Small Business Owners are hard done by?

Before I continue with my business improvement series…. I thought I would mix it up with a highly controversial topic.  I thought I would talk about why Small Business owners are hard done by when compared to an employee.  This topic is meant to be deliberately provocative and designed to get you thinking. 

A few assumptions:

• I am referring to small businesses . Not BHP or CBA.  The businesses I’m talking about would be operating your local cafe, your plumber, hairdresser so-on.  Think about how many of these are in your area….. lots.  They make up a very large proportion of the business community.

• They are also likely to be sole traders or mum and dad partnerships/companies, with a few employees at most.  Some of the information below (leave entitlements for example) may apply to a business owner if they are through a corporate structure and pay themselves a market salary.  I am referring to self employed people (no formal wage, just whatever the business makes is theirs).

Let me raise a few interesting points (just a few, not all) from the view point of the Small Business owner!

1. Long Service Leave – When don’t self-employed business owners get Long Service Leave????  Given most small businesses are lucky to survive 5 years. For those that make it to 10 years, should there be a benefit/pot at the end of the rainbow for them?  Some would say that is the Small Business Entity Tax Concessions on sale, but that assumes every small businesses is sold.  Small businesses provide us with a vibrant local economy and of course provide employment to so many.  So should they be rewarded for reaching such milestones too?  The long service leave provisions were designed (I believe) to reward the loyalty of the employee. Obviously the business has benefited if an employee has stayed with them for 10 years.  That is beyond question.  However, I would also argue that the employee has benefited with a stable job and secure income during that time.  An employee would not stay (in today’s world) if the employer were not a good one, employers would not keep the employee if they were not fantastic also.  So it is a win-win.  If we reward the employee (which I don’t begrudge), should there also be a reward for the employer?
2. Other types of Leave – What about other types of Leave….. Annual Leave, Sick Leave and Parental/Maternity Leave?  When your local plumber takes leave, he receives no pay.   I think that is sometimes forgotten.
3. Award Wage doesn’t apply to everyone? What if the employer works hard all year, but makes a meager profit (sometimes its a loss)…. if you add up all the hours worked by the owner, it is often under the Award rates for that industry.  So why do we let Small Business Owners work for under Award???  Consider a business that makes a meager profit, but has two owners (mum & dad), it is even worse?  Why should they earn less than their employee per hour? Now consider that the owners probably have to payback a business loan for the fitout or equipment to get the business up and running?  The rewards for business owners are often not there or what the employees assume they might be.  Unfortunately, an Small Business Owner just has to do what they have to do, regardless of the job description, hours or pay. 
4. Jack of All Trades – A Small Business owner is expected to be a jack of all trades…. marketer, sales converter, the actual activity that generates the income (ie plumbing), accountant, human resources expert so-on.   There job description is very short, it says “do everything”. They are expected to know, in detail, areas of law that may not be their core skill.  For example, a Hairdresser is meant to understand the Award for the industry, National Employment Standards, Workplace Health and Safety, draft the necessary internal policies and employment contracts.  Worse yet, if they get it wrong, they are penalised.  There is no “oh well, you tried – I’m sure you will get it right next time” that might well apply to an employees mistake. However, what are we doing to really help small business owners/employers to get it right.  The confusing rules and inordinate amounts of information on Fairwork are not helpful.  I challenge those without a Human Resources degree to read one of the current Awards, National Employment Standards and Workplace and Health and Safety requirements…..  It is a good cure for insomnia.
5. What if there is not enough money to draw an owners wage at the end of a fortnight?  Similar to point 3, owners are usually the last paid.  So if money is tight, employees are paid for their time and effort first, and the small business owner gets whats left….. which can be nothing.  In some cases, they are also forced to put their own money in to carry cashflow shortages of the business (i.e. a customer pays late).  Employers would be in a lot of trouble for not paying an employee, but there is no requirement that an owner be paid for their time and effort in a prompt manner.

SO WHAT IS MY POINT?

If your a business owner and you are getting a bit hot under the collar with the inequities above and feeling pretty bit hard done by…. then there is one important fact I deliberately left off the top, that is very relevant for you to understand now….

Small Business Owners are not rewarded for effort, they are rewarded for the “risk” they take.

If you as an entrepreneur take a risk, and if it works…. then your rewards/results will not be linked to your hours or effort, but can be much greater.   Unfortunately, the opposite is also true.

So make sure your business succeeds! 

What are you doing to make sure your business will be a success and see results that reward you for your effort and then some?  Don’t assume”effort” is enough.  While effort is a key ingredient, it is not necessarily the decisive ingredient on whether you will be rewarded.  There is more to it than that and you should be discussing with your advisor to esnure you are successful and rewarded.

Also be aware, that if you go into business to be “your own boss” or to “buy a job”, then you are likely to be in for a tough ride.  There is nothing wrong with it, just don’t assume it will be easy or that the rewards will be “fair”.  It is also important that if  you are considering going into small business, you should not go into it with an “employee” attitude….. you will be destined to fail or be disappointed.  You need to think like an entrepreneur, knowing the landscape above, the “inequities” that exist and just make the results happen.  There is not much point in walking on to the football field and complaining about the shape of the ball.

Ideally, you should approach the business as an investment and try to ensure you are doing all you can to derive a fair reward for the risk you are taking.  This normally includes a reasonable return for your effort (i.e. a wage), plus some extra for the risk you are taking (extra hours, HR risks, the initial idea and guts to start up the business, and putting your house on the line for this business).  Try writing it down at the beginning of the year, this year I want to make $x to compensate me for my effort (normally a market salary for the role) and $y to compensate me for my risk/investment.  Now do up a budget and plan on how to achieve it…. not an essay, just key points on how you will achieve it and how to measure if you are on track.  Talk to your advisor!  We do this sort of stuff all the time and you will be surprised by what we know about your particular business, goal setting, business analysis and business improvement.

If you are an employee reading this and furiously building your own list of how you are hard done by (and you could – always 2 sides to a coin)…. then hopefully you have a greater understanding of the pressures facing a small business owner.  You may also understand why it is so important for a small business to make a profit and for the owner to be rewarded. Ultimately, everyone wins if the business is profitable and owner feels rewarded.  The business survives, some additional profits can be shared with the employees, and a mutually beneficial long term relationship continues.

  Importantly, and I can’t stress this enough, employers need employees to grow their business.  Employees need employers to provide them with an occupation.  It should be a win – win situation.  Smart employers know this.  It should not be a “Us vs Them” mentality.  Like all areas of life, a few bad eggs ruin it for the many…. on both sides.  At Holmans we have been lucky to have a great team, with quite a few reaching long service leave, with more to come in the near future…..  We could not do what we do without them.

Of course, the above is over simplified and deliberately provocative.  Hopefully it has got you thinking whether you are a business owner, employee or considering the leap into small business.

Do we still need to help employers and small business owners more? The short answer is Yes.  However, I don’t think we need more complexity in our system, so I am not necessarily advocating a Long Service Leave for small business owners or more rules and regulations for them to follow. 

There is a lot of debate and talk from politicians at the moment on how we need to have an environment where we encourage people to have a go – innovate and start up businesses……  ensuring small business owners are rewarded financially and ensuring regulations are not overwhelming is a pretty good place to start.  There are many possible solutions to this issue and it is a complex one. There is not enough room in this article to discuss it here.  I like to remain positive… hopefully there are key reforms around the corner.