For most people, the appeal of self-employment can consist of a number of factors but the top two answers are probably a desire for greater income and more freedom.
Often getting into self-employment can be an emotional decision made through rose-colored glasses. It has to be said, however, that few people who become self-employed ever have a desire to go back to working for someone else – the pluses do outweigh the minuses.
Sadly, many businesses don’t receive sufficient return for all the hours of effort and the dollars of working capital that are invested in them. To exemplify, here is a quick exercise using a hypothetical store.
Jane earned $80,000 from her store this year, including a salary of $50,000 and a profit of $30,000. She paid $220,000 for the business two years ago and believes it to be worth the same today. She works 50 hours per week (approx 2500 hours per year).
Based on a 25 percent return on investment on her $220,000 purchase price, Jane would expect an annual return of $55,000 from owning the business. This figure represents the 25 percent she deserves for the risk she is taking, compared with the return on risk-free investments.
If Jane deducts the $55,000 that she should earn on her investment from her total income ($80,000) she is left with a figure of $25,000. This is Jane’s “pay” or the reward she gets for the effort she has put into the business. If she divides this by the hours she works per year which is 2500, then she is effectively earning $10 per hour to manage the store. Sounds a bit low, huh?
Could Jane find someone who would manage her store for $25,000 per annum? Not likely! Yet many owners ask this of themselves every year. Jane is not earning nearly enough for her labor and her initial investment and all she has succeeded in doing is buying herself a job.
It’s depressing, isn’t it? How can Jane turn that job into a business that works for her? The biggest difference between a successful store owner and an unsuccessful one is the ability of the owner to concentrate on the important rather than the urgent. This means doing the tasks that will move the business forward, the types of tasks that will earn $100 or more an hour indirectly – such as marketing plans and pricing revision – and not fiddling with urgent but less important tasks that can easily be completed by a staff member, such as fitting watch batteries.
In order to do this an owner needs to plan and be constantly asking themselves the question, “Is this the best use of my time?”
Here are a few simple steps to consider when starting to plan:
Step 1 - Preferably on Sunday night (Monday morning will do), review all goals and priorities for the week ahead. At times like this, it’s not all about reducing costs; it’s about setting goals to increase profit margins, clear aged inventory, increase sales, improve team communication, re-order fast sellers and so on.
Step 2 - Prioritize. Choose one or two tasks that can make the greatest amount of difference in the shortest amount of time. Write them down.
Step 3 - Plan when to take action on these tasks. Ideally break tasks down into 1-hour blocks. Everyone can find an hour to concentrate on a key task, but most struggle to find three hours out of a busy day. Also choose a time of day with the fewest interruptions. Early in the morning is best.
Step 4 - Plan where to take action. Choose somewhere private with no distractions and with all of the things required to complete the task. Sometimes doing important tasks at home first thing each day is more effective than trying to do them at the store.
Step 5 - Schedule or delegate the task. Wherever possible, give things to someone else to free up time to move to the next item of business. Remember, delegation is not abdication.
Step 6 - Use discipline and self control to follow through and complete each task. Mark it off and celebrate any successes with a coffee and a five-minute break instead of a chardonnay. Remember, there’s lots to do.
Step 7 - Repeat these steps each week and review them each day.
If your business is causing you frustrations or you need assistance with getting these important tasks completed, contact David Brown. He is President of