Sweat equity is an owner’s pride

It might be a new word to you but sweat equity is an old widget in a new package. Sweat equity defines the investment of effort rather than funds in to business for the sake of its development. It is cashless way to make money out of a business. Sweat equity for many individuals is an unsatisfactory mean to enhance business. I have read articles where the author has blatantly proposed it as a fool’s idea but it really works when time calls for it.

During the era of dotcom bubble, when companies were ballooning with immense employee strength, sweat equity became the sole savior after the bubble ruptured. Most companies during that time used the lay-off strategy which was not a common mean for budding companies. Owners of many newly developed companies preferred to withdraw their compensation instead of firing people out of jobs. Here is the role of sweat equity where owners and managers compromise with their salary and offer greater working hours to put back the company in its old good shape. The principle of sweat equity opposes the common pervasive belief of finance as the prime leverage for business. Finance is essential for a business to develop but in certain circumstances, a business desperately needs people’s effort. Mostly during the time of emergency, when funds are scanty and sources for fresh funds are close to nil, sweat equity works dramatically.

This kind of volunteering is commonly found in owners (in case of small businesses) and managers (large corporations) who work with a sense of ownership in an enterprise. During the phase, when sweat equity is the main driving force, spending more time on productive working hours is considered. It is not a rare scenario where owners and managers work up to 50 to 60 hours in a week, during such phase. This phase is primarily noticed in a startup company where owner’s effort happens to be the prime source of growth. Surprisingly, the productivity of the owners and managers during this time is noted to be brilliant. Despite working for unimaginably long hours, the productivity keeps improving instead of lagging. As a consequence, more sales is noticed when the firm is product-selling one.

Such long working hours of the owners works as an instant boost for the employees as well. They don’t practice leaving the office immediately at closing time. The sense of ownership propagates to the employees also as they devote more time uplift the business. The prospect of the firm in this case becomes a common interest for both employer and employee. Thus sweat equity makes a cashless leverage to a firm in its initial phase or in the time of crisis.