Think like an Entrepreneur

I was waiting at the doctor’s office one day when the receptionist asked a waiting room full of people “Does anyone speak Spanish?” The lady sitting beside me happily jumps up to help out. I jokingly tell her to ask for an application, she giggles and says $20 per hour, and said she will get rich! If you do the math on $20 per hour, 40 hours per week, 52 weeks per year (no vacation, you are rolling in the money!), you have a gross income of $41,600. That is where many folks stop and say wow, much better than my minimum wage job!

While that may sound like a very good wage to someone who is used to working for others, it won’t support a business for very long. When you have been trading dollars for time all your life, there are many things that slip by you because you have never had to think about them.

For starters, as a self-employed person, you have to cover both the employer and employee shares of Social Security, unemployment insurance, workers compensation, and insurance just for starters. These can easily take 25% or more of your hourly rate to cover your costs. Throw in a computer, continuing education, cell phone, transportation, and a small office and you are racking up all kinds of costs. Now here is the real kicker. Rarely do you get 40 billable hours per week. As a fledgling entrepreneur, you have to spend time tracking your time, marketing your business, making sales calls, billing your new customers and everything else you have to do when you are your own boss. So here is the real math on that $20 per hour job.

 

Dollars per hour  

$           20.00

Hours per week

x

                 30

Weeks per year (you might get sick)

x

                 50

Gross income

=

$         30,000

25% taxes and Insurance

$           7,500

Net Income

=

$         22,500

     
Dollars per hour at 40 hours per week, 52 weeks per year  

$           10.82

     
Percent Difference  

           54%

When you look at the percent difference, you will see that your original numbers were off by almost 50%. By taking a bit of time to run through some numbers, you can avoid making some big mistakes! You can use this same framework when pricing out your services to customers, looking for all of the hidden costs you are facing. A very handy thought process to keep your new business alive.

Leave a Reply