Outsourcing Services to Maximize Productivity and Minimize Costs

When most small business owners start their own shops it's because they want to focus on a core competency, an expertise that they believe will make them profitable. But, they often don't realize how much work is involved in running a business and that some of this work may not necessarily produce revenue. Business necessities, such as billing, payroll, information systems and human resources can sidetrack any entrepreneur and waste precious time and resources. If this is the case, it may be time to consider outsourcing.

While it may seem awkward at first, outsourcing projects, jobs or even departments within a small business that are not direct revenue producers is one way to maximize productivity and minimize costs. The best time to outsource is when the complexities and time involved in managing a department or process in non-revenue producing areas becomes too great. Many times, the work may be outsourced for half the cost.

How can you determine if you're ready to outsource? First, look at the business functions and departments and then divide them into overhead and revenue producing operations. Reevaluate the time and energy spent in the overhead category — this is usually a good barometer of whether or not to outsource. Second, ask for referrals from business colleagues for outsourcing groups and meet with the principals of those companies. Third, be clear about your expectations and objectives to obtain the best possible bids. Fourth, choose the one that best fits your needs. You can enter the relationship with either a contract or a handshake, depending upon the job's complexity. Finally, carefully monitor the performance of the work and meet periodically (once every month or two) with the project manager. And before getting too comfortable with any one firm, test the waters by going out for bid every two to three years.

Aside from relieving internal pressure, outsourcing provides several other benefits. Most importantly, it allows entrepreneurs to do what they do best: keep control of the big picture and not become overly concerned with the details. A well-managed outsourcing contract enables small business owners to focus on their core capabilities, and should yield a greater reward to stockholders. In addition, the business owner who outsources has the opportunity to plan for expenses at a fixed price for a year, which is difficult to do with employees. And, for the small business or sole-proprietor who strictly needs to outsource billing or payroll, the outsourcing company can be considered a fiduciary partner.

Talk to a SCORE counselor about areas which could be outsourced in your business. The technological changes that are taking place and the tools that are available to small businesses are changing rapidly. No one entrepreneur can expect to keep up with all aspects of the business. The highest return to the business comes when the focus is centered on the areas that are impacting the bottom line!

Tips provided by Patti DeDominic, Advisor to the National SCORE Board