This question is an excellent one. It is from someone that doesn’t want to build a big business because they don’t want to have a bunch of employees and they don’t want to do all the work that it takes to build that type of company. I do tend to talk about that because that has been the path that I followed in everything I’ve been involved in. I tend to look at things from the standpoint of creating wealth.
However, there is an alternative viewpoint to this that is perfectly acceptable and perfectly fine. I think you have to figure out what it is that you want for yourself and your life. What is the thing that makes you happy? Once you figure out what that is, you back into it and you figure out how you can get it. For me, I want bigger businesses. I don’t want huge businesses. I don’t care about having a hundred million dollar company or even having a hundred million dollars in wealth. I couldn’t care less. But, I do want a level of wealth and a level of comfort. For me to get that, I have to build businesses of a certain size. Plus, I just enjoy it. I don’t know what else I would do that I would enjoy more. But, if that’s not your personality, then who cares? Ignore everybody else. Don’t let what you hear other people saying and doing or what I say in anyway influence you. You need to do what aligns with what you want.
Let’s say that you don’t want to have a bunch of employees and you don’t want to build a big business. That’s fantastic. In fact, you are ahead of the game if you know what you want from the beginning when you craft your business. For example, if I know that all I want to do is build a business that could make me $70,000 a year, then that completely changes the way I play the game. It completely changes the way I go about building my company, the risks I take, the investments that I make, and maybe even the speed at which I feel like I have to accomplish that.
Let’s say that I want to make $70,000 a year working completely by myself. I can back into some of these numbers. Let’s put some numbers on the screen.
I want to make $70,000 a year. Let’s say I’m going to bill out my time at $40 per man hour. Some simple math would say that if I want to make $70,000 a year and I divide that out by $40 per man hour, I need to work 1,750 billable hours a year. Now that’s not quite accurate. I’ll explain in a moment. A typical 40-hour work week would constitute, with about 2 weeks of vacation per year, about 2,000 work hours a year. The problem here is that you’ve got to work 1,750 hours of billable time. But, there is other time that goes into this business. You’ve got to get equipment, you’ve got to buy supplies, you’ve got to send out invoices, you’ve got to talk to clients on the phone, you’ve got to answer questions. You’ve got all of these other activities that happen in the business. So you can’t just work 1,750 hours a year and make $70,000. You are going to have to probably work another 10 hours a week. Plus, in the beginning, you’ve got to build up enough business which means you have to sell and do estimates to get to this point. Once you get there, you’ve got to maintain it because of natural client attrition. On top of that, you’ve got expenses, you’ve got lawn mowers, you’ve got other types of equipment, you’ve got your truck. All of these things will eventually wear out. You’ve got supplies, you’ve got gas, you’ve got maybe a storage shed. In other words, to achieve something like $70,000 a year, if that’s your goal, I guess you would probably need to work (I’m totally guessing here) maybe 3,000 hours a year.
Let’s do the math on that, 3,000 divided by 45 weeks a year, because this a seasonal industry, you’ve got to work 66 hours a week. So now you look at this number and say okay, wait a second. My goal of $70,000 a year, and not having any employees, doesn’t completely work. So which is more important, no employees, or $70,000 a year? You have to figure out which one is going to give. Could you be happy with $50,000 a year? Is that a realistic number? By the way, if you are 20 years old or pretty young, numbers like $50,000 a year look way better to you.
I remember when I moved out of my parents house when I was 18 or 19. I remember telling one of my friends that if we could just make $90,000 a year, we could do everything we want to do. That would be plenty. How could we ever need more than $90,000 a year? I’ll tell you, $90,000 a year is not that much money. I know it sounds like a lot of money, but if you want to live a pretty interesting life style and you are married and you don’t want your spouse to work, and you have kids, and you want a few things in life, and you want to have vacations and experiences, $90,000 doesn’t go very far. I took that side step to say, if you are pretty young and you are listening to this, and you haven’t yet gone through buying a house, having kids, and all these other things, these numbers might look great. That will be enough. Let me tell you, it’s not enough. You really need to make more than that if you are going to be the sole provider.
There’s a study that says, basically, you need to make about $75,000 a year as a family income to satisfy your basic needs and to keep money from being the center issue of your household. I could totally see that. $75,000 a year, to me, is totally an income where you are still being very careful. You have to budget and you have to say can we take this vacation this coming December, can we save for it? $75,000 a year doesn’t go very far. So, consider this as you are making your decision about which way you want to go in this. What is more important, zero employees or the certain specific number?
Go back and watch some of my other videos if you feel that the number is the priority. For example, if you decide that you really need to have $80,000 a year. Is that $80,000 and 66 hours a week for the rest of your life, as you get older, realistic? Imagine that you might get hurt. Imagine that things might happen. If $80,000 is the most important number, then you need to consider hiring employees. I recommend that. Maybe what you do is you build a business where it’s you and eventually you have 3 or 4 really good employees.
Go look at some of my videos from 2014, around maybe May, June, July area. I have some videos in there where I do the math on employees and how much leverage they bring to the table. You might be able to achieve the numbers that you want by working by yourself with just a few great employees. Employees get a bad rap. When I go to work with people that I like, that are smart, that work hard, that are taking care of their families, I would rather work with them then not have employees. The reason employees get a bad rap is because of bad hiring procedures or keeping people you should have let go a long time ago. Employees are not bad. Employees are not that hard to manage when you get the right ones. Especially when you keep your company small.
If your goal is to have a small business and just a few employees, it’s great that you know that now. Do the work to build that type of business. When you get it there, and you are completely full, and have plenty of work, keep taking work and slowly raise your prices. Start to weed out the clients that aren’t perfect for you. Start to raise the prices on your client base. Start to sell work at a higher price. For example, you were selling your time at $40 a man hour and now you are completely full and you don’t need more work, start selling your time for $45 a man hour. Slowly upgrade your business. Because what you will find then, as you start to optimize this business, the business that might have been pretty nice before starts to get better and better and better. Because remember, every dollar you raise price, unless you are losing money on the time you are selling, is pure profit to you.
My example of going from $40 to $45 a man hour will be a drastic increase in your income and it’s all profit. Those are some points to consider. Go back and watch some past videos. But, know that there is absolutely nothing wrong with saying I want to run a small company and that’s all I really want to do.
