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Friday, February 23, 2007

Going Solo?: Learn the value of money

The value of money

I have come to find little more annoying than when people bandy about the saying, “it’s not worth my time.” “It’s not worth my time,” and its variations, are said very frequently by people in all walks of life. I have heard it uttered by accountants and lawyers and doctors; high and low income employers and employees alike. I used to say it. I even used to believe it.

I no longer do and I no longer allow “it’s not worth my time” to be said in my office. You should not either. It is a dangerous way to go through life, and probably contributes to our nation’s debt problem. From the perspective of a small business owner in start-up, it is financial foolhardy. If you don’t agree, I’ll convince you. Here is list of what things are worth.

5 UA’s per day = 1.5 hours of your receptionist = 3 months of website hosting
1 new patient = 15 hours for you employee = 2 ½ months of internet access
1 follow-up patient = monthly cell phone bill = one 100 quantity container of UA dipsticks = monthly utility bill
2 vasectomies = 1 year of VOIP phone service = 1 week of print advertising

And on and on and on! It’s endless. If you own your own small business, you will come to view money in this way. If you don’t, you may not own your small business for very long. This view of money does not mean you are cheap and certainly does not mean that you are a money grubber. It simply means that you have a healthy respect for money. People who lived through the great depression, like my grand parents, viewed money in this way, as do many successful small business owners, entrepreneurs, and professionals, regardless of their actual, W2, income levels. I believe that the majority of people that buy lots of toys, whether those toys are expensive clothing or iPods or cameras or jewelry etc, do not value money, or at least they don’t understand the value of money. Perhaps these spenders have never been taught to view money from the proper perspective. If you are an employee, earning $15/hour, here is what things cost: I mean actually cost factoring income taxes and social security.

iPOD = $250 = 23 hours of work
Earrings = $400 = 46 hours of work
Camera phone = $500 = 53 hours work
Expensive dinner = $100 = 10 hours work
Wedding = $25K = 2333 hours work (Don’t scoff. I actually know an employee at my former job that did just this, incredible as it seems.)

Now lets assume you are the small business owner, for example a doctor. The typical doctor has an overhead of 50% (actually, it’s higher). Therefore, to purchase the above items, really all toys, you must earn the following, factoring in overhead and taxes:

· iPod = $250 = actually costs $750 = 6 new patients
· Earrings = $400 = actually costs $1000 = 333 UA’s
· Camera phone = $500 = actually costs $1250 = 25 follow-up patients
· Expensive dinner = $100 = actually costs $300 = 75 venopunctures (blood draws)
· Wedding = $25K = actually costs $75K = on average 625 patient encounters

Sobering, eh?
So, the next time you decide not to squeeze in the add-on client or to see the consult or to buy the iPod, think first about the costs. Perform the analysis, and then decide. You may decide that the activity is worth your time or it isn’t, but the decision will be a rational one.