Business owners know many many things. Business owners do many many things. Do business owners do too many things? That’s a difficult question. At the startup phase a business owner wears a lot of hats trying to keep a lean and mean business. Now let’s hope that they’re only doing things where they have a sufficient level of knowledge and preferably expertise. Even if this is the case (generally it’s not the case) there are not enough hours in a day, weeks in a month, or months in a year. Leap year is a time to celebrate. It means there’s one extra day to get things done.

But at some point, and generally pretty earlier in the life of the business, the owner can place a dollar value on his/her time. This may come after closing a few sales or signing a few contracts. It may come even before the first dollar is generated because the business plan and resource allocation demand revenue must flow at X level. Who is going to initiate the revenue flow? The owner. So we can calculate what his/her time must be worth to make the business succeed.

There is still more to this story and more to what you probably thought was the valuation formula. Remember my earlier question? “Do business owners do too many things?” This becomes a key factor in the development of our formula. The simplest answer to the question is Yes. Every day tasks and chores need to be done. Fires need to be put out. Do you find yourself deciding what stationary to buy? What security service to contract? Reviewing cellphone packages? Considering social media marketing versus traditional advertising? Paying bills? Fixing the internet problem because you’ve lost connection? Tweaking your website? Basically the list is endless of things that have to be done daily. Did you see anything in that list or your own daily list the generates revenue? No. Will your business be here very long without revenue? No. Are you the key revenue producer? Yes.

If you, the business owner, are the one responsible for generating revenue then the real question is why devote any of your time to non-revenue producing activity. In a perfect world you wouldn’t. But we don’t live and work in a perfect world, we live and work in the real world. In that case we need to develop a method to determine which activities the business owner does himself and which activities he/she delegates.

The first step is to list all of all the non-revenue generating activities you do daily and about how much of your time does each one take. Are there non-revenue generating activities you only do weekly? What about non-revenue generating activities that only happen monthly? Don’t trust your memory on this. I can almost guarantee that you’ll forget several tasks and you will surely under estimate the time you actually spend on the tasks themselves. Instead, simply keep a notepad with you and write down this information as it occurs. If that doesn’t work for you try an electronic memo device. Or, if you’re one of those that relies on technology and your smartphone send yourself a text message with that information. You can download an app that will allow you to speak your text message and send it to yourself by verbal command. Recording this information will only take you one month. You will have captured most of your time useage to be fairly accurate with the next part. How you do it isn’t important. Doing it is important. This information gives you what you need to determine your value per hour. With this you can now make an informed decision about whether to do something yourself, hire someone internally, or outsource the task. Look at it this way; If you’re selling something you need to know what it cost you first before you can price it for sale, right? It’s the same with your time. Outsourcing a task or hiring an employee only makes sense if doing so allows you to redirect your time to generate greater revenues.

With your list complete we can begin building the formula to determine your value per hour. So here are the steps (before you say anything, I’m aware you most likely don’t work only 8 hours in a day or 5 days in a week. you most likely don’t take a 2 week vacation each year. but we have to use some standards so I’ve pulled those standards most of us are familiar with into the calculations)

a) in an 8 hour day how many hours are actually spent on revenue generating activity?
b) multiply revenue generating hours per day by 5 days to get weekly hours
c) multiple revenue generating hours per week by 50 to get “annual gross revenue hours”
d) from the “annual gross revenue hours subtract the total of those hours you recorded in your list that occur periodically but not daily (i.e weekly, biweekly, monthly)
e) you now have your “annual net revenue hours”
f) divide the amount of your annual gross income (before expenses and taxes) by the annual net revenue hours

You now have your revenue value of your time per hour. This is your benchmark to determine if it makes sense to pay someone to do a task for you. This works for any such decision you need to make. But since I began this article with “Can you afford to hire an accountant?” let’s use that as our example.

(ax5x50)-d = annual net revenue hours
annual gross income/annual net revenue hours = revenue value per hour

For Instance:
4hrs x 5 days x 50 work weeks = 1,000
1,000 - 25 (total of all periodic non-revenue generating hours) = 975 (annual net revenue hours)
$50,000 (annual gross income) / 975 = $51.28 (revenue value per hour)

If you spend 6 hours per month serving as your own accountant; then if you can outsource that activity for less than $307.68 it is worth the investment.
(6 hrs x $51.28 = $307.68)

Author's Bio: 

Gary is the president of Success Corporation LTD. He is very passionate about helping people and businesses succeed. He has been a student of business for 30 years and an entrepreneur for 10. He has worked with large corporations, small businesses and non-profits to lower costs and increase revenues. Gary has helped several companies increase profits by 10% or more every year and assisted others in decreasing costs by $500,000.

Gary has experience working with a variety of businesses including telecommunications, financial, retail, hospitality, manufacturing, transportation and construction. He has a BA degree from Franklin College and has won national and state awards for communication, public relations, marketing and community service. His customer service training program has received national recognition.