You Can’t Do It All On Your Own

One of the hardest things to learn as an entrepreneur is that time, not money is your most precious commodity. If you’re highly skilled enough at your profession to run business, you’re going to eventually run into the problem of working “on” your business versus working “billable hours.” For the small business owner (encompassing over 85% of the staffing world), learning when to pass the buck over is the difference between profitability and bankruptcy.

So when do you look outside yourself for help? You decide by looking at how you bill “your” hours to “your” company.

In staffing, it’s normal to think in terms of contractor hours for your candidates. That’s the basis of your company. But what about your profitability? Try this. In your head, you should have as reasonable sense of what your hourly rate is. This is not your bill rate (what you charge to clients), but instead your internal pay rate. To get this rate, figure out the total number of hours you work in a month, and divide it by the amount of revenue you bring in in a typical month.

This is your pay rate per hour. It includes sales, invoicing, unpaid client time, and anything that can be classified as work. If your bill rate is $110 an hour, assume that it’s about $50 an hour internally. This works for placements as well as consulting. If you bring $30,000 in a month and work 50 hours a week, then your pay rate is $150 an hour.

The question of when to outsource become simple. For any given task, are you better served doing it yourself, or paying someone else to do it? If you’re making $150 an hour, any significant amount of time that you’re currently utlilizing that can be outsourced for cheaper than $150 a hour is a good target.

If you spend 5 hours a week on accounting, hiring someone to do your books for $100 a week is a good bet. You’re making $750 in that time, but only spending $100. If sourcing names takes you 10 hours a week, and you can get the same results by paying someone $500, you’re still making out like a bandit. There are dozens of these types of scenarios, and each one that allows you to concentrate on what you do to make the most money is a good bet.

But here’s a word of caution. There are three main traps people fall into – overvaluing your time, and undervaluing that effort to manage outsourced work. If you rate yourself at $150/hr, you need to pull in $30,000 a month, $30,000 one month, after working on it for 3 months, is not accurate. Your real time is actually worth $50 an hour in that scenario. So be careful to measure exactly what your time is worth.

The second part is underestimating your time to manage. If you have to spend 3 hours on your accounting to prepare for your accountant, you’re only saving 2 hours, not one. That changes the equation on what can be outsourced.

And the most important, is cash flow. If you’re not bringing in enough money, you have to make a choice on whether to devalue your time, or pay in the hopes of generating more revenue. That’s a line every business owner has to walk carefully.