November 13, 2013

The Unaccounted Opportunity Cost In Small Food Business Ownership

opportunity cost small businessIf you’re not familiar with the concept, opportunity cost is the difference in gains between one chosen path and another untaken path.  For example, when you decide to go into business full-time for yourself, your opportunity cost is the income you would have earned working for someone else.   Every decision you make has an opportunity cost, for example, if you decided to continue working for someone else then your opportunity cost would be what you could have made starting up your own business.    But there’s another form of opportunity cost that most start-up entrepreneurs don’t take into account.

When you’re starting a small food business, chances are you have limited resources at your disposal and you’re trying to make the most of every penny.  It’s natural and it’s the mindset of a consciousness entrepreneur.   But when you decide to do it all yourself in order to try and save money, what you may not realize is that it’s actually costing you money.

Let’s say that Entrepreneur Alice has a great creative brain and is excited about her new cupcake venture, but in order to save money she decides to handle all of the production, accounting, marketing, delivery, and sales herself.  How effectively is she actually doing any of them?  If she’s running around frantic all the time, is she really spending the time she needs to generate more sales?  Perhaps her time would be better spent focusing in on her areas of strength and relying on other experts to handle the tasks she’s less fond of.  For example, she might be a wiz at sales and love marketing so she could hire a bookkeeper to do her accounting and some kitchen staff to handle her production.  By doing that she frees up her time to be put to its highest and best use which should translate into a better company overall.

I’m not saying you should go out and hire a bunch of staff or contractors to work with you if you don’t have the funds.  But as you look towards 2014 and determine what your budget for next year will be, ask  yourself whether there are tasks or responsibilities that are better entrusted to others even if you do have to pay them to do that.  Because make no mistake, by trying to save money you might actually be costing your company in the long run.

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5 comments on “The Unaccounted Opportunity Cost In Small Food Business Ownership

  • carlwattam on said:

    Well done on a well written article and some great advice!

    It is difficult to let go of control in the early stages of being an entrepreneur but once you realise the benefits of outsourcing, the leap of faith is well worth it. Even hiring a part time assistant to handle tedious time consuming tasks will make life easier and instantly more enjoyable.

    Don’t forget your exit plan either. Your business will be more attractive to potential buyers and easier to sell if, when you remove yourself from the equation, it can function and stand on its own two feet.

  • Thembi on said:

    This is exactly what happened to me with my first business and what my mentor and I currently talk about for this venture. I know I’m better when I hand off certain tasks to people who are passionate about it. Bookkeeping will never be my thing and it’s ok. That’s why I want to work with food and not excel spreadsheets.

  • gmuske on said:

    Reblogged this on Entrepreneurs and Their Communities and commented:
    This is one cost that is rarely considered when starting a business. Ask yourself what else you might be doing with our time and money. And weight that answer against what is motivating you to start your own business. Good article for any aspiring business owner.