Outsourcing operational tasks is far from new, but it appears that in 2011 more and more businesses are using outside firms to perform a wider range of activities and functions. There are no official numbers kept on outsourcing, but anecdotal evidence points to increased popularity especially among small and midsized businesses in 2011.
Two types of companies have and will continue to push the boundaries of outsourcing, and ironically, they are on opposite ends of the business spectrum: successful companies which are expanding rapidly, and struggling ones which have had a substantial decrease in their operating revenue.
Firms with quick growth find outsourcing a way to keep up with their needs while they look to hire permanent staff or to ascertain if the growth is going to be sustained. These firms are still proving out their business model, and typically have received early stage or second-stage funding or financing. They are not ready to make a long-term commitment with full-time hires, but require a high level of expertise. Those with declining revenues usually see outsourcing as an economical way to have specialized tasks performed in the wake of downsizing and the harsh reality of less permanent staff.
The third type of company that benefits greatly from outsourcing—businesses with seasonal activity—has seasonal cash flows that make the employment of full-time staff difficult. It doesn’t make sense to hire a full-time employee for a three to four month busy season. And what qualified professional will take a job, knowing it will go away in three to four months?
Just about every company outsources something, and companies that want to adopt a “lean and mean” strategy will look to outsource as much as they can. There is nothing to indicate that the outsourcing trend will not continue among small and mid-sized businesses in 2012.
Part of the reason is the growing number of companies now offering these types of services. With more outsourcing choices available, business owners should be evaluating their options on a regular basis. The primary goals are to reduce risk, long-term commitments, and capital outlays. Historically, outsourced tasks have been mostly lower-level functions, but recent trends point to more executive-level functions.
Areas to consider for outsourcing include:
- Information technology services: the cost of having a staff keep up with and maintain technology is a large one
- Informational technology equipment: with the advent of cloud computing, servers and other networking equipment may not be necessary on a business’ premises anymore
- Human resources: professional employer organizations (PEOs) can substitute for a HR department and handle all administrative and workplace compliance issues
- Payroll: with changing state taxes and a raft of compliance issues, it may not be worth the time and energy to perform in house, especially when many providers exist
- Warehousing: a fulfillment center saves on staff and real estate costs
- Sales: firms offer traditional salespeople who will work strictly for commission, as well as cold-calling teams that are paid by the number of leads generated
- Sales technology: software as a service (SaaS) companies allow for the automation of much of the sales process, cutting down on staff
- General staffing: temporary staffing agencies provide workers of varying skill and experience levels
- Industry specific staffing: law firms are utilizing staffing firms which specialize in providing contract attorneys for large litigation cases, and CFOs as well as other accounting professionals are available for “rent” via staffing firms that specialize in areas of accounting. In fact, recruiting and retaining a quality CFO may be difficult for small and mid-sized firms, whose lack of size may be a viewed as a negative for someone with big-time aspirations.
- Marketing (advertising and public relations): outside firms can take on these time-consuming tasks
As ways to reduce capital outlays, business owners also need to consider:
- The leasing of furnished, short term office space vs. capital outlay to furnish a commitment to a traditional long-term lease
- Leasing vs. buying equipment
- The use of independent contractors vs. employees
In making these decisions, business owners should analyze cost savings, quality, and customer service levels, and how it may free up staff to perform more critical tasks. Questions to ask before pulling the trigger include:
- How long of a commitment should be made to the outsourcing group?
- Is there a discount for a lengthier contract?
- How much staff turnover is there among the outsourcing group?
- Does this group have an expertise or understanding of your industry?
- Will they work onsite or offsite?
- Will they bill hourly, by the project, or via retainer?
Outsourcing may save money, but may provide less control over your outsourced firms. They may not be available immediately to work on a project or solve an urgent problem. Even when the decision to outsource is made, it should be revisited at least once a year to ensure that the cost-savings and the value equation still makes sense.
As every business is different, there’s no one answer for all companies. As businesses owners forge ahead into 2012, it’s in their best interest to revisit the outsourcing question throughout the year.
Corey L. Massella, CPA, is a partner with the accounting and business consulting firm Citrin Cooperman, and is the CEO of the firm’s SEC Solutions Group. He brings more than 20 years experience in counseling entrepreneurs in financial and business strategies, including structuring, negotiating and executing mergers and acquisitions, completing due diligence and preparing companies for public offerings. He is also a board member and sponsor for the Financial Executives Institute (FEI), Keiretsu Forum and the Long Island Capital Alliance. He can be reached at 212/697-1000 or firstname.lastname@example.org