5 Reasons Companies are Choosing to Outsource

Although there are many reasons an organization might choose to outsource different roles or services, it all boils down to one fundamental principle—it improves their operational integrity and bolsters their bottom line.

Whether it’s for a short-term engagement or a long-term relationship, in-house or virtual, outsourcing is a methodology that should always create value. If you are considering outsourcing to a vendor or looking externally for a new function of your enterprise, the experts at CFO Hub have compiled five of the most important reasons companies are doing so.

#1 – Reducing Costs, Improving Bottom Line

It should be no surprise that staffing internally requires significant resources. From recruitment, payroll, to taxes, an internal team can draw from your bottom line. In which case, outsourcing can be a viable option to make cost-effective replacements for certain functions of the business.

For instance, if you decide to outsource, consider:

• Payroll – Fewer employees means lower payroll costs. In addition, you don’t have to pay bonuses to outsourced resources and they’ll often have a fixed cost.
• Paid days off – There are no free days. The client doesn’t pay for holidays, sick days, or vacation time. Outsourced projects are usually paid as a lump sum or on a time and material basis.
• Insurance – There are no health, disability, life, unemployment, or workers’ compensation payments.
• Office space and equipment – There’s no need to pay for desks, phones, and computers for off-site consultants.
• Employee training – One of the primary reasons you outsource is because the outfit you are contracting already has the expertise needed for the job. This reduces the resources you would otherwise allot to training.

Lastly, there are no recruitment fees when you outsource. Through your own due diligence, research, and time investment, you can identify the vendors you want to partner with without the strain of hiring or paying a recruiter.

#2 – Reduce Stress and Errors

Small- to medium-sized businesses may benefit the most from outsourcing entire departments. Once the initial startup pains are over, a company may find itself growing at a faster pace than anticipated. Initially, one team (or one person) may have managed all their critical duties.

However—at this size of business—once a business scales, a management team can often lose control. This creates the space for errors and might even bring severe stress into the work environment.

In an attempt to aid growth and support the foundational members of the team, a business can eliminate this friction by outsourcing entire departments:

• Human Resources – HR is a complicated, nuanced role. Personnel need to comply with state and federal workforce regulations, employees may need training schedules established, and complaints need resolution. Maternity, paternity, hardship and disability leaves of absence require managed oversight.
• Accounting – Accounting experts execute the complex, complicated, and time-consuming tasks at the heart of a company’s financial well-being (they also handle the busy work of bookkeeping). They track and manage AP and AR entries, pay vendors, reconcile the general ledger and ensure predictable cash flow.

As for HR and accounting, these are two components that often make sense to outsource. In fact, there are tons of companies that have established a plug-n-play business model where they can identify the perfect accountant or HR representative for your specific vertical and circumstance.

In early stage companies, the expertise offered and the convenience factor often render outsourcing these important roles a healthier decision for the business overall.

#3 Maintain Growth in a Limited Space

What if your company has limited physical space to grow and has a long-term lease on the present site? What if you cannot create a remote workforce?

In cases like these, outsourcing may be beneficial for the following reasons:

• Increases available space – Outsourcing a non-core department— like the aforementioned HR or accounting—may free up a significant amount of space.
• Enables increased number of core operators – Adding qualified staff members to an income-generating department that now has room to grow improves the bottom line.
• Maintains competitiveness – Your company can enhance productivity and competitiveness by increasing on-site core staff.

When space allocation is tight, you need to keep your key players in lockstep. That means that anything core to the business should be centralized, while supporting roles can be outsourced.

#4 – Onboard Short-Term Expertise

The nature of financial services lends itself to short-term consulting contracts. Financial analysis, forecasting, and modeling might require a higher level of expertise than what you have internally.

Perhaps you are not ready (or cannot afford) to hire an employee for that job, but you want someone to kickstart the process and guide you in the right direction.

An outsourced Company Financial Officer (CFO) can be the perfect bridge between this era and the iteration of the business capable of hiring an internal CFO.

To that end, a virtual CFO can provide the following services:

• Analysis – Your experienced financial analyst reviews the current financial situation and recommends future best practices.
• Budgets – The CFO analyzes your revenue, expenses, and contingency funds and suggests methods or initiatives to increase cash flow.
• Projections – Your CFO reviews past financial statements and identifies trends in the data. Using this information, they predicate future performance. This type of forecasting usually occurs on a quarterly or annual basis.
• Financial modeling – This approach is useful when your company is considering a major modification in its business structure, such as an acquisition, downsizing, or a revised number of facilities. The CFO analyzes how various scenarios impact the company’s finances.
• Training – Employees can work side-by-side with the consultant to learn advanced financial techniques and practices, streamlining the health of the business from the bottom up.

At some point in the journey, a CFO becomes critical to a venture’s growth. In today’s marketplace, a business does not need the capital to hire a full-time, salaried financial executive. Instead, they can outsource the role to a part-time CFO that only supports the specific need profile of the business.

#5 – Provide Business Continuity

Covid-19 taught businesses that they must be able to adapt quickly to changing circumstances. And adapt they did.

However, once the ubiquitous fear eased and life began to normalize, employees quit their jobs in droves. Perhaps people realized the fragility of life and did not want to waste time feeling stressed. Maybe they enjoyed working remotely and did not want to return to the office.

In any case, the broader workforce shifted, changed, and repositioned. Interestingly enough, outsourcing helped ease the volatility by driving:

• Stability – Outsourcing eliminates staff turnover and the subsequent need for recruiting and training.
• Continuity – Non-essential and support roles continue to operate. Outsourcing companies have many qualified professionals who can assume new roles when the need arises.
• Accountability – Off-site individuals or teams have a pool of potential managers who can step in to replace an absent colleague.

No one can prepare for every contingency, but outsourcing your company’s support teams can ease the strain by shifting control to external professional services with more available resources.