Are you skeptical about whether outsourcing is good or bad for business? Read and find out why outsourcing may be the answer to saving money in your business.
All small business entrepreneurs start out with the aim of making a profit. Yet, making a profit can prove to be a difficult task in a business’s early years. Even if companies manage to produce an excellent gain at the end of the financial year, profit margins are often slim and plunged back into the business to sustain it.
To succeed, businesses must be strict in their strategies, including keeping their costs down. Around 82 percent of the businesses that fail each year attribute cashflow issues to their demise, according to statistics presented by InsuranceQuotes.
One of the most popular ways to minimize costs for a small or new business? Outsourcing. While it is by no means a new concept, it can produce vast benefits on the financial front for a business looking to save money, whether it is a business you just launched or one that has been around for a while.
Reduces Employment Costs and Idle Hours
A study by the Society for Human Resource Management estimates the cost of recruiting a new employee to be $4,129 and the timeline to fill a vacancy to be 42 days. With the average small business revenue set at $46,978 annually, that accounts for almost 10 percent of their annual revenue before employee salaries and benefits are even considered.
Meanwhile, outsourcing will come with its additional costs, such as costs of managing and building the business-client relationship, but its normally minimal amounts compared to internal employees. In addition, administrative overheads such as rent for employee space is cut down since most outsourcing firms work offsite or at their premises.
Furthermore, 78 percent of employees experience some kind of idle time at work, which costs companies over $100 billion annually. By outsourcing services such as IT, accounting, and even marketing, businesses can pay for per hour or project. With jobs in these industries such as IT commanding some of the highest salaries worldwide, paying for the exact time and effort work is key to minimizing already heightened employee costs for businesses.
Removes the Need for Training
One of the best arguments for outsourcing services is the avoidance of providing training and access to experience and expertise- without the cost. Business tasks such as bookkeeping, website designing, and cybersecurity often entail individuals undergoing intense educational and practical training before they are certified by the relevant professional bodies.
The Association for Talent Development (ATD) State of The Industry Report puts the average spend on employee training at $1,296 per employee. If done correctly, outsourcing can give even small businesses access to human resources that normally would be out of their budget.
Requires Less Investment in Equipment and Machinery
Finally, some business departments — such as the IT or delivery departments — in a business entity may require a sizable investment if it is to be kept in the organization. There are rent/purchase costs for a workspace, cost of equipment and expenditures on highly technical software. Some researchers have estimated that small businesses spend 6.9 percent on IT annually. These days concerns like cybersecurity are becoming very real for businesses, even the smaller ones. With cyber-attacks costing small businesses over $200,000, protecting themselves and the business’ assets is key to remaining in business. Contracting out such needs to a managed service provider can help smaller businesses be ready to combat and recover from such threats without the full-time price tag.
While technology does have its benefits in business, the reality is that most businesses just starting out do not have access to such large amounts of capital for these investments. As such, they can end up turning to high-cost financing or opting to outsource their needs.
However, it must be said that outsourcing does not work for all business or business functions. It is really a case of assessing whether it may be the right step for yours and whether the benefits gained would outweigh the costs. The only question that remains now is: Is outsourcing the right cost-saving solution for your business?
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