The practice of using outside firms to handle work normally performed within a company is a familiar concept to many small business owners. Routinely, small companies outsource their payroll processing, human resources, benefits administration, accounting and many other important functions often because they have no other choice and it makes good business sense. In response to this trend, entire industries have evolved to serve companies’ outsourcing needs.
However, many businesses still do not understand the benefits of outsourcing non-productive operational related tasks. Outsourcing can save money, time and improve efficiencies while allowing the business to focus on what they do best. Prudent outsourcing, can provide a number of long-term benefits:
- Control capital costs. Cost-cutting is a primary reason to outsource. Outsourcing converts fixed costs into variable costs, releases capital for investment elsewhere in your business, and allows you to avoid large expenditures in the early stages of your business. Smart outsourcing also allows a business to pump more capital directly into revenue-producing activities.
- Increase efficiency. Companies that do everything themselves have much higher cost with labor, technology, and insurance, all of which must be passed on to customers. An outside provider’s cost structure and economy of scale can give most small businesses an important competitive advantage.
- Reduce labor costs. Hiring and training staff for short-term or peripheral projects can be very expensive, and temporary employees don’t always live up to your expectations. Outsourcing lets you focus your human resources where you need them most.
- Focus on your core business. Every business has limited resources, and every manager has limited time and attention. Outsourcing can help your business to shift its focus from outlying activities toward work that serves the customer.
- Level the playing field. Most small firms simply can’t afford to match the in-house support services that larger companies maintain. Outsourcing can help small businesses and their employees feel and appear larger by giving them access to the same economies of scale, efficiency, and expertise that much larger companies enjoy.
- Reduce risk. Every business investment carries a certain amount of risk. Markets, competition, government regulations, financial conditions, and technologies all change very quickly. Some outsourcing providers share in these risk assume and manage them for you, and because they are professionals in their field of expertise, generally are much better at determining how to avoid these risk.