There are two main resources that a business can expend. One is money the other is time. You may be lucky enough to have people volunteering for your business but unless this is the case, the time we are referring to is your time. For many of the businesses I work with, the time resource is actually much more significant than the money resource.
I say it is more significant than the money resource for three reasons. Firstly in most businesses this size, it is the main route to investment in the business. If you think about it, most times you want to invest in the business and develop it, whether it is updating your website or making a strategic partnership, the first resouce you will use is your time. Businesses constantly need investment or they will dwindle and fail. Secondly for most businesses it is larger than other resources expended. Let us say you put a nominal value on your time of £20/hr. Let us say you work a 35 hour week 48 weeks of the year (most small business owners work much longer hours), the expenses is £33,600 – usually larger than any other single item in the list of your list of expenses. Lastly it is more significant because it is finite. You cannot buy more of your own time, everyone has 24 hours in the day and that is it.
The trouble comes because we rarely consider it when we plan or when we analyse our business. I am seeing many sets of accounts showing a profit which would show a large loss if we included the business owner time as a resource. In effect the business owner is subsidising its customers. To be brutal about this situation, this is then not a business but charity, patronage or simply a hobby.
On the planning side it is equally important. I have direct experience of this running a community arts charity for many years. We had many good financial practices, annual budget, cash-flow forecasts, management accounts and so on. However we crucially did not plan time as a resource until it was much too late.
What happened was that the budget balanced when we had around 70 projects running in the year. What we did not realise was that when we had 70 projects running we did not have enough time to do everything that was needed in the business. Working long hours and weekends we could service those projects. We could just about keep up with admin, but crucially we could not do any marketing or development work. We had to be working flat out to keep our heads above water. What this meant was that marketing and fundraising ended up happening as a reaction to a crisis of not having enough work on. When times got tough, the operation as a system started to fall apart.
A business is like a machine with different parts requiring their own resource – admin, marketing, production, facilities, decision making etc etc. If one part of the machine is starved of resource the machine has a tendency to break down. It is much like a car. Clearly it needs petrol to run, but it needs more than that. You need to top up the brake fluid from time to time, replace parts, keep the radiator topped up. It may not be a significant resource, but unless you provide it, the car breaks down.
One of the places this has shown up in the last month is the way that people scramble to get their bookkeeping and accounts done in January. In a business where time was planned as a resource, this administrative task would be something done for an hour or two each week. At the year end in March most of the work would be done and it would be a relatively simple job to get everything together to complete the accounts.
Whilst admin and bookkeeping are rarely as important to a business as strategic decisions and marketing the rule still applies that if they are starved of resource, the whole machine can stop working. In the case of bookkeeping, this typically happens when HMRC comes to call and slaps on a fine.
The irony of this for small business owners is that most are not in it for the money (See recent research). They want the money to keep going but more often they are in it for quality of life and freedom. It is ironic because by not bringing a business perspective, they can find themselves working harder than ever and trapped in a dynamic which demands they give their time without question.
The good news is that if you set up the machine of a business to accommodate your time, it really can deliver freedom and quality of life. The place to start is to look at it like a system – one that you design and control. If you are really interested to turn your business into this kind of system I highly recommend reading E-Myth by Michael Gerber, and coming to the Crunchers seminar series.