Efficiency is time and time is money

I met a business consultant recently who told me, “Do what you do best and outsource the rest”. Owning a business puts the accountability directly on you as the entrepreneur to fulfill dozens of roles, some very far detached from the work you love to do or that you are best at.

I fundamentally agree with this idea. If you are great at closing sales and delivering services, and that is what makes money for your business, why spend time working on the books or sweating to renovate the office? However, there is a cost to outsourcing, a cost that many small businesses aren’t ready to take on.

Understanding if you are ready to start “outsourcing the rest” requires a solid understanding of “opportunity cost”.Opportunitycost defines the tipping point where your business will financially benefit from having someone else execute a specific business function.

The contributors at Wikipedia have done a good job defining opportunity cost.

Opportunity cost is the cost of any activity measured in terms of the best alternative forgone. It is the sacrifice related to the second best choice available to someone who has picked among several mutually exclusive choices.”

It goes on to give the example:

“A family might decide to use a short period of vacation time to visit Disneyland rather than doing household improvements. The opportunity cost of having happier children would therefore be forgoing a remodeled bathroom.”

In the case of your business, if you spend your time writing payroll cheques, causing you to not use that time to make a phone call to a prospective client, the opportunity cost of doing payroll is missing the potential sale.

Here are some questions I would ask a client to help assess if outsourcing is the best option:

  1. If you perform this function yourself, will something else fall through the cracks? Is that “something else” a money making task? What will be the risk to the business?
  2. Does this task require a specific skill that you don’t have and is difficult or expensive for you to acquire yourself?
  3. If you don’t outsource this function, will the task get done at all? What will be the cost to your business if it doesn’t get done?
  4. Does the business have the cash-flow necessary to consistently pay the vendor?
  5. Could a vendor do as good a job on this as you would yourself?

Remember, choosing to outsource too soon may cause you to see your money come in one door and go right out the other, but if your time as the entrepreneur is in demand for the most profitable parts of your business, bringing in others can be a fantastic way to add capacity, efficiency and quality to the work you don’t have time for or just don’t like.

Halton Region’s Small Business Centre is here to help you with all your business questions. Contact our Centre to book your one-on-one consultation through an in-house appointment or the Access to Professionals program.  And don’t forget to follow us on Twitter @haltonecdev and Facebook at www.facebook.com/HaltonSBEC.

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