Outsourcing: Not necessarily a luxury
June 7, 2020
For many years, owners of small and midsize businesses looked at outsourcing much like some homeowners viewed hiring a cleaning person. That is, they saw it as a luxury. But no more — in today’s increasingly specialized economy, outsourcing has become a common way to cut costs and obtain expert assistance.
Why would you?
Outsourcing certain tasks that your company has been handling all along offers many benefits. Let’s begin with cost savings. Outsourcing a function effectively could save you a substantial percentage of in-house management expenses by reducing overhead, staffing and training costs. And thanks to the abundant number of independent contractors and providers of outsourced services, you may be able to bargain for competitive pricing.
Outsourcing also allows you to leave administration and support tasks to someone else, freeing up staff members to focus on your company’s core purpose. Plus, the firms that perform these functions are specialists, offering much higher service quality and greater innovations and efficiencies that you could likely muster.
Last, think about accountability — in many cases, vendors will be much more familiar with the laws, regulations, and processes behind their specialties and therefore be in a better position to help ensure tasks are done in compliance with any applicable laws and regulations.
What’s the catch?
Of course, potential disadvantages exist as well. Outsourcing a business function obviously means surrendering some control of your personal management style in that area. Some business owners and executives have a tough time with this.
Another issue: integration. Every provider may not mesh with your company’s culture. A bad fit may lead to communication breakdowns and other problems.
Also, in rare cases, you may risk negative publicity from a vendor’s actions. There have been many stories over the years of companies suffering PR damage because of poor working conditions or employment practices at an outsourced facility. You’ve got to research any potential vendor thoroughly to ensure its actions won’t reflect poorly on your business.
To further protect yourself, stipulate your needs carefully in the contract. Pinpoint milestones you can use to ensure deliverables produced up to that point are complete, correct, on time and within budget. And don’t hesitate to tie partial payments to these milestones and assess penalties or even reserve the right to terminate if service falls below a specified level.
Last, build in clauses giving you intellectual property rights to any software or other items a provider develops. After all, you paid for it.
Need more time?
Outsourcing may not be the right solution every time. But it could help your business find more time to flourish and grow. We can help you assess the costs, benefits, and risks.
About the Author
Vidal Espinosa, MBA is the Founder and Principal at Invictus Advisors, a bilingual consulting and accounting firm whose mission is to be a strategic partner for business owners to make better financial decisions. Managing a portfolio of over 100 clients, with total assets over $10,000,000 he has lead the organization to open multiple offices throughout the United States and Mexico, increased their annual budget from $25,000 per year to over half a million dollars per year and tripled their office space. As a self-made author, entrepreneur and business owner he understands what it takes to start and run a business effectively.