Outsourcing is an operational model that can provide significant benefits to businesses across all industries and sizes. It offers businesses access to skills and resources they don’t have internally. Many businesses use it as part of their strategy to grow and scale, because of the advantages outsourcing can give compared to hiring, training and managing a team of employees.
Here we take a look at the common business functions that can be outsourced, and the mains pros and cons that need to be considered.
What is outsourcing?
Outsourcing essentially means paying another person or business to perform functions for your business that would have traditionally been done internally. While it used to be something only large multinational companies did, advances in technology have made it accessible and affordable for businesses of all sizes.
Almost any activity that takes place in a business can be outsourced in some way. Here are some of the common areas or tasks that are outsourced today:
- Accounting and bookkeeping
- Graphic design, website design, marketing content, social media management
- IT support and management
- Training
- HR
- Administration
- Customer service
- Manufacturing
- Warehousing and shipping
Benefits of outsourcing
The specific benefits your business could gain from outsourcing will depend on your unique circumstances. Things like the product/service, customer market, current costs and resources and short and long term business goals will factor in.
But in general, the three key advantages of outsourcing relate to freeing up time/resources to focus on income generating activities, reducing costs and accessing a larger pool of talent and skills.
Refocus on your core income generating activities
There are lots of things that need to get done to successfully run a business. Some of those things are focused on delivering products and services to your customers so the business makes money. Others are internal tasks which help the business operate smoothly.
When you are a sole operator or small business, there just never seems to be enough hours in the day to be able to get everything done. Truth is, none of us are good at everything. You might be the best electrician in your area, but that doesn’t mean you know how to write advertising copy or balance your books. You might be an incredibly talented lawyer, but figuring out payroll does your head in. Small business owners – especially in the early stages – often feel like they have to do it all. But this can create a lot of stress and hold back their growth.
When you choose to outsource some of your business functions, especially in the “back office”, you reduce the burden on yourself and your team. It gives you and your staff the opportunity to focus on your core roles. It allows the business to be more focused on delivering top quality products or services to customers and generating income – which is what you are in business for, right?
Reduce your overheads
This is definitely a big tick for outsourcing. Because you can grow your business without having to add additional employees to your payroll. You can avoid the additional costs associated with an employee – not just their salary or wage, but also consider the payroll tax, admin, training, uniforms, benefits, office space and equipment costs that come with hiring more employees.
Start-up businesses in their infancy might not be in a financial position to be able to hire employees. So outsourcing can be a more affordable option to help support initial growth. And for more mature small businesses, outsourcing makes it more affordable to scale your business to the next stage of growth with less financial risk.
Outsourcing essentially converts your labour and some overhead costs into variable costs. You benefit from only paying for the services you actually use, which can help reduce overall operational costs. Many modern outsourcing relationships provide flexibility to dial up and dial down use of their services to match your business needs. This is very helpful for businesses with seasonal or cyclical demand for their products or services.
Access a larger talent pool
Finding the right people with the right skillset can be a big challenge for small businesses. The skills you need might not be in good supply in your local area, and attracting them from somewhere else usually means offering a higher wage or salary, or throwing in extra benefits.
Outsourcing to other parties gives small businesses the opportunity to access skills, expertise and people they might not otherwise be able to. Especially with modern technology, where so much work can be delivered through online channels. Businesses can now gain access to specialist skills they might never be able to afford in a more traditional employment situation.
As a business engages in more outsourcing relationships, they can build a network of highly specialised, but flexible, experts who can support their business operations and growth.
“As our business grew, I required further bookkeeping and administrative assistance…Tennille has been the perfect solution for our business and a great alternative to employing and training staff…I have five different people with five different skill sets that I can tap into.
I was juggling quite a few different tasks, now I have the time to focus on growing the business.” Jaime Thomson – Wicked Wheelchairs
Potential drawbacks of outsourcing
All business models and relationships involve elements of risk and compromise, including outsourcing. The potential drawbacks of outsourcing will vary depending on the specific business functions being performed by the third party.
Business owners can reduce the risks and likelihood of a poor outsourcing experience by making sure they do their research before entering any kind of outsourcing relationship. It is important to fully understand the expectations and responsibilities of each party.
Here are three areas that could potentially cause tension in an outsourcing relationship.
Confidentiality issues
When you outsource business tasks, the third party may need access to confidential business information. A bookkeeper needs access to your financial records. An admin support service might need access to customer contact information. A web designer might get information about a new product being developed. All of these situations increase risk around confidentiality breaches.
The best way to mitigate this risk is to undertake the necessary due diligence when setting up the outsourcing relationship. Research the provider to see if there have been any confidentiality issues in the past. Check the security measures they will have in place to protect your data. For example, at Dream Admin we make sure all our technology platforms use the most advanced encryption technology to keep data safe – not just when performing tasks but also when communicating with you and your customers.
Any outsourcing arrangement should have confidentiality clauses in the contract which set out the expectations regarding access to and use of confidential information.
Hidden costs
Some outsourcing contracts are very complex, with multiple levels of service delivery tied to complicated cost calculations and confusing legal language. Like any business contract, if you aren’t comfortable with the pricing structure or aren’t sure you understand all the costs involved don’t sign the contract until your concerns are addressed. Consider having a legal professional review the contract to highlight any areas of concern.
Communication challenges
Although technology and flexible work practises open up opportunities to engage people anywhere in the world, there are some challenges associated with offshore service providers. Language can be a barrier, and working across timezones can be a hassle.
Even if you opt for a domestic provider, their level of understanding and experience with your industry, your type of business and your customer market can have a big impact on efficient communication and quality of service delivery. It pays to find a service provider who specialises in exactly the kind of service you need – including the processes, products and technology you use. And make sure they have relevant qualifications – like BAS Agent registration and Software Partner status for bookkeepers – so you can be confident they are up to date with industry trends and requirements.
At Dream Admin we believe the benefits of outsourcing definitely outweigh any potential drawbacks. Are we biased? Well, yes. We wouldn’t be operating as an outsourced business services provider if we didn’t feel we were delivering exceptional value to our clients and genuinely helping their business grow.
If you want to know more about outsourcing your bookkeeping or business admin to Dream Admin, book in for a free, no obligation chat with Managing Director Tennille Skelly.
