Have you ever looked at how much you earn per hour as opposed to how much your employer charges customers for your services and considered working for yourself?
The thought of doubling, tripling or quadrupling your hourly rate might seem like a seductively easy way to make your fortune, but will you really be earning that much for every hour your work? Let’s consider some of the other costs and time-consuming aspects of owning a business.
Administration. You probably already have to do paperwork associated with your role, but as an employee, you get paid to do that. As a business owner of a service-based business, any hours spent on tasks not directly related to a client’s job are classified as non-chargeable time. As result, you need to consider the ratio of chargeable to non-chargeable hours on any given job. Things like invoicing and bookkeeping, advertising, travel times and in many cases free quotes – which also require travel time and often don’t result in any work – will all consume valuable work time without directly providing you with income.
Shopping. Like administration tasks, purchasing supplies for your business will take time, cost money, and not be chargeable to your customers.
Marketing. It would be nice if every new business had an instant and steady stream of good customers, but with a very few exceptions, start-up businesses will have to work hard to build their customer base. While providing a good service will result in word-of-mouth and repeat business, you may find yourself spending a lot of time (and money if you don’t have the skills to do it yourself) on marketing the business. You will also find that dealing with enquiries and complaints will take time out of your day.
Staff Management. If you decide to employ any staff, you will need to allocate additional time to manage them. Things such as initial training as well as paperwork associated with payroll (such as PAYG withholding tax, employer guaranteed superannuation, banking and insurance). Depending on the type of business, you may also need to organise staff rosters, which can be especially time-consuming if you have long or unusual hours and a lot of staff
Getting Paid. In the same way that instant customers would be wonderful, customers that pay on time (preferably as soon as they do business with you) would be the ideal for any business. Unfortunately, for most service-based business, the reality isn’t quite so ideal. Services generally charge at the conclusion of their work rather than at the beginning, so there is the potential that customers will delay – or even dispute and refuse – making payment. This will cost your business indirectly (chasing outstanding payments) and directly (bad debts).
The purpose of this article isn’t to scare you off the idea of owning a business, but it is hoped that it gives you some idea of the many aspects of business ownership that are essentially unpaid hours.
By Jennifer Lowe
The post How Much Are You Really Earning Per Hour? appeared first on Total Tax.