Time is money, literally

A long time ago I studied accounting at Monash University (well it seems like a long time ago).

When I did it I was in a small sub group who had plenty of varied work experience.  In fact at that stage I had been a software engineer, salesman, army officer and had started and sold my first business (commercial light fittings).  

Because of this I felt my point of view on some of the management accounting tools was a little weird.

Things like working out break even points seemed a little obvious and low level.  The questions in my mind were more along the lines of how much do I spend on marketing (a variable cost) to get to the break even point, rather than just being worried about the maths, which I felt was simplistic.

Anyway recently it appears I have been giving a fair bit of career guidance to people creating startups, and I had a meeting last week that reminded me of my time doing management accounting.

I was talking to someone who had recently moved to Victoria from Queensland and was re-starting their IT services business.

I asked: “How much are you spending on marketing?”

His response was: “Well nothing, as I am bootstrapping and there simply isn’t any funds available. I am just meeting people to generate business.”

I thought, this is a typical entrepreneur’s problem.  Accounting tools such as budgets aren’t taught in a way that fits the realities of their situation well enough to be a useful tool.  And on top of that, let’s call him John, didn’t actually connect in his head that his “just meeting people” was a marketing activity he was conducting.

I pointed out to John that he wasn’t spending money on marketing, but he was spending another finite resource his company had, which was his time. 

So I re-arranged the question and asked him again: “So, what percentage of your time have you budgeted to generate new businesss?”

You could almost see the light bulb click on above his head.

John was working around 60 hours a week on his business.  It appeared that he spent about one day a week meeting people, which translated to about 13% of his time.

John agreed to launch a service business into a new market that simply wasn’t enough.

But how much is the right amount to spend on marketing?  I might have a crack at that in this blog soon.

In hindsight though, the accounting does come in extremely useful for entrepreneurs – you just have to adapt the tools for your situation.