The self employed – winners or losers?

OPINION: Those who make the most money in this world are the self employed, whether they are entrepreneurs or industrialists.

And those who lose the most money in this world are the self employed!

So how can you tell the difference between the winners and the losers?

Often it's indiscernible, especially in the good times. If you can't make money in the good times, then you never will.

When the bad times come, only the good businesses survive or flourish.

Only a fool learns from his own mistakes, whereas a wise man learns from the mistakes of others.

In business, it's a wise person who realises that they are not a natural business person.

They will also realise that they will make the most from working for someone else. Of course, there is no shame in that. In fact they should be very satisfied.

They have worked out that to maximise their income earning abilities, they have done so by having someone else take the risks, put up the capital and secure the borrowings.

This is, of course, a good business decision for them.  That is, they maximise their own abilities through being an employee.

They can use the certainty of a positive cashflow each week to take a different sort of risk. E.g. to invest in a super fund, or borrow to buy a rental property, or to save for a rainy day.

The most frustrating thing for a business adviser is to watch someone bash their head against a wall year after year and throw good money after bad; post continued losses, expose their family home, and too afraid to stop.

It takes a lot of guts to tell those people to stop and for them to admit they have made a mistake and be clever enough to walk away.

They get stuck in a hole and keep on digging in the vain hope they can dig their way out.

A successful self employed business person is well capitalised, invests in human and technological capital; looks after their customers, watches out for their opposition, is aware of their weaknesses, and takes advantage of their opportunities.

They are the backbone of business in New Zealand; they take calculated risks, earn money for the country and create jobs for those who choose to work for them.

Kenny Rogers said "you got to know when to hold em, know when to fold em, know when to walk away...".

A clever business person knows when to gamble and when not to.

Adam Davy is the Managing Partner of the Wellington office of BDO.