A common mistake that sole traders and micro-businesses make is trying to do everything themselves.
‘If I can do it myself, I will save myself some money, right?‘ Wrong. Well, maybe right at first, but wrong in the long term.
Of course cash flow will be difficult in a new business and so by not spending the cash on outsourcing a job you can do yourself, you still have that cash in your bank account. But not for long.
How much income could you have made in the time you took doing that job that ‘saved you money’? If you are not spending time with your own clients, or selling your wares, you will not be building up your bank account balance.
In the most simplistic terms, if you would normally charge your clients £150 an hour in your expert professional capacity, or could sell goods to a value of £150 an hour, and that ‘money-saving’ job took you 4 hours, then you could have earned £600 in the same time.
Chances are the job, such as researching content and drafting a presentation, might have taken a business support manager only 3 hours, but even if at 4 hours, at £45 an hour, the cost of the job would have been £180.
The difference between your earning potential of £600 and the ‘saving’ of £180, is the opportunity cost of £420. This is how much it cost you by making the choice to ‘save money’ and research and draft the presentation yourself. Indeed a false economy.
And if you don’t yet have those clients, or sales, wouldn’t your time be best spent out networking, and marketing your business before your start-up funds are depleted?
Opportunity cost can be defined as ‘the cost of an opportunity foregone in order to pursue a certain action’ or ‘the benefits you could have received by taking a different action’.
Whilst it is important to keep control of costs and outgoings, it is not always about whether you can do the task yourself, but whether it is the best use of your own time.
You should think strategically and consider value, not just cost when making decisions in your business. Even when money is short there are times when spending your limited resources is good value for your business, contributing to your longer term success.
So a balance must be struck, and in evaluating your options you might like to consider
- whether you can do a great job in that area, in a sensible timeframe, if you do it yourself
- whether you can afford the time away from selling your products or your fee-earning work, and what the real cost of that decision will be
- whether letting someone else get to know your business will help you and add value in the long run
- whether you have sufficient resources to pay someone else.