Is It Worth the Investment?

One of the most frequent complaints I hear from small- business owners is “I love what I do, but I’m not making enough money. I’m thinking about getting a job instead.”

Achieving profitability is difficult, and after a year or two of struggling, a business owner--or his or her spouse--may question the return on investment.

When I was getting my master’s degree in business, my classes introduced financial terms like “return on investment” as cut-and-dried formulas, easily computed with a calculator. Enter a few numbers and in a snap you could evaluate whether a company provided a strong, moderate or poor return on investment.

When you are self-employed, evaluating your return on investment is not nearly as clear-cut, and it shouldn’t be. It is short-sighted to measure small-business success by profitability alone. We invest our emotional energy and time as well as our dollars, and we receive far more than cash in return.

To evaluate whether your business venture gives you a strong, moderate or poor return on your investment, take the following quiz.

Score each sentence from 1 to 5:

1. Doesn’t describe me at all

2. Describes me sometimes

3. Describes me often

4. Describes me most of the time

5. Describes me almost all of the time

Total Investment

A. I invested all of our savings and went heavily into debt to launch my company.

B. Profit is significantly less than we projected it would be by this time.

C. I don’t enjoy working in my business. I wake up in the morning dreading the day.

D. My spouse or children resent the toll my business is taking on the household and our relationship.

E. Aspects of running my business frighten me and keep me up at night.

F. I often think of the opportunity cost of running this business. There are a lot of other ways I’d rather spend my time and money.

G. What I am doing for a living doesn’t seem to matter much to anyone but me.

H. I rarely hear from satisfied customers.

I. The hours I spend on my business take me away from my family at crucial times.

Investment total score:

Total Return

A. Cash flow is stable or comfortable. I am as profitable as my financial obligations require.

B. I love my work and consider it my right livelihood. I look forward to each day.

C. My business allows me essential flexibility, freedom and independence in my life.

D. I can’t think of anything else I would rather be doing with my time and money.

E. I value the personal growth that comes from being self-employed. My business challenges me to stretch out of my comfort zone and I’m always learning something new.

F. Regular contact with fascinating and enjoyable colleagues and customers enriches my life.

G. I believe my product or service makes a positive difference in the lives of my customers.

H. My customers express their gratitude to me for my services, and hearing from them brings me joy.

I. My business makes it easier for me to balance work, family and other interests in my life.

Return total score:

Calculating Return on Investment

Divide your investment score into your return score to determine your return on investment.

* If you scored below 1: Your return on investment is poor. It is time to either consider moving on to another livelihood or radically changing the way you do business. You may be profitable and still score below 1, because profitability isn’t the only factor for determining work satisfaction. Your business is not giving you enough joy and fulfillment.

* If you scored between 1 and 3: Your return on investment is moderate. You probably enjoy your work most of the time, but your score is lowered by heavy leveraging in the launch of your business, slow gains in profitability or business troubles that weigh on you. If you believe you are in the right business and making a positive difference in the world, you’ll probably stick it out until profit increases or you become accustomed to less income than you anticipated.

* If you scored over 3: Your return on investment is high. Even if you aren’t as profitable as you would like, the satisfactions in your work compensate for instability in income. You are unlikely to close your business or move to another line of work unless an act of God or unplanned family circumstances force you to.

The next time you find yourself measuring your success by the narrow financial definition of “return on investment,” broaden your mind to consider all of the rewards that self-employment bring you before you decide to close up shop.

*

Azriela Jaffe is the author of “Honey, I Want to Start My Own Business: A Planning Guide for Couples” (Harper Business) and “Let’s Go Into Business Together: Eight Secrets to Positive Business Partnering” (Avon Books). She can be reached by e-mail at jaffe@lancnews.infi.net, or visit her Web site at https://www.isquare.com/crlink.htm.