The Pros and Cons of Outsourcing For Small Businesses

Nonetheless, if not utilized correctly, outsourcing can turn into an unpleasant ordeal, leaving you to deal with issues such as poor quality of work or security breaches that lead to data leaks. This will be your guide to the pros and cons of outsourcing jobs to help you navigate this strategic business practice to its full potential and avoid any downsides of outsourcing jobs.

Key Takeaways

• Outsourcing is hiring third-party organizations to handle operational requirements for a company.
• Outsourcing can increase the productivity of a small business, decrease costs, enhance quality, save time, and simplify your business layout.
• Outsourcing also has its fair share of challenges, like communication gaps, inconsistent quality of work, security concerns, and compatibility issues.

What Does Outsourcing Mean?

Outsourcing is when a company hires a third-party organization to perform tasks or manufacture products. It’s done for many reasons, including cost savings by hiring skilled labor in a foreign country with lower wages or to keep your staff focused on core competencies. At the same time, third parties handle less important tasks. Outsourcing, however, has its set of unique pros and cons that must be weighed against each other before you adopt it as a reliable way of doing business.

Pros of Outsourcing for a Small Business

The government is constantly enacting new laws and regulations to improve working conditions and wages for large corporations, but small businesses are often the ones who suffer as a result. Consequently, it has become extremely difficult for small businesses to maintain a healthy workforce with their capital. Factors such as these have pushed small businesses to focus more on solutions such as outsourcing, increasing the hiring of freelancers. By hiring these third-party firms, they are absolved of these policies and laws, thereby avoiding legal liability entirely.

However, this isn’t the only reason why outsourcing has gotten so much attention, so let’s take a look at some other benefits of outsourcing for small businesses.

Fewer Costs

Outsourcing helps you save capital in many different ways. Overhead costs are the easiest to get rid of with this approach. No more worrying about paying salaries, office space, or maintenance. Outsourcing your labor needs to other parts of the world also helps to cut down on costs even further. Some countries have more favorable labor laws, which lets you pay much less for the same manpower.

Additionally, hiring fewer employees equates to a lesser financial burden in terms of employee bonuses and benefits. For small businesses, this all adds up to a significant amount, which can be used to invest in your businesses, serving as an excellent strategy for the growth of small companies.

Furthermore, if you lack funds to hire experts full-time at your company, outsourcing can act as a bypass, allowing you to take full advantage of your limited finances since they cost much less.

A More Core-Focused Business

Outsourcing leaves you with a significant amount of extra time at your disposal that you can use effectively to increase your business’ productivity and growth. You can use this time to focus more on the primary goals of your business while a third party takes care of the tasks outside your team’s skill set. For example, a digital marketing company can outsource its accounting. This gives them more time to improve their marketing strategies.

Note: This feature is of particular importance to small companies, as they are usually more understaffed.

Simplified Project Management

It becomes considerably easier to manage multiple projects simultaneously when you outsource. Many outsourcing platforms have automated project management features that simplify controlling operational flow. You won’t have to deal with day-to-day management by having everything already decided. Finally, you can pay once you are satisfied with the outcome, making it a result-based payment.

Scalability

Outsourcing makes it possible for a company to rapidly scale up or down its workforce as required. So, if you are facing increased demand as a result of recent events, rather than hiring new employees and training them from scratch, you could just outsource your tasks till the demand subsides. When the dust settles and the need for these third-party employees is no longer necessary, you can immediately cease working with them (and paying them) and resume normal operations as if nothing had happened.

Cons of Outsourcing for a Small Business

Having established the bounties of adopting outsourcing jobs, it’s now time to give some attention to its downsides. Let’s get into it!

Lack of Control

When you outsource, you provide detailed instructions on how you want the task completed. Despite this, certain tasks require routine check-ins and monitoring, something that’s difficult to accomplish when you hire a third party to do it for you. These third parties typically recruit other people to do the work, making it impractical for you to directly communicate with these outsourcing teams. Not only does this leave significant room for error when dealing with tasks that require iterative work, but it also means that you’ll only discover the gaps in the work once it has been completed.

Compromised Security

You run the risk of exposing sensitive information whenever you outsource. This issue is exacerbated by jobs requiring employees to maintain strict confidentiality. A job in finance, for example, will require you to reveal sensitive financial details about your company that an untrustworthy party could exploit.

Therefore, larger companies avoid outsourcing jobs that deal with sensitive information and make their employees sign NDAs as a security measure. Smaller businesses, on the other hand, do not have this luxury, and trusting the wrong third party can jeopardize the company’s success before it even begins.

Challenges with Communications

A major concern for business outsourcing work is the lack of direct communication medium between them and the individuals working on their project. There are many reasons for this like:

• Different time zones
• Different language
• Communication barrier due to multiple parties in the middle (eg. outsourcing company, managers, etc.)
• Different communication style
• Different work culture

If any of this applies to your situation, your work may be jeopardized.

Quality Control Issues

Outsourcing always comes with the risk of producing lower-quality work. Someone else working on your project won’t give it the same attention and care you would. Freelancers and outsourcing firms are juggling multiple clients simultaneously. Due to this, they aren’t able to perform to the best of their abilities. Your relationship with clients and reputation can suffer because of the reduced quality.

Difficulty in Finding the Right Partner

A sourcing partner who can meet all your requirements is difficult to find. Looking for freelancers or firms that perfectly match your requirements is a tedious process and takes some degree of trial and error. The list can get pretty long depending on your project, but usually encompasses the following:

• Can deliver on time
• Follow instructions
• Communicates properly
• Cost-effective

Comparing the services of multiple setups also takes proper attention and time to ensure you get the best deal. Subsequently, when you finally find the right partner, you have to set up long-term contracts and provide incentives for them to continue working with you.

Conclusion

Let’s review what we’ve learned! A small business can significantly improve itself through outsourcing, allowing it to focus on the main objectives while a third party acts as the ancillary staff. Not only is the staff better suited to these tasks, but they’re also a cost-effective solution to the financial issues of small businesses. Just remember, before you make a decision, evaluate the outsourcing business pros and cons to ensure it aligns with your needs.

If you still have doubts about the course of your business, consider contacting an expert business consultant like KMD Business Consultants for a more thorough and one-on-one guide.

Most of these topics are discussed in my two books:

Being A Visionary: Going After Your Vision

Being A Visionary: Going After Your Vision Workbook