The art of business boils down to maximizing utility.
Business owners distribute an asset and attempt to add a margin on the transaction. Retailers distribute finished goods, and producers develop or refine resources. The greater the level of unique inputs in the process, the greater the margin and the greater the profit.
There are two fundamental methods to improve profit. Increase revenue, selling price/volume, or reduce the input costs, expenses.
Businesses probably don’t spend enough time evaluating these relationships, nor do they invest enough in critically considering increasing the value of this equation. That examination is another conversation.
What we need to consider first is opportunity cost. This comes down to time management and the efficient application of resources.
A business owner’s time is invaluable; primarily because it is a scare resource. Every investment of time an owner makes reduces the amount of effort that can be applied to another function. Many business owners try to expand their resource of time by working more, but this is not a sustainable solution.
All business owners must consider how their time is best invested, and what investments maximize their unique skills — the skills that allowed them to buy or start their business. This is a concept which often loses perspective the longer one is in business.
Should your time be spent interacting with customers or managing the accounting; developing marketing strategies or ordering inventories; negotiating with suppliers or managing human resources. All elements are important, but each investment of time represents a trade off where the resource of time is in scarce supply. Effectively applying the resource of time is a unique skill upon itself.
There is efficiency to be found in specialization. If we look at human resourcing; what is the cost for a business owner or functional manager to address a HR concern, versus outsourcing this to a specialist familiar with the labour standards act, common practices, precedent as well as the efficiency of experience?
If you consider the time invested in the recruiting process and the cost of a poor decision, is this a service better delivered within the organization or outside the organization? Delaying the recruiting process shifts additional workload and burden to other employees; what are the implications in this load shift: productivity, moral, job satisfaction and quality? What tasks are not being accomplished by doubling up responsibilities? Is there a loss of revenue/loss of profit?
Time may be the most precious commodity in an organization and of a business owner. This resource must be protected and applied judiciously. It is always a good idea to look at the functions within an organization and consider the most efficient method of delivery. Savings in time has a direct relationship to investment, and consequently a direct relationship to profitability.
Blake Doyle is The Guardian's small business columnist. He can be reached at firstname.lastname@example.org.