Announcements about job cuts may seem relentless at the moment; as the recession starts to bite, the number of people officially out of work is fast approaching the 2 million mark. At its lowest point, the recession of the early 1990s resulted in up to 400,000 people being made redundant every quarter, according to the Chartered Institute of Personnel and Development (CIPD) – and the institute's latest research reveals that one in four employers has plans to make redundancies this year.
Being made redundant is one of the most financially and psychologically hard-hitting events in a person's life, short of having a child or getting a divorce. But rather than it being the end of the world for that individual, business development specialists suggest that losing your job could be the perfect way to kick-start your own enterprise. And, surprisingly, now could be the best time to do it.
It is important to prepare for the possibility of being made redundant. Financial advisers urge us to save between three and six months' worth of our income to fall back on if we find ourselves out of work. Also, consider protecting your income. An income protection policy could be appropriate if you have a mortgage or family. It will pay you a proportion of your salary – until retirement if necessary – in the event of you becoming ill, having an accident or become unemployed. Watch out for payment protection policies calling themselves "income protection", as these will only pay out for a few months or years.
If you are facing redundancy, knowing your rights and maximising the payout you get is vital, according to David Harker, the chief executive of the Citizens Advice Bureau (CAB). An employee made redundant after at least two years with an employer is entitled to a minimum statutory redundancy payment, a week for every full year in service, although this is subject to a maximum.
"If you have a contract, check it," Harker says. "You should be entitled to adequate notice of dismissal or pay in lieu of notice on top of your redundancy. Once you have received your redundancy pay, be careful about what you spend the money on until you have taken advice on how it may affect your benefits and tax position. You may be treated as still having the money even if you have spent it."
If you haven't got another job to go to, you might be entitled to Government or local authority benefits. Depending on your circumstances, these could include Jobseekers' Allowance, Housing Benefit, Council Tax Benefit, free school meals for your children and help with NHS costs. For more about your redundancy rights, visit: www.adviceguide.org.uk/index/whats_new_nov08_redundancy
Some of these details may seem trivial, but you'll need as much cash as you can get hold of in the first month or so of being made redundant. Don't underestimate how long it will take to get going. Even if you get a new job straightaway, you may not be paid for a month or six weeks.
Taking the plunge
"In this economic climate, many people may think it's not the right time to set up a business," says James Grange, an adviser for the free business support service Business Link. "But if you know what you're doing, a good business model will be able to cope with the financial climate whatever that is. You may also find that the products and services you need are cheaper because of the recession."
Alternatively, if you want to go freelance without starting a business, this could also be a good time. Some businesses will downsize as a whole during a recession, but others need people to fill in the gaps left by redundant staff because their budgets have shrunk, but not the demand for output. Employing someone on a freelance basis also costs companies less because they don't need to pay benefits or provide you with office space.
"But take some time over the decision to start out on your own," warns Grange. "Being made redundant is an emotional experience. You need to be sure that going it alone is not a reaction to being made redundant – a protest against the corporate world."
Start with the customer. What is going to make them open their wallets and part with their cash? Be honest about whether it can work. Then build a business plan around it.
Small businesses fail because they run out of cash, not because they're not profitable. Decide how much it will really cost you and over what time period. Work out when you will get orders, when you will fulfil them and when you will get paid. You need to be clear about the funding gap between starting up and getting paid. How will you fund that gap?
"Many people underestimate costs and overestimate their income. That's the wrong way round. Be certain you know what everything is going to cost," he adds. "You might have a great idea, but if you don't have money to pay for things your business will be strangled at birth."
Do your homework
Assuming your business idea is viable, you have to decide how you will deliver your proposition and what your marketplace is. Write it down and you have a basic business plan.
"Producing a business plan is a basic requirement if you need funding for your project and it will immediately flag up where you need guidance and support," says Jeff Lenihan, a commercial finance broker for WorldWide Financial Planning.
"What you do next depends on how complex your plan is. If it's as simple as selling a product on a website then it could be a matter of days to set up the website. If it's more complex, and you need premises, assembly and production plans and delivery to sort out, it will take months. It's vital to do your research and take advice from as many sources as possible. It's a question of talking to people in the know," he adds.
Of the free support services, Business Link ( www.businesslink.gov.uk) is one of the best known. It's a publicly funded facility with a network of local branches, where you can talk through your ideas and work out a plan of action with an adviser.
"Banks now also have a really robust service providing a basic step- by-step guide to start your own business, and they can provide examples of the basic paperwork you'll need like your business plan," Lenihan adds. "Local councils usually have an enterprise arm which promote business prosperity in the region, and are great for local networking as well as basic advice on how to get going."
They will be able to inform you of the grants and funding available, which can be based on criteria such as your age, geographical location and the industry you are setting yourself up in.
"Networks are often the most supportive and in-depth source of information," Lenihan says. "The British Chamber of Commerce ( www.britishchambers.org.uk) and the Federation of Small Businesses ( www.fsb.org.uk) provide cheap start-up packages that include information and software to help you set up business banking, accounting, insurances, IT and other structures that you may need to set up. These organisations can also provide networking opportunities with other members who can become mentors or potential clients."
Another idea is to look for specialist commercial advisers. They will charge you for their time, but may have important experience in the industry you hope to get into.
'I lost my job – then I became a life coach'
Shirley Hartup, 61, from Chorleywood, Hertfordshire, manages www.chorleywoodcoaching.com
"Ten years ago I was made redundant from a company I had hoped to work for until I retired, providing coaching programmes to call centres. It would have given me a great career. I had put so much hope in the company, I thought it was secure and had a lot of trust in its continuation. But the funding dried up.
"I was 50 years old, not the right age to be looking for a job. I went to 20 interviews and was really looking for a permanent role but decided to take the plunge and become self-employed. I was concerned about what the future might hold, especially as I am the main breadwinner. There is a lot to discover when you start your own business and a lot of unknowns.
"But since then, I've had 10 years of constant work helping businesses coach their staff and also working with individuals as a life coach. I was inspired by the coaching process and how powerful that could make people feel. I work with a variety of companies and people and I have met some amazing individuals. It is hugely rewarding and I love doing it."
'I took a big risk but it paid off'
James Fenton, 34, from West Sussex, is the managing director of Fenton IT.
James was made redundant from an IT company just before Christmas 2006 after 11 years with the firm. "I had only relocated for the job a few weeks earlier, to the South Coast from London. I had a baby and another on the way and I didn't know how I was going to take care of them," he says.
"I looked for another permanent job, but I knew I had the skill set and qualifications for the industry so I weighed up the possibility of starting my own business. I started researching and met with Business Link to discuss my very basic business plan. It was a big step and a big risk but an exciting one. I researched and networked a lot and began building up contacts who became clients. I now supply IT support for 19 companies on a contract basis and another 20 on an ad-hoc basis.
"I'm now looking to take on staff. I hope this recession may mean I can find someone who may have also been made redundant with the right skills for the right salary."