I recently had a conversation with another small business owner talking about his time + energy + overhead + personal guarantee-to-profit ratio. He owns two businesses: one as a 20% owner and the other as a 50% owner. We were chatting about the concept of where he gets his greater return for his investment of time, as it is his most precious commodity. (People like to argue with me all the time about the discernment between “Time Management” vs. “Intentional Time Disbursed.”)
It was a great conversation. “Molly, think of it this way,” he bellowed. “20% owner of a $1-mil company vs. 50% of a $200K company.” No brainer, right?
Yes, but also consider that it’s 20% of a $1-mil company that is operating at 75% overhead while requiring 40 frenetic personal hours in the business to generate that revenue vs. 50% owner of a $200K company operating at 21% overhead while requiring 20 intense personal hours in the business to generate that type of revenue.
The revenue-to-results relation is not created equal – UNLESS the level of joy, ease, peace and future growth are equal.
We then excitedly dove into the deep end. It was fascinating banter. What really brought all the ingredients together is the idea that increasing revenue is not the “Mecca.” And not making an investment because it “costs” money and creates risk doesn’t ultimately mean recklessness. It is never black and white, and boils down to good ol’ profit. When you look, really look, and get still and present to your entire professional and personal portfolio, there are many pieces that contribute to the whole. The formula for creating your resources-to-results ratio looks something like this when you want to define your “success” as an entrepreneur and look at what you want to do day in and day out for what you “get”:
1. Time: How many hours of time are you putting in per calendar week? All hours are not made equal.
2. Energy Expelled: What is the energy you are expelling? Does it feel heavy and hard or light and easy during those hours you put in? Is it 10 hours on doing something that is so very forced, or two hours on something you wished you had 12 more hours for because you get so lost in it?
3. Overhead: The amount of overhead it takes to generate a dollar in one area vs. the overhead it takes to generate one in another area/business. Not to mention the employees, distractions and mental energy inbound and outbound.
4. Personal Guarantee: What you’re personally on the hook for vs. your authority and control. The nitty gritty of running a business, what you personal guarantee is for loans, etc. when you are a 20% owner and can easily be overruled vs. 50% owner and have less overhead, layers of “upper management,” marketing budgets, etc.
5. Profit: Year in and year out, what you’re personally bringing home to your family to share in the fruits of your labor. If you’re bringing home even $20,000 in the 20% business, but the above four were chaotic throughout the year, or $1,000 in the 50% business but with steadfast balance.
We have this conversation with folks all the time when it comes to the hiring process. We find a phenomenal candidate for the employer looking to hire someone at $13/hr. We put hours into the vetting process and find them a superstar candidate that will not only still be there five years from now but will have supported 3x their pay in revenue. The first response is, “I can’t pay $15/hr. That is more than I was hoping to pay….”
Just for a moment, walk yourself through the five areas above. When you do the math, it is an extra $320 a month in payroll overhead costs. But what about the time + energy + overhead + personal guarantee-to-profit ratio? Is it about the cost of the additional $320, or the price of the alternative?
If you need support with investing in your next (or first) hire to create a balanced ratio in your personal and professional world, contact us at firstname.lastname@example.org.
By Molly Hall