When Outsourcing Works

First, let me provide a basic definition of outsourcing, since the term is often confused with offshoring, which is taking a business function to another country. Outsourcing is simply contracting out to an independent organization a business process that could be handled, or may have previously been handled, internally.

Nearly all business processes can be outsourced; the question becomes, which business processes should be outsourced and when. Which processes depend upon the skill-sets of your existing employees (some will be more adept at wearing multiple hats than others) and when depends upon your budget and work flow.

For a small business (under 10 employees), outsourcing allows a company to be reactive while remaining financially nimble. First, employee costs make up the largest percent of total burden, especially for a service-driven company. But in addition to expense, employers have a greater responsibility for and commitment to their full-time employees in terms of providing benefits, proper documentation, continual management oversight, a career path and overall job satisfaction – all of which takes time, energy and, possibly, the assistance of external consultants. And, let’s be honest, having to layoff or terminate an employee is an awful experience that most of us want to avoid at all costs.

Outsourcing to an experienced contractor alleviates much of the financial risk and time commitment. Contracts can be structured on a retainer (monthly fee) basis to control costs and be terminated within 30 days to protect against unforeseen circumstances.  The paperwork required to support 1099 contractors is minimal compared to that of an employee, and experienced contractors require less oversight. And, while ending a contract may not be pleasant, it’s terminating a business deal – not someone’s livelihood. If the relationship is strong, you should be able to restart services when things turn around.

One of the biggest complaints I hear about contracting versus hiring is availability – but when analyzed, it really comes down to quantity versus quality. “I can hire a junior employee for $30K, and he or she will sit here 40 hours a week and do the job of four people.” No kidding. I guess it does not occur to ask whether or not the novice employee actually knows how to do all four jobs – let alone do them well. It’s a butt in the seat at a bargain.

Interestingly, here are the job functions I have seen scrunched into one on more than a few occasions:

  • Receptionist
  • Office Manager (including Accounts Payable/Receivable and Tax Prep)
  • Marketing
  • Human Resources

Other than receptionist, each of the other business processes can easily be outsourced – and some of them should be. There are a number of outstanding HR firms that can ensure your company is protected – from proper employee files to handbooks – for under $500.00 per month (depending on scope). Every company, no matter how small, should retain a qualified CPA and attorney – and the CPA should handle anything tax related, as the codes are simply too complicated and ever-changing. Bookkeeping can also be outsourced cost-effectively, and I just don’t see how – in my 18 years of experience – a company with less than 10 people can justify a full-time marketing director. There are experienced marketing consultants happy to dedicate retained hours to an organization (myself included) at far less than $30K per year.

My advice: before you make your next hire, sit down and examine all of your business processes, and determine 1) which ones you and your employees currently do; 2) how much time it is taking/overall impact on workflow and 3) which ones you do best. Remember, as a small business you should be focused on product/service delivery and customer satisfaction. If there is a function that is distracting you from this, then consider outsourcing first.

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