Running a small business has its challenges: managing everything from clients to vendors, staff, computer systems, bills, cash flow, and the list goes on. Of course, every entrepreneur and small business owner wants their company to be successful, but it can be overwhelming at times when having to manage everything in the list above.
What can you do? How can a small business owner just focus on what they need, and love to do, such as build and sell the products, or provide the services that were the reason they started a business? The answer is simple: outsource.
Of course, outsourcing comes at a price, and some business owners have trouble justifying the cost, and opt to go the “DIY” route. What these entrepreneurs tend to forget is the opportunity cost of the time spent doing non-core business activities rather than doing core business activities. Non-core business activities are things like bookkeeping, accounting, website and advertising management, payroll, and the list goes on.
The Opportunity Cost
Often small business owners try to do everything themselves, which, of course, distracts them from focusing on increasing sales and growing their business. This is reasonable at the very beginning, when cash-flow is zero; however, once a business has customers, contracts, generates traffic, etc. it may be time to begin outsourcing, and hire a professional.
Often one thing many business owners attempt to do themselves is bookkeeping. Some small business owners think “I’ll just do it myself and save some money, it’s not very difficult”; however, more often than not, these business owners are not bookkeeping experts, make mistakes that later need to be corrected, and most importantly are spending valuable time doing bookkeeping rather than growing their business. There are many reasons to invest in hiring a professional for small business bookkeeping, but breaking down the opportunity cost is something that each business owner should do for their respective small business.
How Do You Calculate the Opportunity Cost?
The things to consider are the (very reasonable) price of hiring a bookkeeper, versus the time spent doing it yourself and the potential cost of having a professional correct any bookkeeping errors, if they happen.
The key to all of this to do determine the value of the time spent doing it yourself. Assuming bookkeeping would take 3 hours per month – what are those 3 hours of your time worth? How much can you sell in 3 hours instead? How much profit would you make if you spent the time growing your business, driving sales, or building a product (depending on the type of business you are in) rather than spending the time bookkeeping?
Now that you have determined the monthly opportunity cost of spending your time doing a non-core activity, such as bookkeeping, rather than growing your business – multiply it by 12 – that is 36 hours per year in this case. Imagine how much more successful your business will be over the years if every year you dedicated (approximately) 36 additional hours to growing your company, rather than spending time on peripheral activities.
The key to running a successful business is to focus as much as possible on your expertise, your passion, selling quality products and services, providing value to your customers, and in turn, business growth.
Of course, we recommend hiring a Chartered Professional Accountant Toronto that specializes in small business accounting to handle your corporate tax returns and provide you with the necessary tax planning to maximize your after-tax cash flow. Hire experts to help you with non-core activities, and focus on what you do best.