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The Pros and Cons of Outsourcing in 2023

    

7 min read

SMB outsourcing, Financial Management

Outsourced Bookkeeping and Accounting Costs

The rise of modern technology and cloud computing has streamlined and simplified the process of business outsourcing.

Key Takeaways

With these technologies and increased IT security protocols, outsourcing options have become real opportunities for business leaders to improve operations, save money, and increase their profits. However, there are still some drawbacks to consider. When thinking about outsourcing options for your company, be sure to consider all of the pros and cons in addition to a few key best practices for professional outsourcing. 

What is the cost comparison between an in-house vs. outsourced controller? See  How Your Cost Stack Up With Custom Pricing. 

Outsourcing Definition: What Is Professional Outsourcing?

Outsourcing is the practice of a business or organization hiring third-party service providers (other companies, firms, contractors, or other external resources) to shift certain operations to these providers. 

Business Outsourcing Pros and Cons in 2023

Outsourcing comes with both potential advantages and potential disadvantages, and whether your business ends up benefiting or suffering as a result of outsourcing largely depends on the quality of the professional outsourced service providers with which you choose to partner. 

The following are some of the most common advantages and disadvantages of outsourcing:

6 Advantages of Outsourcing

1. Save Money

Working with outsourced professional service providers is almost always less expensive than hiring in-house employees to complete the same tasks for your business. This is especially true for small and medium-sized businesses. 

2. Reduce Workload and Save Time

With each business function you choose to outsource, you save time for yourself and your employees. As a result, you'll be able to greatly reduce the general workload handled in-house by your employees. This streamlines your workflow and helps reduce the risk of employee burnout while also increasing employee satisfaction with the potential of outsourcing repetitive or frustrating workplace tasks. 

Read More: 4 Ways to Fight Employee Burnout With Automation

3. Access Industry Experts

When you outsource non-core business functions, you'll be accessing professionals and experts in those fields. If you choose to outsource your back office functions, marketing, legal, or other departments, you'll be receiving services from some of the top talent in those fields – rather than simply accessing the level of expertise that your small or medium-sized business can afford to hire. 

4. Increase Productivity

Outsourcing helps you increase productivity because you and your employees will have a reduced workload and be able to better focus on the primary operations and goals of your business. 

5. Focus on High-Value Tasks and/or Core Business Functions

When not spending time worrying about non-core business functions, you and your employees can focus on the higher-value tasks that are central to your business's success, development, revenue, profits, and growth. 

6. Mitigate Risks

Outsourcing certain functions of your business to reputable outsourced service providers shifts the burden of risk from your business onto the third-party provider. This includes a great number of risks such as internal fraud, IT security, and physical security, depending on the type of outsourcing you choose. 

Why are more and more businesses outsourcing?  For starters, two-thirds of businesses cite cost savings as a main advantage of outsourcing.  

 

 

Download our Guide To Outsourcing.

5 Potential Disadvantages of Outsourcing

1. Security and Confidentiality Risks

While outsourcing shifts the burden of risk and security to the third-party provider, you still want to choose a provider that has a good reputation and sound privacy and security policies, protocols, and infrastructure in place. Otherwise, you could risk the security, confidentiality, and/or reputation of your business, clients, and private information if you choose to trust a third-party provider that is not truly trustworthy. 

2. Loss of Control

When outsourcing any function of your business, you lose some control over that aspect of your business. While it's important to select a third-party provider that is willing to work with you to develop systems that streamline well with the rest of your company's operations, you are still relinquishing control over these outsourced parts of your company. 

Read More: Been Burned by Outsourcing Before? Let's Talk about It.

3. Delayed Delivery

Regardless of what you choose to outsource, with outsourced services, you run the risk of suffering operational snags due to delayed service delivery. Once again, this disadvantage can be mitigated by choosing to work with a highly reputable outsourced service provider. 

4. Hidden Costs

When outsourcing any function of your business, be sure you are aware of all the potential costs and fees involved with your contract. Be sure you understand how much you'll be paying, what services you should receive in return, the limits of any services, and the fees (if any) for exceeding your maximum contract use over a certain period of time. 

5. Quality Concerns

Additionally, when you choose to outsource internal functions, you expect the tasks to be completed better than you could complete them on your own or in-house. However, sometimes, you could experience quality issues if you do not choose a high-quality provider or if you do not closely monitor the service you are receiving. 

5 Best Practices for Business Leaders Considering B2B Outsourcing Services

To maximize the advantages and minimize the risks of outsourcing for your business, consider the following five best practices for business outsourcing. 

1. Focus on Non-Core Business Functions

In order to maintain control and preserve the quality of your company's unique value proposition, it's likely smartest for you to keep the majority of your core business functions in-house. However, you can likely improve your business operations, save money, and save time by outsourcing non-core aspects of your business such as:

  • Bookkeeping and accounting
  • Legal
  • Compliance and auditing
  • Marketing
  • Logistics and shipping
  • Human resources
  • IT management and security

Each of these non-core business functions is likely necessary for your operation but does not represent a crucial, core function of your business. Hiring these types of experts in-house can be quite costly – especially when your business is not large enough to truly require these types of professional services 24/7. By outsourcing these functions, you can access the expertise of some of the top people in these fields at a fraction of the cost of hiring them to work directly for your company. As a result, your business cost is reduced and the quality of services received is maximized.

2. Choose a Reputable Provider: Know the Difference Between Outsourcing and Offshoring

When shopping for B2B outsourcing providers, be sure to research your options thoroughly. Keep in mind that offshoring is different than simply outsourcing in that offshoring outsources to overseas companies. These businesses might be held to different regulations and laws than companies in the United States. Be sure to research the companies you use thoroughly to ensure you choose a reputable, secure, and ethical service provider. 

Read More: Cost Analysis: Outsourcing vs. In-House Accounting for Your Business

3. Understand Privacy Policies

Don't discard the privacy policies of any third-party service provider you work with. If their privacy policies are not sound, it could put your company's sensitive information at risk as well as that of all of your clients. 

4. Practice Due Diligence With Security

In addition to reading carefully through outsourced service provider privacy policies, you should also talk with them about their security protocols. Find out what kinds of IT security and physical security they have in place and ensure their security measures are up to your standards. 

When working with an outsourced provider, the monetary burden of security and risks associated with poor protocols usually shift onto them. However, your business's reputation is still at risk. Having a security breach occur with one of your outsourced providers can still reflect poorly on your company and compromise the trust you've built with your client base. 

5. Understand the Costs and Calculate ROI

Be sure to get service cost quotes in writing from the outsource providers you choose to work with and be sure to read through these documents thoroughly. This way you'll go into the partnership understanding the costs and can avoid running into unexpected fees that can add up quickly.

Keep careful track of all costs associated with outsourcing in addition to any costs you avoid as a result and any revenue your outsourced services gain you. This can help you calculate the ROI on outsourcing costs to ensure you're choosing the most profitable functions of your business for outsourcing. 

Make the Most of Outsourcing Services in Your Business

By sticking to these five best practices when considering which functions of your business to outsource and shopping for professional outsourcing services, you should be able to maximize the positive outcomes of outsourcing for your company, saving money, time, and resources while taking advantage of industry expertise that can super-charge the non-core departments of your company. As a result, you can make the most of the opportunities that professional outsourcing can offer while minimizing the potential drawbacks and risks assumed by your business. 

Inaccurate financials = constant frustration. Is this how you want to run your business? Speak to an expert.

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