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4. innovation at work self employment


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This module explores the concept of innovation at work and the self employment aspect.

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4. innovation at work self employment

  1. 1. Innovation At Work - Self Employment TUTOR’S NAME HERE
  2. 2. Innovation At Work - Self Employment Learning Objectives Menu Unit 1: The Pros and Cons of Self Employment Unit 2: Generate An Innovative Idea Unit 3: Implementing your Action Plan Unit 4: The Practicalities Self Employment
  3. 3. U. 1 The Pros and Cons of Self Employment
  4. 4. The ‘Pros’ • You:  get to be your own boss  get to do what you’re interested in  get to set and meet your own deadline  can get to express yourself  can realise your potential  can be proud of what you do  can gain control of your own destiny  can be creative  can have a second career  can cut out the commute  can hand on a legacy to those you care about - posterity  can gain recognition from family, peers, community  can deploy your skills  can get sense of fulfilment in meeting the challenge  can design your lifestyle rather than have it dictated to you  can achieve financial independence • It:  can be profitable  can be varied
  5. 5. The ‘Cons’ • It can be lonely • If you don’t work you don’t earn – no ‘sick leave’; holidays cost you in time away from the business • Owner/Managers have to fulfil all roles – a huge time commitment – long and irregular hours • Expect the unpredictable..... • Can be a long period before owner/managers can draw wages and thereafter additional profits – or before shareholders see a dividend • Can be ‘feast or famine’ – takes a long time to smooth out the peaks and troughs • Over-trading (trading in business much of which won’t be delivered) can often be a bigger problem to manage than finding the sales
  6. 6. U. 2 Generate An Innovative Idea • To Create Value and Generate Income • Steps from idea generation through to operating a profitable business....
  7. 7. •What is innovation?
  8. 8. Innovation is a Frame of mind: Always question WHERE are you going?
  9. 9. Creative thinking – the ‘inner innovator’ Personal motives – the ‘inner innovator’ Action The journey of innovation
  10. 10. The “Inner Innovator” : • Knowing yourself... - Self-awareness - scope for self advancement - recognise then overcome your personal barriers • Influences good and bad... • ‘Push and Pull’ factors .... ‘Push’ = necessity ‘Pull’ = opportunity -
  11. 11. Innovative thinking: •Observe……..
  12. 12. Imagine: Thinking…..
  13. 13. •Acting on your idea…..
  14. 14. Planning for innovative self employment.....
  15. 15. WHY? WHAT? WHEN? WHO? HOW? WHERE? A Self Employment ACTION PLAN… implementing an idea to do something new
  16. 16. U. 2 Exercise: • Devise An Action Plan For An Innovative Self Employment Proposal
  17. 17. U. 3 Implementing your Action Plan
  18. 18. Being innovative about innovation….. COLLABORATE… •No individual has all the answers •Lone wolves starve! •‘Co-opetition’ - Collaboration is an effective response to competition
  19. 19. Benefits of collaboration .... You can access resources: Benefits Access to ExpertiseProblem Solving Research Specialised Equipment Enhanced credibility International R&D Networks
  20. 20. How to make collaboration work for you..... • Collaboration takes time and energy • Cultivate the RIGHT collaboration! • But HOW?
  21. 21. • Draw up a formal agreement: who does what for what return • Agree targets • Record work activity; measure progress against targets • Agree a timetable for regular communication • Involve a mutually trusted third party to act as mentor/buddy/ honest broker as required How to make collaboration work for you.....
  22. 22. Distinguish good collaboration from bad by.... • estimating the return on a collaborative project... against the cost of opportunities foregone... + the ongoing costs of supporting the collaboration • defining and agreeing your SHARED PURPOSE • Committing to transparency
  23. 23. Managing the collaboration
  24. 24. • Scope out the challenge • Structure the boundaries • Sort tasks for execution • Be prepared to accept and learn from failure Managing the collaboration
  25. 25. Tools to ensure a successful collaboration Step 1: Situation analysis Step 2: Partnership formation and project design Step 3: Consensus building ( roles/responsibilities) Step 4: Implementation
  26. 26. U. 4 The Practicalities Self Employment Menu • Different Self Employment Options • Sources of Finance • Profit • The Importance of Cashflow
  27. 27. Self Employment Option 1 - Sole Trader • Advantages – Easy to set up – You have full control – No audit required – Minimal reporting • Disadvantages – Fully liable for debts – Income tax is paid on profits not drawings – It can prevent growth due to lack of capital
  28. 28. Self Employment Option 2 - Partnership • At least two partners required (but can be a larger number) • It is advisable to seek legal advice and draw up a partnership agreement
  29. 29. Self Employment Option 2 - Partnership • Advantages – Pooling of skills – Increase in resources – The risks are shared – Easily set up • Disadvantages – Each partner fully responsible for all debt – Difficult to introduce new partners – Personality clashes can become a problem
