Outsourcing is a practice of using firms outside of business for handling work performed in the organisation. It is a familiar practice used by many entrepreneurs.
Smaller businesses usually outsource their payroll processing, distribution, accounting, and other functions to entities such as PEO services and on many occasions, there are no other alternatives available. Several larger organizations also turn to outsource for cutting costs. There are many industries out there that have been developed to serve the outsourcing needs of various organizations. Let’s take a closer look at the benefits of outsourcing for your small businesses.
Outsourcing helps you control capital expenditure
Although cost-cutting is not the only reason for outsourcing, it is one of the significant factors. It converts the fixed costing into variable costing and releases the capital required for investing in other areas of your business. It also allows you to get rid of large expenses especially in the earlier stages of the business. Outsourcing also allows you to make your company an attractive proposition for the investors because you are now capable of pumping more capital into activities that produce revenue.
Raises efficiency and decreases labour costs
The organisations that do all their work by themselves have a lot higher development, research, marketing, and distribution expenses. All of them have to be passed on to the customers. But if you have an outside provider, his economy of scale and costing structure is different. This provides a competitive advantage to the company. Hiring and then training the staff for the short-term or peripheral project can turn out to be extremely expensive. These temporary employees do not always live up to the management expectations. Outsourcing allows you to focus the human resources on the areas that are needed most by you.
New projects begin quickly
Any good outsourcing company has the resources for starting a project immediately. Handling a project in-house will involve weeks or even months of hiring the right kind of people, training them, and providing them the support they will require. If the project is in a need of massive capital investment such as the development of a series of distribution centres this start-up procedure may become even more difficult.
Concentrate on the core business and create a level playing field
All businesses have limited resources and all the managers have limited attention span and time at hand. Most small businesses just cannot afford to match the in-house services capabilities maintained by the large companies. Outsourcing is helpful for the small firms to act big by providing them access to the economics in terms of efficiency, scale, and expertise that is enjoyed by the larger companies.
All business investments carry a great deal of risk. Competition, markets, government regulations, use of technology, financial conditions are some of the things that change frequently and fast. The outsourcing providers bear this risk for your business and manage it. They are normally a lot better at deciding how to manage these risks for their area of expertise.
However, there are some potential pitfalls in outsourcing for small businesses. Some of them include,
- Management: Outsourcing companies have to be prepared for managing various projects across cultural barriers and time differences.
- Quality control: These outsourcing organizations must have a clear set of guidelines, processes, and expectations for managing the quality of the services rendered and products developed.
- Taxes: If you employ too many outsourced enterprises, it can affect the taxing structure.
- Liability: It is quite difficult to decide the liabilities of the parties involved in complex outsourcing relationships.
Having said all that, it is a fact that several businesses do not fully comprehend the benefits of outsourcing. It is also true that outsourcing can save money. However, keep in mind that it is not the only reason for doing it. Remember to outsource for areas in which you lack expertise or to offload repetitive tasks and keep the most integral parts of running your business within the fold as sometimes outsourcing too much can be an even bigger mistake than performing no outsourcing at all.
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