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Personal Finances 101: Business or Employment?

Early last week, a discussion was provoked within a WhatsApp group when one member of the forum stated that other members should consider quitting employment and start business in order to be financially secure. Reactions ranged from outright support to outright hostility with a few moderate cases also voicing their views. These reactions made me sit back and reflect on the old age question about whether entrepreneurship offers better financial security than employment or not. During my reflection, I read a number of the posts and picked a few points I considered valid and worth consideration. I do not entirely agree with all of them but each has a valid opinion and going by the saying that even a broken clock is correct at least twice in a day, I choose to leave decisions on the validity of each viewpoint to the readers.

The obvious starting point would be the assertion that entrepreneurship offers better financial security than employment. Proponents of this theory opined that employees are always at the mercy of their employer and are paid a “bribe” in the form of a salary in order to forget their dreams and build the employer’s dream. They also argued that employment can be terminated at the behest of an employer. They ridiculed employees for the “stupid” performance targets they agree to in order to remain in a job, lack of freedom, fear of the unknown that holds people to jobs where they are unhappy and the perceived reluctance to pursue their dreams.

Proponents of employment validly argued that even businesses can collapse. In addition, they argued that one can be employed and still run a successful business at the same time. They went as far as asserting that they are already running their own businesses while still in employment. They also argued that what matters is what one does with income – invest or consume. They therefore asserted that employment provides same level of financial security as entrepreneurship, if not better. Some stated that peoples’ life ambitions differ and that they should be left alone to pursue their passions since they perform well in a corporate setup.

The moderates asserted that one’s investments which offer passive income is what offers financial security regardless of where the income to invest is derived from – employment or entrepreneurship. They also reminded the entrepreneurs that every business needs employees and that every community will have each category at every moment in time. One went as far as warning entrepreneurs that they may not as secure as they believe especially if their business cannot operate in their absence.

My overall evaluation of the discussion is that each viewpoint is valid to some degree.  I will therefore just point a few strengths and weaknesses of each viewpoint through a personal and two other peoples’ experiences.

Many entrepreneurs are in what Robert Kiyosaki calls self-employment i.e. you are an employee to yourself. Though no one can terminate their employment, an accident, sickness or incapacitation can wipe out their income. They are therefore one accident or disease away from poverty. I recently met a gentleman who used to run a successful electronics shop along Nairobi’s Luthuli Avenue up to 2016. He would personally open and close the shop, bank sales proceeds, pay suppliers, make deliveries, reconcile stock and process staff salaries. Not even his wife or grown up child could deputize. A road accident where he was adjudged as the one on the wrong landed him in hospital for 2 months and on clutches for 6 months thus limiting his ability to run the business. In addition, he had to utilize the business working capital to pay hospital bills since he did not have medical insurance. He eventually closed the business, was left in debt and is currently hawking watches and belts.

During a visit to Mombasa on a work assignment, I met a waitress in a restaurant who was too familiar for me to ignore and leave without establishing where we had met before. The lady, in her mid-thirties was once a high flying banker who rose to the position of Relationship Manager at the age of 29 – I worked with her for 2 years. However, she introduced a customer to the bank who later turned out to be a fraudster. She lost her job and had to start all over again. When we later caught up on phone, she narrated to me her ordeals after leaving the bank and how it is difficult to find another job – in banking, her passion – since she cannot get a good recommendation from her former employer. I was disturbed since she is well educated and can get a job in any other sector or start a business in a service industry which requires little or no capital.

The above shows that neither employment nor entrepreneurship offers financial security by itself. For entrepreneurs, until the business has systems and can operate in your absence, you are still an employee in a company where you are the CEO – an CEOs get fired. Once you built systems and the business becomes a source of passive income, you can either take a day job(s) from other businesses or go ahead to start other businesses. At that point, the business becomes and investment. Alternatively, you can convert your business to a day job and invest the income in passive real and paper assets that generate income – not idle land. In any event, it is imperative that a business is insured against perils such as fire, floods, theft and burglary etc. in order to enhance financial security of the owners and employees.

Some employees are blinded by their success in corporations and forget that the risk of losing a job is real. They therefore close their minds to all possibilities e.g. how they can use their talent – music, writing, speaking etc. to generate additional income and/or have a safety net in case of job loss.  Some even become emotionally attached to employers and have even bought into the theory of employee engagement. They also live for the day and do not invest in paper or real assets in order to generate passive income. Once they lose their job, they are emotionally devastated and have no idea where to start.

Personally, I have been in employment – 14 years – and in business – 7 years. I have learnt that financial freedom is a journey that begins once you make choices. However, every choice you make has positive and negative consequences. While I do not consider myself financially secure for now, I have already charted my path and am already exploiting the opportunities within my chosen path while still mitigating the threats.

Weru Mwangi is the Lead Consultant at Ultimate Management Solutions, a firm specializing in Finance, Governance and Leadership Development.  He can be contacted on weru@theultimategroup.co.ke

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