• Joe Cangelosi

What is outsourcing, and why do it?

Updated: Apr 3

Wikipedia defines outsourcing as when “one company hires another company to be responsible for a planned or existing activity that is or could be done internally.”
Outsourcing is not unknown in small businesses. Lots of small businesses outsource, maybe without even realizing they are doing it: cleaning, IT, payroll; these get outsourced by small and large companies every day.

There are three main reasons businesses look to outsourcing:
  1. Cost (time or money – how long does it take you to do your taxes?),

  2. Expertise (do you really understand how to do your taxes?), and

  3. Exposure or Risk (you signed your tax return and now it’s on you).

Benefits of outsourcing business services

While the classic reasons to outsource mentioned above are universally true, in the context of business services, there’s another layer of benefits to outsourcing, especially for small and mid-size businesses (SMBs).



FREEDOM

I believe the people who run creative SMBs should spend 100% of their time delighting their clients and growing their business. Outsourcing your business’s operations frees you to accomplish that goal.

Freedom to do your work: 39% of small business owners work more than 60 hours per week. I wish they had asked how many of those hours were spent doing administrative work. More than a third report business management tasks take time away from running their business.

Freedom from fear: 44% of business owners cite compliance with regulation as a major factor impacting their day-to-day operations (I bet if they segmented out California it would be higher).

You got into this business to deliver creative work to your clients. That’s what you should be doing.

VALUE

Outsourcing gives you access to a wider variety of professionals at more experience levels than it would be practical to keep in-house. ​Just like in our example with the tax preparer, do you really need (and can you afford) a CPA 40 hours per week? A CFO? A senior HR professional?

A customized, outsourced team gives you the right mix of talent and experience at a price you could never match doing it in-house.

DATA SECURITY

Security is on everyone’s mind these days. 20% of SMBs report not having taken steps to secure their data. Terrifying.

SOC reports and penetration testing can add to our confidence but in the everyday operation of your business, the precise technical standards are not likely to be the problem: it’s things like weak passwords, phishing attempts, and shared logins. A good operations solution will bring the right mix of security standards and real-life best practices that will help protect your and your clients’ data.

FINANCIAL SECURITY

There’s no nice way to say it: people steal. The statistics on employee theft are jaw-dropping and the ways it can happen make you wonder if it wouldn’t be easier for these people to just start a legitimate business of their own.

In the context of accounting, say Accounts Payable, it’s critical that the person in charge of recordkeeping should never have authority to make payments. Some SMB owners might read this with a certain amount of dread: “you mean my office manager shouldn’t do the books AND be able to sign checks??” Yes, that is exactly what I am saying. No disrespect to any hardworking multi-disciplinary professionals out there, but it’s just good business sense.


Succeeding at outsourcing

There are some potential sources of friction in an outsourcing relationship, all of which can be mitigated or eliminated through good planning and open communication.

EXPECTATIONS

One of the big challenges in any service relationship is clearly defining – and managing – expectations. I’ve spoken more than once with business owners who were annoyed that their tax preparer sent them a bill for spending hours on the phone with them giving business advice. Some were annoyed with me for defending the tax preparer. Understand what you’re getting out of an outsourcing relationship and just as importantly, understand what you are not getting. A clear scope of work or engagement letter is critical to defining the relationship.


ALIGNMENT OF GOALS

There are many ways to approach a problem and often more than one viable solution. For example, if your goal for an engagement is reducing overhead costs by XX%, make sure that is explicitly clear to your potential partner so they can align their approach.

Conversely, it’s important for the outsourcing provider to be explicit about their offering: are they available to you every day or only at intervals? How are ad hoc requests handled? Make sure there’s alignment on the how and when, not just the what.


CULTURE & COMMUNICATION

Some businesses get by just on getting work done. They might not have many lingering moments at the water cooler (remember those?). Other businesses have a warm culture where one-word emails lead to hurt feelings. When outsourcing sensitive tasks like finance and HR, it’s important to work with a provider who delivers professional results that align with your culture.


Conclusion

Outsourcing business management can help you streamline your operation and deliver better results for your clients – with the right relationship and the right partner.


Drop me a line at joe@teelexinc.com to find out more about how this could work for your business.
 
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