How to Determine the Value of Sweat Equity in a Business
Sweat equity is a term used to determine value of the time and contributions of employees or co-founders of a startup business. According to Entrepreneur.com, it is often a key component of negotiating compensation with people who are not paid wages but help your business grow. These people can be employees, co-founders or others who assist the business in the early stages. You should consider a few factors when determining the value of sweat equity in your business.
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Instructions
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Discuss the value that an employee or co-founder brings to the business or project. According to Entrepreneur.com, this is a good start to determine the value of their sweat equity. Determine if the person has a unique contribution that no one else could bring to the business. It is also important to figure out the commitment and dreams of the employee to see if they match yours.
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Calculate the amount of money that the person could have earned in a full-time job. Entrepreneur.com suggests making sure that the value of the time is based on foregone wages, or what an employee could have made during that time period elsewhere.
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Pay a little more money instead of giving up shares or percentages of the business. Pay a slight premium instead of giving up half of your company. You should also rely on what you think your business needs instead of relying on outside opinions according to Entrepreneur.com. This means determining for yourself how to value and compensate for sweat equity instead of listening to outside sources.
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