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Outsourcing is the business practice where a company lets another company handle part of its business function.
Some business functions that are outsourced include the sales department, collections, accounting, bookkeeping, marketing, and other back-office services. However, does outsourcing result to a boost in profits? In certain cases, it does. It depends on the kind of business, as well as other factors that will determine whether outsourcing a particular function can benefit the business finances.
Outsourcing can control costs
By outsourcing some functions of the business, businesses can save in terms of costs. From a fixed cost composed of overhead costs, salary to employees, additional office space, and other costs, it can be converted to a variable cost that may depend on the output of the outsourced business. For example, if outsourcing sales functions, the business costs can be made to depend on the amount of sales involved. Thus, the monthly costs will go up when profits are up, and down when profits are down. Outsourcing engineering services can be more cost-effective for a small business, compared to if an engineering division is maintained year round. In this case, finding some reputable services like www.asianprosource.com would be a great decision as it is not only cost-effective but is really trusted to deliver expected quality services.
Compared to a fixed cost, a variable cost will allow the business to save at certain times. Some outsourcing contracts even require the outsource company to comply with a set quota, non-compliance of which will entail lower costs, and over-compliance will result to rewards. In this case, the outsource company will have a positive incentive and a system of punishment to maintain efficiency.
Outsourcing can increase efficiency
Outsourcing enables the business to focus their resources in the core projects or core activities. For example, if the business deals in manufacturing computers, it can be to their advantage to outsource the sales function of their business and focus on the manufacturing function. This can also boost investments, as investors will have more trust in their product as they give more emphasis in its quality.
Outsourcing also enables businesses to forgo some departments, which are only essential during specific seasons, such as the accounting department. Small businesses can normally handle their bookkeeping. However, during tax filing season, the business may need the help of an accounting firm to sort out their tax liabilities. Thus, during tax season, it is sensible to contract out the accounting function at a fixed cost. This saves the company in terms of expenses and costs during off-peak season.
Outsourcing can increase employee value
Since the business saves in terms of overhead costs and expenses, the company will have more time and resources to devote for the development of their internal employees. The company will be able to give more value in terms of salary increases and employee benefits. Better employee investment promotes employee retention, which in turn reflects a sound business environment that may attract investments and trust from potential clients.
Outsourcing levels the playing field
Outsourcing enables small business owners to produce the same quality of business as bigger ones. It allows small businesses to offer the same support that larger companies provide from their in-house employees. Outsourcing reduces the risk to which small business owners can be particularly vulnerable. Every business has its own risks. However, small businesses may take longer to bounce back from a risk or a failure, unlike a bigger company. Nonetheless, by outsourcing business functions, small business owners can utilize the expertise of outsource companies in terms of managing these risks.