: So the next one, kind of, then speaks for itself in that the business owner makes time to work on the business as a priority, not as a secondary front and Trudi is putting on some very funny faces. Trudi Cowan: I'm a little bit guilty of this one at times because it's so easy to get so busy working in the business that sometimes it's hard to find time to work on the business. Sarah Eifermann: Boundaries, right? Boundaries retained structure that we wrote these down in a particular way because they do flow into each other. And the next one then is, to create space in the week for the time. Trudi Cowan: Oh I do that, I have my weekends off every week.  Sarah Eifermann: And so sometimes space in the week for time out could be replaced by space in the week to work on the business first and then time out, and I suppose this one really leads to again having the foresight to scan to see if burnout is a problem. Yeah, because often when operators or technical specialists become business owners. Burnout is a huge thing because they now have this whole list of things to do. Trudi Cowan: And they try and do everything. Sarah Eifermann: They try and do everything, and they don't make time to do it because they're still really busy working in the job that they were doing before, and they've got all their clients or whatever. Yep. And then they burn out and then everything falls apart. Trudi Cowan: Yeah, which the next one I feel sort of encompasses all of it and that's really understanding that you've changed from being a technical specialist to now being a business owner. Yeah, and there's a whole bunch of other roles and responsibilities that come with that change. And understanding what they are, factoring them in, implementing them, taking actionable of all those additional responsibilities, and not just being a technical specialist anymore. Sarah Eifermann: Yeah, so so so important. Now, would we like to talk about one little thing that's more of a tax positioning on that? Which are personal services, income, yeah. And usually, when we're talking about this topic, people that are transitioning from field specialist or independent operator. They're providing a service more than providing a product, and therefore some tax implications may affect them in terms of that. Trudi Cowan: I very regularly will have people come to me and say, you know, I hear if I go out on my own and start running a business, I’ll be able to pay less tax, make more money. Of course, you know, the HEO is over this, and it doesn't always work out that way. So, If you change from being a consultant. Sorry, an employee in a consulting type role or service-based role to being a contractor, whether that be as a sole trader through a company doesn't make a difference, but you're still employed working for that one business. Yeah right, the HEO and the tax rules say, you basically still are an employee, and therefore the tax rules will apply to you. In the same way, as if you were an employee. So that means you can only claim the same sorts of deductions as if you were an employee, and it means that the income, all has to come through to your personal tax return in the year that you were paid the same as it would be if you were an employee. Sarah Eifermann: Regardless of your structure? Trudi Cowan: Regardless of your structure. Sarah Eifermann: So you can’t go off and be smart and set up a trust structure, yeah, and try and distribute to your spouse. Trudi Cowan: So these rules still look through that. Yeah, and still say you and that income needs to come to you. Now, if you mix it up a little bit. Okay, I'm a consultant, but I'm going to work for three or four businesses throughout the year, and no single one of those businesses pays more than 80% of your total income. So let's say $100,000. No one of those people is paying you more than 80,000, they're all under that so they're all 25 30 40,000, sort of mixed around. What the rules then say is, potentially, you're not personal services, income, you're what we call a personal services business. So we say okay fine, you are running a business, that's cool. We won't restrict you to deductions as if you were an employee, you can claim all the same sorts of deductions that a business can claim. But we are hanging over your head that we've got these little anti-avoidance rules here that say, it's still income for your personal effort, and your time, therefore that income still needs to come home to you in your tax return.  Yeah, right. And there's a little bit of flexibility around that if you make $100,000 profit, and you distribute, you know 90 95% of that to you in that year and maybe the rest comes through as a dividend in the following year. That's fine, right, the key is that the majority of it comes to you and that you're not, if you're a trust for example distributing some of it to your partner or your man, it's all coming to you as your income, and look, this is a very simplified way of saying it. There are lots of complex rules around determining whether you are personal services, business, or not. But it's just something to be aware of just changing your job from being an employee to a contractor isn't always going to get you a different or a better tax outcome. Sarah Eifermann: Amongst all the other lists of things that we've got to talk about. Trudi Cowan: Exactly which is just a very common thing that's out there but if I go run as a business, I'm going to make more money and pay less tax. Doesn't always work like that. The other thing that's really important to be aware of is that if you go through a labor hire firm, even though you might be working for five or six different businesses, it is the labor higher firm that is paying you, therefore you're only being paid by one business, right. So straight away, you're into those personal services rules. Sarah Eifermann: Yeah, and again, business owners mindset these are the things that you need to know and be curious about. They're not just something that you can say I didn't know that later. Yeah, it's really important to be across all of these things,  Trudi Cowan: Business mindset says I need to understand how my tax works.  Sarah Eifermann: Exactly, exactly. All part of those skill sets. So love to know if you think any other skill sets fall under there. Have you got any words of wisdom for people that might be considering transitioning, or have already become a business owner but aren't really cutting the mustard well, Trudi Cowan: Just remember that being a business owner isn't for everyone. Yeah. Just because you are really good and have great technical skills in your particular area doesn't mean that's going to translate into you having a really successful business. So just think long and hard about it and if you're already there but not enjoying it, then the option is always there to go back and be an employee. Sarah Eifermann: Exactly  Trudi Cowan: There's nothing wrong with that, that just might be your purpose. Sarah Eifermann: Yeah, and it's okay,  Trudi Cowan: And that's okay.  Sarah Eifermann: That's okay. My words of wisdom on this would be, other than the standard do your research and do your planning. If you've done that and you're still resonating with some of the things that we're saying here that you may not be doing well, either seek some coaching some actual formal business advice. Trudi Cowan: Definitely  Sarah Eifermann: Whether that's via your accountant or an actual business coach or advisor and seek it now, don't wait, because if anything we've said has resonated, it means there's potentially some truth to it, and the longer you leave it, the worse it will be. Yep, nip it in the bud now and it might just need some small tweaks you might just need a different software package, there might be some small real you know simple wins that you can take to come out in advance by actioning it now. And that in itself actioning something it's business owner mindset. Trudi Cowan: Yeah, very much so.  Sarah Eifermann: Awesome, that's all we've got time for this week guys on financial FOFU.  Trudi Cowan: See you next week.  Sarah Eifermann: I'm Sarah Eifermann. Trudi Cowan: I'm Trudi Cowan

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