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Should you outsource essential business functions? Key Considerations

This is a guest post written by Launchways strategic partner, Larry Levy of CFO Options.

Have you thought about outsourcing some function of your business but now sure if you should? Maybe you’re uncomfortable outsourcing something that you think should be handled by an employee.

Whatever your current thoughts are, keep in mind that no company or organization is fully independent of other vendors, suppliers or service providers. To give but just one example, if you need to get something to a customer, do you have one of your employees drive it to the customer or do you put in the mail, FedEx, UPS or a messenger service? More often than not, you use a service. The point is all companies outsource some things, and they do this for a variety of reasons including:

  • The outsourced company is set up to do this more efficiently and better than you can
  • You don’t have the time to do it yourself
  • Your time is much more valuable doing other things that bring your company and your customers the highest value
  • You can’t afford and/or it doesn’t make financial sense to keep resources around to do things that don’t need to be done all the time (i.e. on a full-time basis.)

While it is customary to outsource functions like delivery, processing of payroll and preparation of income tax returns, other functions that can be outsourced are less common and you may feel less comfortable outsourcing them. Examples include marketing strategy and execution, bookkeeping, human resources and IT.

When considering outsourcing a function, the first thing you should think about is whether the area under consideration is a core strength of the business. Is it something that sets you apart from your competitors and allows you to provide exceptional service and results to your customers? To the extent the answer is yes, these are functions you should probably keep in house.

The second question I would ask is am I devoting resources to this function that can be used better in other areas? As an example, do you have a CIO fixing employee’s computers? Or, do you have a CHRO processing payroll? These are examples where the people taking care of these tasks are over qualified for the task. If doing these tasks is preventing them from getting other higher value things done, outsourcing the lower level task could make sense. Contrarily, if the time they spend on these things is small and doesn’t get in the way, outsourcing is probably unnecessary and costly.

Third, do you need expertise in some area, say marketing strategy, but you don’t need it full time? If so, I would strongly consider outsourcing. The alternative, bringing in highly compensated talent on a full-time basis when the function only requires a fraction of a full-time role, is both costly and can set up a pattern where people in your organization are not fully utilized. And potentially worse, they start taking on lower level tasks to keep themselves busy. When this happens, the company may be spending more than it needs to for their various functions and thinking that it needs.

In summation, outsourcing gives companies the opportunity to have another party (person or company) get certain work done when they don’t have anybody on staff with expertise or the time to get it done and/or it doesn’t make sense to bring that expertise in house because the needs are not close to full-time.

About the Author

If you’d like to discuss this further including how CFO Options helps its clients with a variety of strategic financial management as well as tactical bookkeeping and accounting solutions, please reach out to Larry Levy at llevy@CFOoptionsinc.com.