The Other Time Value of Money: When It Pays to Outsource
As investors, we understand that a dollar today can be worth more than a dollar in the future. Why? Because over time, that dollar in your account can gain interest and grow. This is a fundamental financial concept known as the Time Value of Money.
For small business owners, there is another notion that links money and time: the value of outsourcing.
We’ve all heard the saying “time is money.” Time is scarce and should be treated as a precious commodity.
In our personal lives, we naturally conclude that it’s more valuable to pay others to execute core functions: from house cleaning and lawn maintenance to car tune ups and tax preparation, it makes financial sense to rely on those whose sole focus is providing specific services.
When running a small business, keeping operating expenses in check is fundamental to the profitability that allows you to re-invest in growing your business. Hard-working by nature, small business owners often fall into the trap of taking on too many tasks – not only to reduce costs but also because they’re tethered emotionally to the success of the business. Relinquishing control can be hard.
It may be unexpected to hear time management advice from a wealth strategist, but in our decades of helping small business owners build first generation wealth, we’ve observed that a key to small business success is outsourcing.
As wealth strategists, our job is to help small business owners balance short term and long term, personal income and business growth. That’s why we encourage you to “invest” in outsourcing today to free up your time to focus on what will earn you more money in the future.
Here are some tips on how to start:
Take a Look at Your To-Do List
Whether you run a warehouse or manage a team of virtual gig workers, you have an endless to-do list with items that keep getting pushed to next week. Bookkeeping, data entry, and lead generation are just a few examples of tedious tasks that take up too much time. Yet, they are key to business growth.
By delegating tasks such as general research, marketing, appointment scheduling and bookkeeping, you can fast-track your success and become even more profitable.
An inspiring book on this topic is Who Not How. Renowned entrepreneurial coach Dan Sullivan notes our natural tendency to focus on HOW to execute new ideas, including ones that can catalyze business growth. He suggests that a better question is WHO can execute your plans, shifting the tactical burden to the plate of a subject matter expert rather than tackling it, yourself.
The “Who Not How” approach enables you to work on your business rather than in it.
Be Honest with Yourself
Time isn’t always the only drive of action items not being completed. Often, we put off tasks because we don’t enjoy them. Other times, it’s because we don’t feel confident in our skills.
When considering outsourcing, take an honest look at your expertise and ask yourself where you can contribute most to your financial success. What is your “super power” – that function that only you can conduct for your business? Focus on how to get everything else off your plate so that you can spend your time executing on your super power.
Being honest with yourself about what only you can truly do will help you figure out the best use of your time and the areas where enlisting help is most valuable.
You Get What You Pay For
In an Upwork world, an old school premise still holds true: you get what you pay for. Credibility, referrals, and a track record are key when hiring the right specialists to help you grow, which might mean paying more for a higher quality resource.
Outsourcing is an investment in your own future, so measure twice and cut once when it comes to entrusting your business responsibilities to a third party. It might cost more per hour to hire a more seasoned, in demand resource, but you’re likely to get higher quality output in less total time than hiring a less expensive, less experienced resource whose work requires your intervention to correct.
Do the Math
Without a doubt, there’s a financial cost to outsourcing. But there’s an opportunity cost to doing everything yourself. Run the numbers to quantify how much you’ll spend to outsource a function and plot it against potential increased revenue. This back of the napkin exercise can help you triangulate on which specific functions it makes sense to outsource.
With this cost analysis, you can make an informed decision that allows you to determine savings and estimate potential gains. These are few other points to consider when deciding if outsourcing is cost-effective for you:
- Calculate the in-house cost of the project (i.e. opportunity cost of leveraging internal resources)
- Consider added expenses such as supplies, software or hidden fees
- Have your lawyer review contracts to ensure you understand implications of owning work product from third parties
- Establish weekly or monthly caps for hourly workers to avoid surprise bills
Outsourcing is a big step, especially when you’re just starting. The following tips will help ensure the success of your projects and allow you to stay in control:
- Start Small. Resist the urge to hand everything over to someone else. Once you’ve found the right team or service provider, begin with small tasks while you figure out a workflow and establish trust.
- Set Expectations. Whenever possible, offer your provider clear examples of what you’re looking for. Offer timelines and explain your vision. This will also give them an opportunity to assess the workload and enhance collaboration.
- Communicate Regularly. To keep things going smoothly and protect the relationship with your service provider, schedule regular meetings to get on the same page. Use these as a chance to provide updates, bring up any issues, and celebrate the wins.
We practice what we preach.
As small business owners, ourselves, the CornerCap team protects our time to focus on what matters most: working toward helping our clients’ wealth and life appreciate. By outsourcing certain administrative tasks to virtual resources, we’ve streamlined our workflows and processes to allocate as much time as possible to client care.
We’re happy to share some of our “secret weapon” resources if you’re interested and can connect you with some of the trusted service providers we rely on to Who Not How in our own small business.