Compare an employee who earns $4000.00 a month and a small businesseur who makes $4000.00 in revenue. Let us assume both generated $4000.00 because both put in equal amounts of work in their job and trade respectively. But do you as the business owner really bring home $4000.00? This is a question that needs to be answered when conceiving the business idea.
Most aspiring businesseurs, not confined merely to new startups intentionally embarking on a “traditional” business model, have immediate considerations of rent. A portion of the $4000.00 revenue generated on the businesseur’s merit is first shared with the landlord.
For easy understanding, we assume rent to be $4000.00. In order for the businesseur to take home $4000.00, $8000.00 must be made on his own merit, ie generate a value twice that of said employee above, by working twice as much, or by becoming twice as productive, on the same 24 hours daily as the employee.
Business is more complex than in the scenario above where simple assumptions were made, but the point must not be missed. A business owner takes home less than the revenue generated on his own merit because of rent.
Now with the same information about rent, consider the following scenarios, likewise against a salaried employee with a wage of $4000.00:
– business owner makes $5000.00 and rent is only $2000.00
– business owner makes $3000.00 and rent is only $500.00
Till this point, we refer to sole proprietors starting off without employees.
Eventually, perhaps, employees employed by the businesseur generate values that pays their employment, with remaining value to pay rent and finally to pay for the “no work” lifestyle of the businesseur. Often, rent offset and businesseur’s take home for being the “risk taker”, is paid for by lowering employees’ wages. We shall leave this discussion for next time.