A Sensible Formula For Calculating Your Value, From Your Somerset Area Business Accounting Expert

A Sensible Formula For Calculating Your Value, From Your Somerset Area Business Accounting Expert

September 24, 2012

Have you ever actually calculated how much your time is worth? Well, leave it to a qualified Somerset Area-area small business accountant like yours truly, to provide you with a handy formula for doing just that! This is an eye-opening exercise…it can help you in guiding almost every kind of decision you make as a business owner.

A Sensible Formula For Calculating Your Value, From Your Somerset Area Business Accounting Expert
Entrepreneurship is the conversion of your knowledge, talents, guts, and time into money.

Time is valuable, although the value 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 CEO’s 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.

Planning

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 the people who don’t respect the value of your time from your business life, then you and your business will pay the price.  You also need to delegate tasks to other people that tend to take away from your valuable time.