When to continue working for yourself, and when to stop flogging a dead horse
I’ve been working for myself for more than three years now, and self employment has ups and downs. When the downs come, it is difficult to know whether to stay in business or pack up and return to the world of 9 to 5, and this is especially hard because when you’re in charge it is solely your responsibility to decide. Quitting is a big decision and it can be tempting to hang on too long and keep flogging a dead horse.
I don’t want to do that, I want to run a viable business on my own terms.
I want to be sensible, and make evidence-based decisions.
To address this, there are a few things that I regularly monitor and take into consideration when evaluating the viability of my business.
Viability monitor 1: Income targets
Something I did early on was to set myself some income targets which allowed me to judge the success of my business. For me these were completely subjective, based on my own needs and goals, and were:
- Minimum income: The lowest acceptable level of income I could earn and keep going. For me this was the equivalent of a PhD stipend, something I’d been offered and turned down. For others this might be enough to cover household bills or provide some disposable income, depending on what you can afford.
- OK income: A good level of income. For me this was the going market rate for a professional job that I could easily get if I quit being self employed tomorrow.
- Ideal income: What I’d really like to earn in an ideal world. For me, more than I’ve ever earned before in salaried employment.
These are so straightforward that at any point I can judge how well things are going.
Viability monitor 2: Planning for lumpy cashflow
When running your own business, money is unlikely to come in steadily and provide the same amount of money in your pocket every month. Although I earn a reasonable salary equivalent I can have some months where I get no new money in the bank, and others where I get many thousands of pounds. It can be difficult to manage this against my personal spending needs and obligations. I had to decide between spending what I earn as I earn it, or saving it up and rationing it back to myself. I think it is important to plan for which you will do, try it out, and decide if you can manage your personal finances this way.
I picked spending what I earn as I earn it, but I can do that because I’m part of a dual-income household which gives me more flexibility.
I keep an eye on my cashflow, and regularly re-evaluate whether my cashflow and my approach to managing my cashflow is still working for me.
Viability monitor 3: Monitor your pipeline
Through a system of marketing, networking and competitive tendering I try to always have some short, medium and long-term work prospects in my pipeline. Some will come to fruition, most will not. My contracts overlap, and even when I am busy with work I have my eye on the next thing.
But in my line of work I might not know where my work is coming from more than a few weeks in advance. It is possible to have nothing on the books, and then suddenly get a big new contract in that starts next week.
Firstly, I just need to be cool about this. For me it is the hardest part of the job having limited forward knowledge of what I will be doing and therefore limited income security. To try and keep cool I keep records of what I bid for and won and when, so that I have an idea of which months of the year are likely to yield better prospects than others.
Secondly I keep an eye on my pipeline, and regularly re-evaluate whether my pipeline and my approach to managing my pipeline is still working for me.
Viability monitor 4: Remember why you’re doing it
What’s the point of being self employed if it isn’t better than the alternative?
I want to be doing work that is important to me, that I enjoy, on my own terms. If I’m not, there’s no point and I might as well go and work for someone else.
Having identified these viability monitors I was then able to decide on red flags – circumstances in which I would be prompted to re-evaluate whether self-employment was still worth bothering with. For me, my red flags are:
- If annual income falls below the acceptable minimum, or is likely to do so.
- If I have not had any income at all in three months, and no more in the pipeline.
- If I do not have any work in my pipeline and I do not have any positive leads or ideas to generate work.
- If self employment isn’t fun anymore.
- If my wider personal circumstances change and I can’t manage my lifestyle around my income and cashflow.
Happily for me in practice I’ve not reached any of the red flag points, and hence I continue.
But defining failure and knowing at what point I’ll quit (or make a case to myself to continue but monitor things for a while) gives me confidence that staying in self employment remains the right thing for me to do.