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This week, a thought experiment for you: have you ever actually calculated how much your time is worth? This is an eye-opening exercise…it can help you in guiding almost every kind of decision you make as a business owner.
Know the Value of Your Time: An Entrepreneur’s Guide
“The beginning is always today.” – Mary Wollstonecraft Shelley
Entrepreneurship is the conversion of your knowledge, talents, guts, and time into money.
Time is valuable, although the value of time differs from person to person. When most people place value on their time, they do so based on an eight-hour workday, which is not all that correct. It’s hard to get eight productive hours out of each day.
One study involving Fortune 500 CEOs revealed that they achieved 28 productive minutes a day.
If you are your own boss, you decide how much you are going to get paid because you write your own paycheck. Most of the time that salary is determined by whatever is left over at the end of the month. This is a mistake because:
1) It indicates zero planning.
2) You pay yourself last; a common reason why most entrepreneurs end up going broke.
To plan against business failure and going broke, you need to decide how much money you’re going to take out each year to cover your salary, perks, contributions, retirement plans, etc. I would bet that eighty percent of entrepreneurs can’t come up with this number.
To do this, you need to have a base earnings target, otherwise you can’t calculate what your time is worth and will not be able to make good decisions about how you invest that time. As a result, you have no control over your business or life.
Calculate Your Base Earnings Target
Coming up with a number will dramatically affect the decisions you make, habits you cultivate, and people you associate with. Here’s how…
* Divide your annual earnings target by the number of standard workday hours in the year
* Take “unproductivity” into account by creating a “productivity multiple” (i.e. you are truly productive for 50% of your work hours, or some such number)
A closer look:
Base Annual Earnings Target [TARGET]
Divide target by the standard Work Hours in a year (244 days x 8 = 1,952 in a year) [HOURS]
= Base hourly number $ [BASE HOURLY]
x Productivity vs. Non-Productivity multiple [PRODUCTIVITY FACTOR]
= What Your Time Must Be Worth Per Hour $_______________
(TARGET/HOURS) X PRODUCTIVITY = WORTH
It’s important that you surround yourself with people who understand and respect the value of your time, once you do. If you don’t eliminate from your business life the people who don’t respect the value of your time, then you and your business will pay the price. You also need to delegate to other people those less-valuable tasks that tend to take away from your valuable time.
Feel very free to forward this article to a business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners. And we always make room for referrals from trusted sources like you.
Dickmann Tax Group