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What is outsourcing? A simple guide for small business owners

4-minute read

Catriona Smith

4 February 2022

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Need more time to grow your business? Outsourcing can help manage necessary but time-consuming business admin for you, so you can focus on what’s important.

Whether you need support with marketing and accounting to help your business run smoothly or you need a short-term solution to staff training, outsourcing could be the answer.

This guide will help you understand what outsourcing is, the pros and cons, and examples where outsourcing can help your small business.

First, let’s understand the meaning of outsourcing

According to the Oxford English Dictionary, the outsourcing definition is to “obtain by contract from an outside supplier” and to “contract work out.”

This could mean payroll outsourcing, IT outsourcing, or even outsourcing business processes and HR as your business grows.

5 ways outsourcing can help your small business

As a small business owner, chances are you’ll be used to working on every part of running your business, from sales and marketing to actually delivering the service or product itself.

If you’re finding you don’t have the time or skills to do certain tasks, it may be time to consider outsourcing. Here are just a few ideas of processes and functions that you can easily outsource to help you grow your small business.

Accounting

Accounting and bookkeeping are often outsourced by small businesses. It’s important to get the process right so you don’t risk getting penalties from HMRC, but it’s also time-consuming and challenging if you’re not a financial expert.

Getting a professional accountant can save you money as you won’t have to spend time learning how to balance your books and pay your taxes.

Marketing

Getting your marketing right helps you attract customers and grow your business, so it can be worthwhile bringing in some experts to help. An external marketing agency can take care of everything from creating content and adverts to website design and social media.

If marketing isn't something you enjoy, working with the creative experts can help get you started.

Marketing agency discussing ideas

Manufacturing and shipping

Perhaps you have an online shop and work with manufacturers to design and make your products. Or maybe you need help from a courier to deliver your products to customers. By outsourcing these processes, you’re able to spend more time focusing on your strategic direction and sales tactics.

Research

Are you thinking of developing a new product? It’s important to spend time researching the market and understanding your target audience so you know what competitors are doing, and how you can stand out.

Focus groups, surveys and insight gathering all take time, so it’s common for small businesses to outsource this research phase.

IT support

You’re probably dependent on technology for your business, but what happens if something goes wrong? Whether you need help with your web design or have faced cybersecurity threats, you’ll need support from an IT expert.

Outsourcing technology could cover a range of tasks, including IT support, security, hosting, data storage, and network recovery and maintenance.

Outsourcing example

Let’s say you own a dog walking business and you’re attracting more clients (and dogs) than you have time to manage.

If you’re finding that a lot of your time is taken up with organising your finances and you’re turning down work, you may be missing out on growing your business to its full potential.

You could consider investing in accounting software as a way to outsource the financial side of running your business. Alternatively, you could hire an accountant.

Using software solutions from a third-party and engaging an external contractor are both considered forms of outsourcing as you’re essentially giving up control in an area of your business to another provider.

What are the benefits of outsourcing?

Outsourcing means you can scale your business up and down depending on the need, without having to spend money and time hiring and training new staff.

Other benefits include:

  • more time to focus on core business activities (and what you love)
  • increased profitability
  • flexibility to increase resources
  • more efficient processes

What are the disadvantages of outsourcing?

The nature of outsourcing means you’re relying on a third party to meet the high standards you set for your business, so you need to be sure you use a provider you can trust.

Disadvantages of outsourcing include:

  • loss of control of an element of your business
  • risk to your business's reputation if something goes wrong
  • quality or service may not meet your expectations

To help mitigate some of these risks, it’s important to have a clear service level agreement (known as a SLA) with your providers so you can set the level of service you expect. You don’t want to risk losing money or even reputational damage with your clients if your provider isn’t up to scratch.

A SLA makes sure everyone is clear of their responsibilities. It also means you can set measures of performance so you know if the arrangement is working or not – and the penalties if the agreement isn’t met.

Does outsourcing affect your business insurance?

Depending on your business insurance policy, you may need to let your insurance company know if you start outsourcing or subcontracting work out to a third party.

It’s important that you check that any subcontractors have public liability insurance in place before they carry out any work for you. And, depending on your arrangement, you may be responsible for their health and safety. If this is the case, it’s likely they’ll need to be covered by your employers’ liability insurance.

If you’re just outsourcing software solutions, then this isn’t likely to affect your cover, but it’s always a good idea to check your policy documents.

Outsourcing software solutions

As we mentioned earlier, using third-party software can be a way of outsourcing certain business processes. For example, you could use:

Remember, it's important to consider your profit margin when deciding whether to outsource part of your business. Think about money and time that it could save you. If you think it'll help your business in the long run then it may be a good option for your business.

What’s your experience outsourcing? Let us know in the comments.

Photograph 1: VAKSMANV/stock.adobe.com

Photograph 2: Friends Stock/stock.adobe.com

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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