Growing a business

What is Outsourcing?

Over the last decade, Canadian businesses as a whole, have been increasingly looking to outsource their internal processes and functions rather than hire their own staff to undertake these tasks.

Outsourcing business services is fundamentally about obtaining services from external providers as a means to decrease costs and increase efficiency and profit. But what purpose does outsourcing serve and why do businesses do it?

These topics will help you understand more about outsourcing and it’s role in small business management: 

What is BPO?

BPO, meaning business process outsourcing, refers to the instances where companies choose to hire third-party sources for entire internal operations and business functions.

In many cases, companies will opt to hire services outside of their business in order to receive professional expertise that they might not have in-house. This is known as knowledge process outsourcing, as companies secure specialized services for specific tasks.

In other instances, the third-party services aren’t even human, as businesses choose to outsource administrative tasks to a virtual assistant to save time and effort. Now, businesses are slowly turning towards robot process automation (RPA) for their outsourcing needs.

In any case, whether outsourcing business processes or knowledge processes to an organization, individual, or robot, the end result is the same: companies hire services outside of their in-house employee roster to undertake specific internal functions.

Outsourcing vs Offshoring

Outsourcing is when a company contracts out a third party to complete specific internal functions. In this instance, the company will hire professionals for these specialized tasks. In contrast, offshoring refers to the process of exporting their internal services to be performed by individuals in another country.

Typically, offshore outsourcing companies cover the tasks that lower-level employees might handle, while outsourced services require a trained professional. Many companies turn to offshoring as the labour rates and costs are much lower in other countries than in North America.

Outsourcing Examples

Businesses of all sizes will opt to outsource a variety of internal services and functions. The most common business outsourcing activities include accountingpayrollinformation technology services or IT outsourcing legal services, customer service and support, call centres, facilities management, and human resources tasks and management.

Why Do Companies Outsource?

So what is it that companies turn to outsourcing their services? There are many reasons why businesses will choose to hire third-party services outside of their regular staff for certain functions. For the majority of businesses, their reasons for outsourcing include:

  • Cost Savings: Businesses can find that it is cheaper in terms of labour costs to use external services for various functions versus hiring and paying a full-time employee to cover the responsibilities in question. These savings can lower the business expenses overall.
  • Time Savings: Outsourcing providers can help the business save time, as an experienced professional will take less time to complete specific tasks versus employees who might not have the same skill level and experience.
  • Increased Efficiency: A business that outsources can improve its efficiency two-fold. In-house staff have more time and energy to devote to their specific tasks, while the third-party workers are experts in their field, meaning they can get through more work than otherwise might happen within the company.
  • Professional Expertise: Businesses generally hire outside sources for their specialized knowledge and niche expertise. Sometimes companies outsource functions to professional firms in order to have entire teams of highly-trained individuals at their disposal. Certain professional services, like consulting and legal fees, are even tax-deductible.
  • Industry Insight: Contracted professionals have the benefit of looking at the company from the outside, viewing the larger picture through the lens of their industry. This can provide companies with invaluable business insight they might not otherwise perceive from their internal position.

Whatever the reasons for outsourcing, it’s essential that businesses weigh up the advantages and disadvantages to their options. Whether outsourcing their accounting needs, IT functions, or other administrative tasks, companies will need to find the right fit for their needs.

How to Outsource

The first part in figuring out how to outsource is deciding whether or not to outsource specific services. Businesses will need to determine if particular internal functions are better served outside of their operations and if outsourcing will improve the business overall.

After weighing up the pros and cons of hiring third-party sources for internal needs, it’s important to do your research and come up with an outsourcing strategy. Understanding all legal requirements and possible risks associated with hiring external services can help your business in the long run. The security of financial data and customer information could be at risk if you hire poorly.

With that in mind, your business must do its due diligence when hiring an outsourcing company for the job. Businesses need to be wary about falling into the trap of hiring the first individual or organization they come across or hiring services based solely on the price. Remember, whether it is financial, technical, or human resource expertise, you are after, you get what you pay for.

Many businesses opt for outsourcing roles as it can save them more money upfront. However, sometimes it is beneficial to pay more for professional services with core competencies, as it can improve the business’s success in the long run. Quality services create greater opportunities and streamline operations for improved efficiency and profits.

Once all of these steps have been completed and businesses have chosen the perfect third-party fit, now is the time to draw up a contract. Companies should always lay out in clear terms what is expected of the external service providers and all the tasks they will need to be responsible for when creating an outsourcing contract.

If your business is looking to hire externally for internal needs, then consider this list of the best business processes outsourcing companies.

Enlisting the Help of Professionals

Whether your small business is looking to outsource its accounting functions or other services like customer support or IT, then QuickBooks can help. Consider using this quality accounting software over financial outsourcing to help you keep an intimate connection and overview of your company’s finances.

Or, use QuickBooks Online alongside your other needed outsourcing services to track expenses and file for tax deductions associated with these professional service fees. Sign up for a free trial to discover how this powerful tool can help you manage your business.

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