When should you outsource?

A1SMEs (Small and Medium-sized Entities) go through many cycles, one of which is figuring out how to get their business to the next level. As your business grows you face an increasing need for specialised skills which are either unavailable due to skills shortages, or are too expensive.

Give your business a sizeable boost

One of the tools often used to leverage the entity upwards is outsourcing – an organisation commissions third parties to run one or more of its functions, such as human resources.

A recent international survey forecasted outsourcing to grow by 12-26% in 2015, depending on the function. The reason it is growing so fast is the incredible pace of new technology becoming available at competitive prices. This has made it possible to source, say, design innovation from a company in Poland.

Advantages of outsourcing

There are many –

  • It can lower your costs leading to more sales, greater market share and increased profitability, e.g. shifting manufacture to lower cost countries like China.
  • When your alternative to outsourcing is to increase your staff complement, you avoid all the associated risks and costs, including long-term commitments like employment contracts, additional work space, facilities, management time etc.
  • By outsourcing functions, you can focus on the key areas of your business. Payroll is a frequent example.
  • Outsourcing reduces your capital and funding requirements. For example, outsourcing distribution saves warehouse capital expenditure plus associated staffing costs. These resources can rather be ploughed into the key areas of your business.
  • Often you cannot afford the expertise in-house or there is a scarcity of the required resource. As said above, technology is cutting across borders making it possible to outsource on a global basis.
  • It helps to level the playing fields for small businesses versus the larger corporates who have substantially more in-house support services.
  • It should help to reduce risk across your company which is now partly assumed by the entity to which you outsource.

How to outsource successfully

The key is to define exactly what you want from outsourcing. This should translate into a clear proposal, so that outsourcing companies can understand your requirements and give you a relevant quote. Once you have decided on the correct outsourcing partner, a formal outsourcing contract should be drawn up setting out what needs to be done by both parties.

Be mindful of any legal requirements that may arise from outsourcing such as how to treat confidential information.

MGI Bass Gordon is able to assist with payroll, accounting and other services. Should you require our assistance or if you need more information, please contact the relevant partner on 021 405 8500

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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