A prudent entrepreneurial concept that can be utilized at any stage of a business is outsourcing. Most companies, no matter what their size, will outsource complicated, risky or technical processes or services such as: payroll processing and payroll tax services, information technology (IT) services, certain training programs, strategic planning facilitation, event planning, and many others. The decision is typically made when either of the following exists: the value of the outsourced services exceeds the cost of acquiring them, or the cost of outsourcing the services is less than performing them in-house. The difference between the two scenarios is in the first case, the service is new and outsourcing is the introduction of the service to the entity. In the second scenario, the service is already available in the entity and outsourcing of the service has been determined to be more economical.
There are two types of services that can be considered for outsourcing: one is the type of service that can be performed by the current resources of the entity, and the other is the type of service that is beyond the capacity or expertise that is available in the entity. If the service can be performed by the current resources of the entity, the decision to outsource is a matter of economics – can money be saved by outsourcing the particular service? In the second scenario, the outsourced service is not available with the current resources of the entity, therefore the decision is whether the services are needed or not. This is the tough decision. A business owner typically does not know what he is missing if he never had the particular service in the first place.
Consider the decision to hire an expensive employee to take on a key role in the company, and the role is a new role. This could be an in house IT Manager, a HR Manager, an Attorney, or a Chief Financial Officer (CFO). Many of these positions are full time positions in a larger entity, and they offer levels of expertise that are needed on a regular basis. Smaller companies still have these needs, but not as often. It is typical for a smaller company to outsource their IT needs and their HR needs. When it comes to financial expertise, the typical progression for a company as it grows is to start out with a bookkeeper, add a few staff and hire a Controller, and then eventually hire a CFO. The level of expertise that comes with a CFO is much higher due to the experiences that the CFO has to draw upon throughout his/her career. A CFO typically has seen and done so much during his/her career that most of the issues they would come across have already been resolved, with experience.
An economic example of outsourcing a new level of expertise in an entity would be the following example: A company needs a particular service or expertise but the company may not need this person’s expertise on a full-time basis. Hiring an individual at a salary of let’s say $100,000 with benefits could cost close to $130,000 a year. Added overhead such as an office, computer, an expense account etc. further adds to the cost. If a recruiter is involved, a fee of up to 30% may also be paid upon hiring, which in itself can be a long and costly process. If after a period of time it is determined that the person is not right for the job, releasing him/her could be expensive if they are in a protected category (such as over forty). Alternatively, a B2B CFO could be used as-needed for a fraction of the cost.
Outsourcing provides the benefit of receiving a higher level of expertise, with the flexibility of use as needed, and and cost only as needed, while eliminating the risk of entering into a long-term contract or employment agreement that handcuffs the company. Some outsourced services can be utilized on a long-term basis and can provide continuity and value for many years.