Small business owners constantly fret about costs like outsourcing a task, hiring an employee or buying new software. All items that need to be done and all cost money. You’re likely doing all the tasks that surround these costs, some menial and some important. But what is the lost Opportunity Cost when you do all these tasks? Have you considered the value of your time?
When a business starts up, it’s usually impossible to assign an hourly rate to the owner’s time. Owners are the “jack of all trades”—developing strategy, servicing clients and taking out the trash. It all has to get done and there is only you. It takes time for a business to hit the breakeven point and become profitable so, then, it’s okay to do everything. But as you plan your growth, understanding what your time is worth is critical. If you are doing everything, we guarantee you’re missing out on profit opportunities. It’s time to think about passing tasks off to others.
You also probably feel you’re not making enough and you’re tired. You’re spending a lot of time doing (or not doing) things that are critical to the business. You’re not doing your financial reports (or they take you all day to do because you’re not good at it), you’re not doing social media (not your skill set, too much time) and you spend a lot of time on things like confirming customer appointments, making deliveries, packing and shipping–tasks that are important but don’t generate incremental revenue. An example: your goal is to make $100/hour. To organize all your expenses, invoices, financial reports takes a full day. That’s $800 of opportunity lost when you could have paid a bookkeeper $45/hour and they’d do it in a few hours. Yes, it’s money out of your pocket but it’s a day better spent for you and the business.
So how do you determine the value of your time? Once you know this, it’s easier to identify those tasks that are better outsourced or it may be time to hire an employee. You’ll become a better manager and learn how to grow your organization. Here’s a few hints on how to do this:
- Think about how much you would like to make hourly. Make sure it’s a rate that is consistent with your category and one where a customer will feel good about the value they are buying.
- Track and identify all the tasks you do to run the business. Most owners find that there are 10-15 categories where they spend their time. As you do this, you’ll likely see that about half of them are worthless to the business. Some may actually lose money for you.
- Try to assign a dollar value to each category. As you do that assign a passion value (love it/hate it/won’t do it, etc.) and also consider a skill value, meaning you may be interested in financial reports but it takes days for you to do them. Or you want to offer specific dishes in your restaurant that take days to prepare (and you could buy it partially made from an outside supplier).
- Rank the categories in terms of dollar value to the business
- Determine how much time you personally spend every day/week on each task. Are you working on the low end tasks or are you spending more on the higher end tasks?
This is where the lights go on for most owners as they see how much time they spend on tasks that don’t contribute to the overall health and growth of the business. They focus on the easy stuff, the rote tasks that don’t generate much revenue, under the guise of “someone has to do it”. They spend too much time on the tasks worth $30/hour in revenue versus the ones that generate $200/hour in revenue. It’s a shock but it allows owners to recognize that outsourcing or hiring allows them to do what they do best. Do this and re-evaluate your role in the business. You’ll be more productive, more profitable and importantly, happier with what you are doing. Value your time.
Need help with this or other business questions? SCORE Cape Cod & the Islands provides free, confidential mentoring. Contact us at capecodscore@verizon.net, at 508-775-4884 or on our website at www.capecod.score.org