Making the Outsourcing Option Work for Your Small Business
By Bruce Michalski – SCORE Mentor
As your business grows, so too do the complexities of its operation. You may well reach a point where certain functions are costing money or compromising efficiency, and diverting your attention from more critical core aspects.
We have seen it many times that a business owner wears too many hats. While it is fine to have a working knowledge in all areas of the business, is the best use of your time really doing data entry or completing the chore of paying the employees and paying the taxes??
This does not add any value to what your customer buys from you, or the experience your customer has dealing with your company! Small companies become big, successful companies when the owner learns to delegate, when the business owner starts working on the business, not in the business.
Outsourcing is delegating jobs to specialized providers who can perform them more efficiently for less than it costs you to keep it in-house. What is more important? Saving a small amount of money doing something you may not like doing or perhaps not have the technical training for, or making the most of your time increasing sales of your product or services??
While any number of business functions can be outsourced, the most common operations include administrative tasks (e.g. accounting, human resources), those with a high degree of repetition (data entry), and those requiring special expertise such as IT management or public relations. Some small businesses outsource customer service operations, inventory management, or component manufacturing as well.
A wonderful real-life example was a small business owner who came to SCORE because he was having difficulties interpreting the financial statements being produced by the accounting program he was using. The business had been in business for a number of years, was profitable, and had a relatively small number of employees. After sitting down with me and developing a needs assessment, it turned out that the business owner was spending a minimum of 15 hours a week trying to learn the accounting program he had selected to use, entering (and re-entering) data, and trying to figure out what relevant features he could apply to his business -- all with great effort and very little in regards to effective results.
Like many people, the owner did not have any formal training in bookkeeping, and had created a chart of accounts that would make any accountant cringe in fear at its complexity and enormity. When we sat down together to try to untie this Gordian knot, it was quickly determined that an efficient plan of action was to find a specialist in the accounting program, and get that specialist to create a chart of accounts that made sense for that particular business, determine what reporting tools would make the most sense, and create policies and procedures that the owner (or an employee) could follow to do the needed data entry, and create a custom schedule with the specialist (it was decided quarterly) to discuss results and refine the system. Hiring the specialist was not free as there were set-up charges and ongoing costs, but you do pay specialists for a reason, their expertise and their knowledge.
The end result… the owner went from spending 15 hours a week doing something they had grown to hate, to just an hour and spending his "saved" time doing what he was really good at… working on his business.
Once the business owner became comfortable with this arrangement and grew more confident with the specialist, he was able to delegate additional responsibilities and decided to outsource his payroll services, saving him additional time and the headaches of keeping up-to-date regarding legal compliance.
As with any business decision, outsourcing requires careful consideration on your part, particularly in finding qualified professionals to take on these duties. Fellow entrepreneurs can be good sources of advice and referrals for outsource contractors. But don’t just take their word for it. Your need to interview these people as they are going to be integral members of your team. Needs and priorities differ from one business to another, making someone else’s perfect fit less suitable to you.
Some other good sources of guidance include the Outsourcing Institute (www.outsourcing.com), a professional association for the outsourcing industry and a neutral resource for information, connections and solutions; and contractor exchange sites such as oDesk (www.odesk.com) and eLance (www.eLance.com).
As you evaluate potential candidates, make sure they have experience in your type of business, their track record, problem responsiveness and resolution, work processes, and cost structure. Pay particular attention to the last two factors to ensure the investment truly saves you money and enhances your own company’s efficiency. Because communication is always critical, you’ll also want to gain a comfort level with the contractor. Much of the up-front introductory work can be conducted online, but phone calls and in-person meetings will go a long way toward establishing trust and an all-important “comfort level.”
So some simple steps for interviewing a possible outsourcing partner are:
- Prepare! Determine what your business requires. Write a brief statement about what you are trying to achieve and what you are looking for in an outsourcing company. Write a list of specific interview questions... this will keep the interview on track.
- Rehearse! You will need to estimate an approximate length of the interview for your appointment schedule as well as the potential outsourcing partner.
- Avoid disruptions! It will benefit you to keep focused and create less frustration for all involved.
- Ask questions! You need to know the background and history of the outsourcing partner, its ability to meet the needs of your company, and its stability. Asking questions that require more than a "yes" or "no" answer can provide information that leads to additional questions you did not think of before the interview. Ask for specific examples! How has the provider handled specific problems such as the ones you are experiencing? What happens if the outsourcing company does not perform as promised.
- Take notes! As you should be interviewing two or three candidates, you will need notes to refresh your memory when making a decision about the company to hire. Note the interviewee's nonverbal, as well as verbal, communication.
- Summarize your impressions! After the interviewee leaves, write down any impressions while the interview is fresh in your mind. It is critical to have an accurate record to reference when selecting the outsourcing provider for your company.
And even though the idea of outsourcing is to shed responsibility, you need regular contact with the contractor to get updates, ask questions or explain changes that may be coming to your business. Do not simply assume that the contractor instinctively knows everything you do about the function.
To learn more about outsourcing successfully, contact SCORE “Mentors to America’s Small Business.” SCORE is a nonprofit organization of more than 12,000 volunteers who provide free, confidential business mentoring and training workshops to small business owners. For more information, visit www.scorecentraloregon.org.