One of the ways that businesses fail is that they don’t see outsourcing as an investment, only as an expense.
That’s a major mistake because there are many reasons why you should look beyond looking at only dollars and cents when you’re outsourcing. They fail to overlook the ROI strategy of outsourcing.
Would you like to know how you can calculate the real ROI of outsourcing your bookkeeping? Read on to find out.
What is ROI?
ROI is simply the return on investment. It’s usually measured in a formula:
(Return ÷ Investment) x 100 = Return on Investment
In most cases, you’ll look at the amount of money you’re getting back, divide that by your investment, and multiply by 100 for the percentage. For example, if you invested $1000 in a marketing campaign for your business which generated $2000 in revenue, your ROI will be 100%. That’s an outstanding return on investment.
Where many businesses don’t recognize when they’re looking at ROI, they are only looking at the bottom line. They will usually look at a service such as bookkeeping and won’t see the impact on the bottom line that they want to have, so they decide to keep bookkeeping in house.
The Hidden Costs of Running a Business
You know that there are hidden costs of running a business. If you’re like most business owners, you’re looking at the money coming in and money going out. Your balance sheet might not be telling you the whole story. There are costs of time, risk, expertise, stress, and more. If you’re just looking at bookkeeping as a red and black service, you’re missing out on a big part of the ROI of outsourcing.
Here are some ROI strategies you should consider when you’re calculating the return on investment for bookkeeping services.
The ROI of Time
What is your time worth to you? This isn’t how much you charge an hour for your services, but a question of what your time is worth to your business.
Now take a close look at how much time you spend on bookkeeping. You may spend hours on tasks like processing payroll, figuring out taxes, invoicing, and accounts payable.
What would be a better use of that time if you outsourced it? You could focus on serving your current customer base, which would create loyalty and repeat purchases. You could also focus your time on marketing and sales, which would generate new business.
In both cases, you’re using your time to focus on growing your revenue, which will contribute to the bottom line because you now have the time to do so.
Do you know the tax law in Canada? It can be a pretty complicated world for small businesses. Mistakes on tax laws can cost time and money to amend those returns. In some cases, businesses have to pay a penalty or amend their returns because they filed their taxes late. Instead of your lack of expertise and knowledge costing your business money in the long run.
Outsourcing bookkeeping ensures that you have your taxes done right the first time. You also have an accounting professional at your side that can guide you through tax season.
There are tremendous cost savings by outsourcing bookkeeping beyond helping you on your taxes. Do you have accounts payable and accounts receivable? You could make sure that your accounting software is set up to automatically generate invoices on schedule. That can help you get paid on time, especially if you have a follow-up system set up to gently remind customers that a payment is due. You can also make sure that your payments to vendors are paid on time. That step alone can create significant savings since you can take advantage of prepayment discounts and avoid late fees.
Just because a service doesn’t generate revenue, it doesn’t mean that it doesn’t deliver a return on investment.
Less Stress Around Finances
One of the top reasons why businesses close is due to lack of cash flow. Your business doesn’t have to have the same fate. Outsourcing bookkeeping can help you ensure that you have the systems in place to keep the cash flow consistent. Instead, you can stress less over the financial situation of your company and focus on generating new clients and maintaining the ones that you have.
Stronger Growth Potential for Your Business
You’re saving money and you have a more reliable cash flow for your business. You can take those cost savings and invest the funds elsewhere in your business. Investing the funds back into growing your business ensures that you are always ready for the future, instead of constantly putting out fires.
It also looks good to lenders and investors if you’re planning to get outside funding for your business. Investors and lenders are impressed when they see a business put money back into the business, as opposed to funneling the funds to frivolous expenses.
Finding the ROI Strategy of Outsourcing
Outsourcing anything can be a great move for small business owners. Yet, so many don’t do so because they only see outsourcing bookkeeping as an expense because it “doesn’t generate revenue.”
When you adjust your ROI strategy to take into account your time, a bookkeeper’s expertise, and the genuine cost savings you’ll see on your bottom line. It forces you to look at ROI a little differently, but with this new lens, you can find services that truly bring a return on investment.
Want to know more about how an accountant can make life easier for your business? Check out this guide that details how an accountant can make your life much easier.