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Working Long Hours: How Does It Affect a Company’s Valuation?

Working Long Hours: How Does It Affect a Company’s Valuation?

One of the ways to guarantee your company’s growth is attracting the attention of new investors. These are people who believe in the potential of your product/service and are willing to invest their money in it in order to obtain a proportionate return in the process. One of the factors that comes into play here is your company’s valuation.

This is one of your company’s most important indicators when it comes time to seek new investment, and it is influenced by several factors. One of these, in case you didn’t know, is whether your employees work long hours. The question here is: how? This post will provide the answer.

What is a valuation?

In simplified form, this concept represents the value a company has in the eyes of the market and its investors. This is not just in quantitative terms, such as annual revenues, but also in qualitative terms such as its reputation in a given sector.

The final value of this indicator is generated by a series of procedures, which are very dependent on the tools used to collect the data. These include items such as public opinion, past business activities, estimated risk, etc. Normally this calculation is made using the following steps:

  1. Estimating the projected cash flow;
  2. Comparing the cost/benefit relationship between investing in the company and other available opportunities such as retirement accounts or the stock market;
  3. Adding the results to the current value, estimating the total gains for the period.

How do long hours affect this indicator?

The way in which employees working long hours can affect your company’s valuation may vary. To simplify this explanation, we’ll offer a few examples of conclusions that investors can make based on this variable:

Working long hours is a signal of low productivity

If a professional needs to dedicate 10 hours a day to reach his or her targets, to maintain market level earnings and/or cover the cost of one’s personal life, it’s a sign that the company isn’t earning enough. In addition, investors may suspect that this is abusive behavior on the part of management, which is something that no business leader wants to be associated with.

Tired teams don’t produce well over the long term

The accumulation of extra hours tends to hurt a team’s performance in the long term. Small peaks in demand can mean occasional long hours, but if this situation becomes “normal,” employees will soon become exhausted and unproductive. And this is what matters most to an investor over the long term. Also losing productivity increases team turnover, which hinders the consolidation of its work.

A moderate number of extra hours indicates an engaged team

Working extra hours, when it’s well aligned, reflects efficient management and a team dedicated to its work. If you’re able to show that these small peaks of productivity are associated with above average income, you’ll be able to inspire much more confidence in your investors.