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  • Mark Howard

What is the Opportunity Cost of Small Businesses not Outsourcing their Finance Function


What is an Opportunity Cost

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost.


This is something that every small business owner needs to consider when deciding whether or not to out-source their finance function, with the first big question having to be:


How much could the business earn if the the owner was focusing their attention on current and potential new clients instead of spending time ploughing through the paperwork?


Other questions that need to be asked being:


What value does the small business owner place on spending some quality time with family in the evenings and at weekends instead of sorting through a pile of receipts or working through the bank statement?


How much more are the costs at year-end when the box of receipts, invoices and bank statements are handed over to their accountant to wade through to enable the financial accounts to be prepared and filed?


These and many other questions will all have a quantifiable, monetary value as an answer all of which are highly likely to be greater than the cost of outsourcing the finance function to a trained professional with many years experience, especially now where the prevalence of Cloud Accounting will enable the finance function to still happen while the small business owner still works on growing their business.


Arguably, the greatest Opportunity Cost of not outsourcing the finance function and therefore enjoying full, real-time visibility of how the business is performing is the failure of the business, with 96% of UK businesses failing because they don’t have visibility of their numbers.


Waiting to get to year-end and review performance by way of the financial statements will, most likely, be too late!

Apart from the undeniable monetary benefit of having regular updates that outsourcing the finance function would bring to the small business, there is another area that needs to be considered.


Using a trained professional will ensure that important compliance deadlines with key organisations such as HMRC are met regardless of your schedule, avoiding fines, penalties and needless HMRC investigations.


HMRC raised £816m in fines in 2018-19, up from £620m in 2015-16, an increase of 32%.

If everything is done correctly and on-time, there should never be a need for any business to pay a fine/penalty to HMRC, just imagine how much more businesses could have grown if these fines had not been incurred, needlessly draining cash from the business, and the fastest way for a business to fail is through a lack of cash.


Also worth remembering that fines/penalties are not a tax allowable expense in your accounts, so while it will reduce your profit, the tax bill will remain unaffected, needlessly draining further cash from the business.

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