One fascinating, lucrative, and powerful aspect of owning a business is the multiplier effect. As a regular wage earner, a dollar spent is a dollar spent. But when you spend a dollar on your business, your comes back multiplied. When you put yourself in the position of being a business owner, spending money takes on a whole new meaning.
Let’s say you made the mistake of hiring an employee who ruffles feathers around the office. In other words, his coworkers find him to be unlikeable for one reason or another. As a consequence, employees lose a few minutes here and there due to his demoralizing personality. That’s not too bad, is it?
If you tally up 20 minutes of work lost per employee per day, multiplied by 10 employees working 48 hours a week, you’ve lost 1000 minutes per week or 48,000 minutes per year. That’s 800 hours, or about 20 weeks of work. That comes out to a 26K loss due to your poor hiring decision.
This post should be sponsored by a recruiting agency, because even if you paid $5000 in referral fees to the trusted recruiter you still could have saved money.
This does mean that you have to be financially prudent when it comes to your personal expenses. If I wanted to, I could have bought a $200K McLaren shortly after I started my business. But that car wasn’t $200K anymore. It would have actually cost two million dollars, because that’s how much that amount would generate in revenue for my business. If the car is really $2M, is it still worth it?
That is why it is a tremendous mistake to immediately upgrade your lifestyle when your business begins to generate a good amount of sales. You would be seriously sacrificing the growth rate of your business. It may mean your business grows three, three, or four times slower. It can be tempting to reward yourself but I believe you already gain great satisfaction from seeing your business flourish. Plus, even the most indulgent among us would be forced to think twice when presented with hard numbers.
Fortunately, in reverse the numbers work in your favor, which is what makes entrepreneurship so enriching. You may feel the pain of spending $20K for inventory today, but are rewarded in the future when it helps you generate $100K in revenue. That’s the beauty of a business expense. You’re spending money but earning money.
Don’t treat expenses at face value. Instead, know how much that money could generate in revenue and you’ll see your business grow faster than before.
