T.G.Dyar-Sweat Equity

T. GERALD DYAR

SFP ASSOCIATES

Business & Financial Consultant

IS YOUR SWEAT REALLY EQUITY?

Ask any owner of his own business how many hours a week he or she works and I guarantee you won't get forty hours as the answer. Sixty to seventy hours a week is more typical, and their families will claim even more if you ask them. Of course, as the owner you automatically assume this extra time becomes part of your investment in the business. But does it?

In my practice as a Business & Financial Consultant I have had far too many small-business-owner clients who have not allocated their time properly over the years to ensure that they will be getting an equitable return on the extra personal sweat they invest in their businesses. What I want to address in this brief article is how you, as a small business owner, can be sure you actually get paid for all the extra time you put in.

Very simplistically there are five ways you can take money from your business; compensation, benefits, leases, profits and the eventual sale of all or part of your owner's equity. The realities of tax planning actually control what mix of these to use in each case and facilitating that decision making process is a key part of the services professionals such as I provide.

The problem is that in order to take any money from a business it has to be there in the first place. You, as the owner, are the only person who can make that happen, and to achieve that goal you have to start thinking in a whole new light about all that extra time you put into the business.

First you need to separate in your mind the part of you that's replaceable and the part that's not. If you were incapacitated for a length of time, what do you do that you or your family would have to hire someone else to do almost as well? How much would that person have to be paid? How long would it take to learn your job? How many hours per week would he or she have to work?

Now for moment of truth, try this little mental exercise. First, subtract the number of hours your replacement would have to work from the total hours you actually put in. Second, subtract what you'd have to pay your replacement from what you actually take home. Third, divide the remaining hours into the remaining dollars to see what you make per hour for each hour of personal overtime you put in. Shocking isn't it?

That's the bad news. The good news is that having clearly defined a problem we can do something about it. For example start looking at your personal overtime this way:

Be honest with yourself, isn't some of what you do relatively unskilled and still being done by you out of habit. Start by delegating this part of your job so you'll have more time for other more productive activities that only you, as the creative driving force behind your business, can really accomplish.
In the future resolve to never spend personal overtime doing relatively unskilled repetitive work unless your objective is to find a better way to do it or to temporarily handle increasing volume that will soon justify permanent delegation.
Accept the fact that, as a general rule, it's OK to do some of the essential part of your work during overtime if you utilize the regular business hours that makes available to teach others how to do their job better, or to take on new responsibilities.
Most important of all try to concentrate on using overtime to find and develop new markets, find or create new products, improve sales literature, better understand competition, learn new skills, etc, etc.
Finally don't despair if harsh reality gets in the way of these goals. When employee illness, production delays, sudden customer demands or any of the other unexpected problems of the real world eat into your precious time recognize them as temporary and move quickly to get them out of the way and take steps so they won't happen again.

The common denominator of all of this effort is that it has the potential to improve your business cash flow, net profit and/or balance sheet, all of which in turn improves your personal hourly overtime rate. And, most important, when this happens there will be real money available for your pocket now and/or in the future.

In fact this should be the acid test you apply to all of your personal overtime. Will the extra effort you put in now end up in your pocket sooner or later as real dollars? If it won't add to the bottom line of your Balance Sheet where you can access it you should think carefully about why you're putting in that extra time.

This is just one of the many issues I help my clients with.

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