Is Your Business Short of Time & Money?
You want to grow your business, but there are never enough hours in the day to look after your existing business – let alone time to try to grow the business!
Are you short of money in your business – the debtors just don’t pay on time, and the suppliers insist on getting their payments promptly? Meanwhile, items such as rental and wages must be paid, and you are often being called upon to invest even more money into your business?
Welcome to the club – you are probably among the 95% of SME business owners and managers who are in the same predicament – short on time and money – or what is commonly known as a shortage of business resources.
A major effect of being short of business resources, is that the owners and managers are forced to spend a disproportionate amount of their time “plugging the gaps”, instead of getting on with achieving the main goals of the business (working in the business, instead of on the business).
So what can you do to improve the situation?
First calculate exactly how many hours you have available to work in your business.
We all have a maximum of only 24 hours in a day, and even allowing for some minimal sleep of say 7 hours, that only leaves you 17 hours. Assuming that you need to (or want to) spend some of this time on normal life activities such as eating, washing, dressing, going out with your partner, taking the kids to footy etc, one is normally left with only about say 10 hours a day. (If you are lucky!). This may be fine when you are young in years and physically strong, but as people get older, they generally don’t have the strength or the interest to keep working at that pace, and they end up working the “normal” 8 hour day.
Ration your personal and business time
You need to ration out your business time in the most efficient manner, in order to try to ensure that you are getting the best use of your time, and managing to complete the most important tasks that you have determined are necessary to build the business.
Determine what the most important jobs are.
You need to determine what are the tasks are that need your time that will achieve the fastest benefits to the business growing or surviving. By drawing up a simple Business Plan, you can determine what the goals of the business are, and also the jobs that need to be done in order to achieve these goals.
Sounds easy – so what is the problem?
The problem is generally, we all tend to prefer to do the jobs that we enjoy, rather than the jobs that need to be done.
Why do we shy away from doing the tough jobs, in favour of the “soft” jobs?
Probably it is more convenient (and safe) to sit at one’s desk and work the computer, rather than say going out and knocking on some doors to scout for some new fresh customers! None of us enjoy possible rejection, and it’s easier to not put yourself a stressful situation, by staying in the office.
Right person for the right job
If, say making cold calls on a possible customer is not in your comfort zone, you need to determine exactly what you are able (and willing) to do, and then work out who is the correct person to undertake the important jobs.
Are you building your business, or are you “just” a bookkeeper?
If you have little training in bookkeeping, and don’t really like the job, why do you do it? Even more, is that many small business owners attend to this task either during working hours (when you could be meeting customers), or at home in the evening when you could be planning you future activities, or even just enjoying some time with your family.
Subcontract out the less important tasks
Yes, we know that keeping financial records is an important task, but if you don’t like bookkeeping and you are probably no very efficient at it, why not employ a service that will do this for you? Yes, we know, that services like that costs money (perhaps $50 per hour), but what if you used that time on more productive issues that could bring in a benefit greater than $50 per hour? In other words consider the “Opportunity Cost” of a task.
What is “Opportunity Cost”?
Simply put, the opportunity cost is the value of “the next best thing”. As noted above, if you can regularly meet with a customer that would over time bring in additional sales into your business (say $5000), then why would you rather stay in your office and do the bookkeeping, that we have established only has a value to you of $50 per hour? The opportunity cost is the difference between the two different costs.
Do the calculation each time
Just imagine, if every time you needed to take an important decision in your business concerning the allocation of you (or your staffs) time, or spending some of your money, you just did a quick Cost:Benefit analysis. You could quickly establish the benefits to the business, and what was the best course of action.
Another example; should I make the delivery of the product in my own car to Geelong, or should be give it to a courier to do? The answer might be: While you might enjoy the quiet time in the car during the 3 hour return journey, during that time you could be designing a new brochure; contacting that customer (again!) or possibly just doing something that will add real value to your business. Assume that the cost of the delivery by the Courier is possibly $50; any added value over and above $50 that you can bring to the business is a win, which is far better value than you doing the delivery!
What is the value of your own time?
If you were working for a boss and earning say $25 per hour, you would easily understand what the value of your efforts are - the problem is when we are in our own businesses, we don’t bother to put a value to our time.
If, in your own business, you are working an average of say 55 hours per week, and that you are drawing yourself a wage of say $1000 per week, it is easy to calculate your actual hourly wage at about $18 per hour. ($1000/55 hours)
What is the REAL value of your own time?
If you were working for a boss, it would be highly unlikely that you would be working a total of 55 hours a week for only $18 per hour! Assuming that for your $1000 per week you were working a “normal” week of 38 hours, you actual hourly rate would be about $26 per hour.
It is thus easy to see that if you had been working for a boss you would have earned $26 an hour, whereas the effective hourly rate that you are earning in your own business is only $18 per hour. In other words, the opportunity cost of working in your own business is $8 per hour!
What is it costing you to be your own boss?
A difference of $8 per hour does not sound like much, however if you multiply that opportunity cost, by the number of hours that you are actually working (55), multiplied by say 52 weeks, this means that it is costing you $23000 per year just to be your own boss! In other words, you are forgoing $23,000 annually, which is your personal opportunity cost of being in your own business.
What does this all mean?
It does not mean that you should necessarily get out of your business just because you might be earning $23,000 less a year. Sometimes that may even be a cheap price just to be your own boss, and possibly you might be content to earn less for some time, while you build your own dream business.
What is important however, is the need for business owners and Managers to do the calculation beforehand, of the real value of their own time, so that so that they can then determine how to achieve the best return for the use of their time in helping to build the business.
How can we help you?
At Client Edge, our Directors have spent many years in assisting business owners and managers to achieve their business plans. Just because you are in business, does not mean that you have the experience to use the best and most efficient methods in order to maximise your time, increase your profitability.
If you want to talk about how you can increase your personal productivity and your business profitability give the team at ClientEdge a call today.