Sweat Equity

Posted by James Hutchinson Mar 23, 2009

Equity is an accounting term for the value of the ownership of a business. When the liabilities are subtracted from the assets of a company, what’s left is what belongs to the owner. One hopes that is a positive number, but there can be negative equity, a situation that usually doesn’t last for long before bankruptcy.

Sweat Equity is not a real accounting term, but slang for the effort that the owner puts in himself to make the business work. Small businesses often depend on sweat equity since the owner doesn’t have the money to pay someone else to do all the tasks that need doing.

A small restaurant might have a cook and wait staff, but the owner may end up cleaning, doing minor maintenance and the bookkeeping. Instead of investing major amounts of money, he puts his time and talents to work for the business.

Many businesses fail due to owner burnout. So, you think you can run a business using sweat equity, make sure it is something that you really love doing. The better choice is to design a business that will build real equity, and the sweat equity is a bonus.