Outsourcing: Not Just for Big BusinessBy Paul Rich, Principal and Business Consultant
Siegel Rich Division of Rothstein Kass -Certified Public Accountants
Outsourcing has become a controversial issue and a hot topic among presidential candidates this year. But have you stopped to think how your business can benefit from
efficiency, functionality and cost savings of outsourcing? If you have, you might find that, like many others, you are already outsourcing-and enjoying its benefits.
What is Outsourcing?
Outsourcing simply means "contracting out" various functions of your business. It doesn't necessarily mean that you will be contracting out work to foreign countries because there are many American companies that provide outsourcing services i.e.. commercial printing services and cleaning services, among others.) The vendors who supply outsourced services may be self-employed contractors, consulting firms, temporary employee services or professional service firms. One common example of outsourcing is payroll processing. Other commonly outsourced functions that can be provided by professional services firms include:
* Succession planning
* Accounting and tax preparation
* Information technology (IT)
* Consulting (i.e. due diligence, business planning)
* Distribution services
* Pension management
* Manufacturing
* Assembly
* Staffing
* Grounds Maintenance
* Estate and income tax planning
Why Outsourcing Can Work for Your Business
Fortune 500 corporations are under microscope for outsourcing thousands of jobs overseas to low wage workers, potentially leaving American workers out of work. But according to Forrester Research Inc., of 2.7 million jobs lost over past three years, only 300,000 have been from outsourcing. With that in mind, outsourcing means something different for family and privately owned businesses. With fierce competition affecting margins of many businesses, companies are finding that they cannot afford layers of administrative overhead dedicated to operating their core business. They are realizing that outsourcing provides alternatives to doing everything for themselves. For example, if your business is distribution, there may not be a need to employ a large administrative overhead dedicated to support functions like those listed above. Companies that provide outsourcing services are able to invest more time and resources into specific functions that generate revenue. Because of this, they can operate more efficiently and economically, which can help you compete more effectively than companies that do it themselves.
Information technology is a good example of this. The cost in personnel, benefits and training to keep pace in rapidly changing world of information technology is prohibitive for most privately owned businesses. By outsourcing this function, management is free to focus its energies on core aspects of business-those that provide revenue-generating products and services-and leave other areas to vendors who specialize in performing those functions.
Benefits of Outsourcing
Proponents of outsourcing cite a variety of reasons for "letting others do it." Here are some of most important:
Cost savings - By outsourcing functions that were previously performed in house, companies are often able to reduce their employee levels and related costs, such as recruitment, supervision, salary and benefits. By outsourcing a capital intensive function, you can also reduce costs of equipment obsolescence and depreciation. A portion of your cost savings will go to outsourcer, but outsourcing vendors have a tighter control of fringe benefits and run leaner overhead structures. They also know how to deal with vendors serving function they are providing and therefore, are able to pass on to your company benefits derived from bulk purchasing and effective leasing.
