I’ve fallen into the classic entrepreneurial trap.

Thinking I have to do everything.

Most people that start businesses do so out of some form of necessity.

They get tired of working for their company.

They get fired from their company.

They can’t find work.

They start freelancing as a way to make ends meet.

Their customers are happy with the quality of their work, and over time the freelancer gains more business and builds a book of business.

This was the path I trod as I built my accounting business.

The first few years were lean.

Money was scarce, and time was abundant.

When I had free time, I spent my time learning new skills.

I built a website.

I learned how to use new software.

I built templates for my work, so I wouldn’t have to reinvent the wheel every time I started a new project.

I spent time networking to drumming up new business.

I made a fatal flaw that most business owners make when they start out in business.

I underpriced my services.

I did this in two ways.

In my early days, I priced my work based on a billable hourly rate.

I used this pricing model because this was the only pricing model I was familiar with.

All three of the jobs I had before I started my business were with professional services firms where they billed their clients based on hourly billing rates.

In one of the firms, the hourly billing rate was based on a multiple of how much the employee was paid.

This company used a 2.5 multiple.

If they paid an employee $30 per hour, then the billable rate was 2.5 times the employee’s pay rate or $75 per hour.

The 2.5 billing multiple ensured the company was profitable with having that employee do their work.

The 2.5 billing multiple covered three items:

  • The employee’s hourly pay rate 1 point of the multiple
  • Employee benefits and taxes 0.3 points of the multiple
  • Company overhead 0.8 points of the multiple
  • Profit to the company 0.4 points of the multiple

When a bill went out to the customer, there was a description of the work performed, the amount of time spent on the work, and the billable rate for the work.

When I started my company, I used this same billing model to grow my practice.

I made two costly mistakes.

I initially set my hourly rate too low.

Additionally, I wrote off sometimes I spent working for my customers.

I kept accurate records of the time I spent working on each of the tax returns I completed that first year.

When I finished the tax returns, I created the invoice.

As I was reviewing the invoice, a nefarious voice crept into my mind.

“It should not have taken you that long to do the work!”

I listened to the voice and wrote off some of the time so the customer would get a lower invoice for the work I did for the tax returns.

I remember writing off time with almost every tax return I performed that tax season.

The result of writing all of this time off was disastrous to my business.

A few months after that tax season, I reviewed my billings for the tax season, and I was shocked when I discovered that I wrote off more than $50,000.

That was $50,000 that I had legitimately worked my tail off for.

I did the work, but somehow I let a self-limiting belief about my worth rob me.

I was embarrassed at how by how much I had shortchanged myself.

To put this in context, my first job out of college, I earned $39,000 per year.

By writing my time off, I was throwing large sums of money into a bonfire.

During tax season, when I was writing off the time with each tax return, I had no idea how large the cumulative effect of writing that time off with each tax return would affect my earnings.

My clients were fully aware of my billable hourly rate.

The problem was a lack of confidence in myself.

I was somehow uncomfortable with what I thought my work was worth.

I remember sharing my problem with a business mentor I had at that time.

I still remember the words I shared with him.

“It shouldn’t have taken me that long to do the work.”

He replied to me, “Damon, it doesn’t matter how much time you think it should have taken.  What matters is how much time it took you to do the work.  You did the work, and you should have billed for the time it took you to do the work.”

It took a while for my mentor’s words to sink into my brain.

I let his words ruminate, as I considered how I would prevent myself from sabotaging my future.

It took a while for me to accept that I was worth what I was worth.

I had to be willing to stand up for myself.

I had to recognize that my clients were hiring me to do a job.

As long as I was doing the job to the best of my abilities, then I deserved to be paid for the work that I was doing.

I drew a line in the sand and ceased writing my time off.

Before that line in the sand moment, I was scared that my clients would complain that I overcharged them.

After that line in the sand moment, I was surprised at how little resistance I received from my clients.

The fear I had about my pricing was utterly unfounded.

About a year later, I had a client question the amount of her tax return bill.

In my response to her, I explained to her there were three components to my pricing:

  1. My pay rate to do the work
  2. Overhead to cover the operations of the company
  3. Profit for the company

She responded that she understood that now why the invoice was what it was, and she paid me for the invoice.

I stood my ground and got paid fairly for the work I performed.

I learned from this experience that I needed to be proud of my pricing and value the work I perform for others.

If I don’t place the appropriate value on the work I do, then my customers will be unable to place value on the work I do for them.

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