What does your work have to cost?
Your work has to cost at least the floor: the price per engagement below which a job costs you money. The floor is what the business needs a year — your after-tax draw grossed up for tax, plus fixed costs — divided by the hours you can actually bill, multiplied by the hours in one job. For a self-employed bookkeeper needing $5,000 a month after tax with $650 of fixed costs and 1,276 billable hours, the floor is $733 per client-month. Most people who run the arithmetic for the first time find their price below it, by a quarter to a half. The calculator on this site does it in twenty minutes and nothing you type leaves the page.
Why is forty hours a week never forty billable hours?
Because three kinds of work happen every week that no client pays for. Selling — calls, proposals, follow-ups — takes at least four hours in any business that intends to have clients next quarter. Admin, finance and email take five to seven for most people, whatever they admit. Unbilled craft — the reading, the tool maintenance, the software release — takes two or three. A forty-two-hour week is usually twenty-nine billable. Then the weeks: holiday, sickness, and the weeks that are all admin, eight in an honest year. A year is 1,276 billable hours, not 2,184, and pricing on the second number is why most businesses of one are underpriced without noticing.
How do you work out what the business needs each month?
Start from what you need to pay yourself after tax — the household number, not the salary you used to earn. Divide it by one minus your tax set-aside: at thirty percent, $5,000 becomes $7,143, not $6,500, and the difference between dividing and adding is $643 a month, every month. Add the fixed costs — the bills that arrive whether or not you sell. That is the monthly revenue the business must produce; multiply by twelve for the year. Thirty percent is a defensible starting set-aside for a self-employed Canadian; confirm it with an accountant, and move it to a separate account on the day each invoice is paid.
What is a walk-away floor, and how is it different from a rate?
A rate is what you charge; a floor is what you decline below. The floor is a decision rule made once, on paper, before any client is on the phone. When a prospect asks for $600 against a $733 floor, you are not deciding whether you can afford to say yes — you decided in advance, and the answer costs nothing to give. The floor is the bottom of every price, not the price itself: the offer is priced from the value of the outcome down toward the floor, never below it.
Why can a profitable business still run out of cash?
Because money arrives when it is paid, not when it is invoiced. A cash table with one number per month — engagements paid, not delivered — shows two things an annual figure hides. The low point is the month the account is emptiest, and it comes after the quiet months rather than during them. The drought trigger is the first month closing cash falls below one month of outflow: the date by which a minimum selling week stops being optional. A bindery that does a third of its year in November has a summer the November is quietly paying for; the table says when the summer starts eating the reserve.
How do you know which constraint your business has?
Divide the monthly revenue need by your current price to get the engagements a month you need at today's price, and compare it to the engagements a month you can deliver. If the need is above the ceiling, price is the constraint — no amount of selling fixes it, and the answer is a letter. If the need is within the ceiling but you are not reaching it, demand is the constraint, and the answer is a pipeline. If you are at the ceiling and still short, capacity is the constraint, and the answer is a different offer. If the year works and a month goes negative anyway, cash is the constraint, and the answer is payment terms. Three businesses run through Runs On One — a bookkeeper (price), a bindery (price, with cash behind it), and a course (demand) — because the same arithmetic gives three different answers.
What should you do tonight?
Run the floor page. Write the number where you quote from, because a number you have to look for is a number you will negotiate against. Put the fifteenth of each month in the calendar as the day you check paid engagements against the break-even count. That is the whole of tonight: a number and a calendar entry. The other nine instruments are in the book and the Binder.
Run the arithmetic on the floor page — twenty minutes, free, nothing leaves the page. Then the other nine instruments, and the book and the Binder.