  30. 30. • The company is owned by ‘Shareholders’ • The Company is managed by ‘Directors/Executives’a • Company is seen as a separate legal entity from the individuals own it and the executives who manage it Self Employment Option 3 – Limited Company
  31. 31. • In the UK and Ireland Companies are registered with Companies Registry • Audited accounts and can be accessed online Self Employment Option 3 –Limited Company
  32. 32. Self Employment Option 3 –Limited Company • Advantages • Owners are not personally liable for the debts of the company • So protection of personal assets (some exceptions) • Simple in the UK and Ireland : Normally set up as a “Shelf company” • Limited Company status may be a pre-requisite for certain contracts / tenders  Disadvantages • Much more legal regulation involved • Tax position of company separate from the Shareholders • Subject to an annual Audit / Report – this can be a substantial expense
  33. 33. Key costs for a small business
  34. 34. Key costs for a small business • Equipment / Vehicles • Stock • Legal / Professional • Advertising • Accommodation costs • Interest and charges • Wages or drawings • Other unanticipated costs
  35. 35. Sources of finance • Personal/family investment • Bank finance • Business Grants • Asset Finance • Alternative loans • Investors – Equity/Angel
  36. 36. Personal Investment • Personal savings • Family & Friends • Use of equipment
  37. 37. Bank finance • Overdraft Facility • Credit Card facility • Term Loan
  38. 38. The Banks will consider an application under the 5 C’s:- - Character - Capacity - Capital - Collateral - Conditions Bank finance
  39. 39. • Character – Good character - honesty, integrity , reliability , hard working…… • Capacity – Ability to repay: Does the business have the cash-flow to meet the repayments? Are the projections realistic? • Capital – Extent of personal commitment (‘skin in the game’) How much has been invested by the promoter and what percentage is external debt? • Collateral – What security is available in personal or business assets should things not work out? • Conditions – What are the market conditions and trends in this sector and what may be their impact on this business? Bank finance
  40. 40. Bank finance • Overdraft Facility • Overdrafts are a short term borrowing facility • There will be ‘Arrangement Fees’ • Interest rates can vary over time • Personal financial guarantees may be required
  41. 41. Bank finance • Credit Card Facility • Very short term! This is in effect a one month borrowing facility • Full balance should be cleared monthly • Interest rates are very high • Defaults incur high penalties & charges
  42. 42. Bank finance • Term Loan • This is a longer term borrowing arrangement – can be from 1 – 15 yrs • Interest rates are fixed – agreed monthly payment • Personal guarantees (security) are required in most cases • Arrangement fees are charged
  43. 43. Business Grants • UK: • Invest NI • Princes Trust • Local Councils • Department of Agriculture and Rural Development - LEADER •Republic of Ireland •Local Enterprise Offices •Enterprise Ireland •Local Employment Partnerhips •Bord Bia •LEADER Companies •Udarás na Gaeltachta
  44. 44. Alternative Loans • Credit Union Loans • Government Loan Funds • NGO/Philanthropic • Hire Purchase/Leasing • ‘Crowd funding’
  45. 45. Costs Involved in a Business • FIXED COSTS – Costs which are not affected by the level of activity of the business: premises (rent, rates), vehicles, equipment, insurance, bank interst... • VARIABLE COSTS – Costs which are directly affected by the level of activity in the business: staff, inputs/raw materials, electricity, fuel (eg: delivery costs)....
  46. 46. Examples of Typical Profit Margins • Low 20% - Supermarkets 18% - Newsagents 25% - Music Stores • Medium 32% - Toy Store 33% - Printers 35% - Pet Shop 45% - Florists 45% - Fast Food Outlets • High 65% -- Opticians
  47. 47. The importance of Cashflow • “Cash is the oil that lubricates the business engine”
  48. 48. The importance of Cashflow • Profit with Good Cashflow • Loss with Good Cashflow • Profit with Poor Cashflow • Loss with Poor Cashflow Survival chances Excellent Medium Term Short-term Doomed to Failure
  49. 49. Purpose of a Cash Flow Forecast • To identify potential cash shortfalls before they happen..... Do the sales of the business have a seasonal nature?
  50. 50. • To act as a management tool in making decisions. – Example: Expenditure may be deferred until cash position has improved. Purpose of a Cash Flow Forecast
  51. 51. • The Cashflow forecast confirms for the bank .... How much finance the business needs and that the business the ability to repay. Purpose of a Cash Flow Forecast
  52. 52. Indications of Cashflow Problems • Overtrading – failure to fulfil orders on time • Returned Cheques • Bank Letters / Fees • Supplier problems
  53. 53. •Registration with Government (UK - HMRC; Ire - Revenue) •Income Tax – tax return every year - severe penalties for non-disclosure and interest on late payments •Business (Corporation) Tax – charged on the profits of Limited Companies – annual returns •National Insurance •Tax on goods and services: VAT (turnover threshold UK = £82k p.a.) – usually quarterly returns - supported by full records of all transactions – costly penalties •Accurate record-keeping is vital – sales and purchases. invoices -also allows you to monitor & control-5/6 years Meeting Your Legal Commitments
  54. 54. invest time in your future. THANK YOU