When the owner is the cheapest employee in the company

KALEIDOSCOPE | Business · Technology · Society

There is a strange feature of small business. Everyone has to be paid. The landlord, suppliers, accountant, software companies and bank. The person who created the business and does a large part of the work is often the only one left at the end of the queue.

And if nothing remains at the end of the month? Well, they work for themselves, do they not?

This logic has always puzzled me. When we hire a specialist, we accept that their time and labour have a price. When the same specialist decides to work independently, they suddenly begin treating their own hours as a free resource.

Consider a small service business. The owner works with clients, prepares proposals, manages correspondence, issues invoices, maintains the website, organises advertising and handles administration. The working day has long ended, but they continue answering messages.

At the end of the month, they look at the revenue, subtract the expenses and discover with relief that something is left.

Excellent. But where is the payment for all those hours?

Of course, in self-employment, the way the owner receives income depends on the legal form of the business. Not every entrepreneur pays themselves a salary in the same way as an employee. That does not mean their own work has no economic value.

This is where many people make a mistake, in my view. They calculate the price of their service by including materials, subscriptions, transport and other visible expenses. But time spent preparing, communicating, finding clients and handling administration remains somewhere outside the calculation.

It does not disappear simply because it is not written on an invoice.

Imagine someone offering a service for 80 euros. The actual delivery takes two hours. At first glance, it seems they earn 40 euros per hour. But before that, they spent time speaking with the client, preparing a proposal and organising the materials. Afterwards, they completed the documentation.

If the total time is four hours, the revenue is already 20 euros per hour, before the other expenses and taxes are deducted.

And that assumes the client pays on time.

I am not saying that every hour must be invoiced separately. But every hour must appear somewhere in the economic logic of the business. Otherwise we risk selling a service at a price that looks acceptable only because we have not counted all the work behind it.

There is another problem. When the owner constantly compensates for low prices with more personal labour, the business can look viable for a long time. Clients are satisfied, orders are delivered and expenses are under control.

But what happens if this person decides to work eight hours instead of twelve? If they become ill? If they want to hire help?

Suddenly, the prices do not allow another person to be paid for the same work.

Then I would ask whether the business is genuinely efficient, or whether it simply depends on the owner working more than they would accept in somebody else's company.

I understand that at the beginning of an activity, a person often invests a great deal of time for little income. That can be a conscious decision. Not every business begins with enough revenue to provide the desired income in the first months.

But there is a difference between a temporary investment in the future and a permanent model in which the owner finances low prices with their own unpaid labour.

So when we talk about a successful small business, I would like to know not only its revenue and how many clients it serves. I also want to know what income it provides to the person who runs it, how much time it requires and how much of the financial risk remains with that person.

Having your own business should also mean being able to decide the conditions under which you work.

If everyone else receives payment for their work while the owner depends on whatever happens to be left, I have one question.

Are they running a business, or have they simply created the most demanding employer they have ever worked for?

Irena Popova

KALEIDOSCOPE | ASTERI Compass Media