Traditionally, starting a business was considered a highly risky endeavor. Not only were you foregoing a regular salary in a normal company, but you also had to take on a lot of debt and incur what economists call “sunk costs” – or costs that are not recoverable.
Take, for instance, somebody wanting to start up their own restaurant business. Not only does that individual have to forgo income they could have earned elsewhere, but they also have to spend money on things that they can never sell to anyone else, like marketing expenses, lighting and electricity expenses, and menu costs.
Outsourcing, however, offers entrepreneur in many sectors a way of cutting their risk of setting up a business while leaving their chances of making a return untouched. Using outsourced services, especially at the beginning, may actually be more beneficial than trying to do it all alone. Here’s how.
Outsourcing Cuts Your Wage Bill
The most expensive item on an entrepreneur’s budget is usually labor costs. Labor isn’t cheap, and a team of just a dozen people can whittle away a budget of a $1 million to nothing in only a few months.
The good news is that entrepreneurs can now outsource many of the tasks that they would once have had to bring in-house, saving thousands of dollars in the process. Check out some of these examples.
- Virtual assistants. Unfortunately, for all her strengths, Siri still isn’t a particularly useful virtual assistant. But many entrepreneurs need the services of an assistant to organize their schedules and do odd tasks for the business. Hiring a full-time person to do the job isn’t an option for the vast majority because they cost so much. But outsourcing may be able to help: you can now get a virtual assistant – a person working for a third-party provider – who will do basic things like process calls and arrange your diary.
- Virtual IT services. If you take a look at wages for IT professionals online, you soon discover something: they get paid a lot of money. But the good news about the cloud is that you can now get IT services no matter where you’re located for a fraction of the price of hiring in-house. It works something like this: you pay a company a monthly fee, and in return, they’ll provide you with server space, technical support and security without you having to employ anyone or buy any expensive equipment.
- Marketing. The internet changed marketing forever. In the old days, companies used to hire their own marketing teams, bring the whole thing in-house. But today, thanks to the ease with which companies can connect with specialist agencies over the internet, the old world is breaking down. Marketing online isn’t so much about assembling a crack team that can come up with world-beating advertisement ideas, but drip feeding the search algorithms with the stuff they crave: regular content updates and lots of backlinks. That doesn’t require an elite team – just people with the skills to do the basics.
Outsourcing Cuts Your Distribution Costs
There’s been an explosion in demand for companies that provide fulfillment and delivery services since the advent of the internet. Sellers need firms that can process orders and send them to their customers, without messing up addresses or getting backlogged.
Fulfillment is by far the most challenging aspect of business for most small e-commerce retailers (or any firm that needs to send a lot of customers stuff in the post). But thanks to a range of companies, Conveyor Systems, that task is getting easier. You just tell a fulfillment company what you need to ship, and it’ll take care of the rest, including processing your orders. It’s an incredible system and one which is allowing people who have a good idea to take on less risk.
The idea of outsourcing manufacturing might seem like a bit of strange idea. How can you outsource the company itself? But odd as it may sound, this is something that some of the biggest companies in the world already do. Apple, for instance, outsources the production of its handsets to Foxconn and other companies based in the Far East. Apple knows that these firms can put together products faster and cheaper than it could do itself, enhancing their profitability and cutting risk. All Apple needs to do is slap a badge in the finished article, and it’s done.
Entrepreneurs with good ideas for physical products are doing the same but on a smaller scale. Instead of building out their own manufacturing facilities, they’re coming up with product specs and then getting established manufacturers to build them for them. It’s a beautiful system that allows entrepreneurs to cut their risk while providing the opportunity to skim profits off the top.
Some major international companies have in-house finance departments to ensure that they are doing everything by the book and that they avoid unnecessary tax expenses, where possible. But there’s usually no need for small scale entrepreneurs starting out to do the same.
Today, you can outsource practically all finance and administrative tasks.
Suppose, for instance, you’ve set up a limited liability company and have staff on payroll. Reporting for a limited liability company can be a challenge if you’ve never done it before. But there’s no need to learn: there are a variety of third-party companies out there who are more than happy to do the whole lot for you. They’ll create statements for the relevant tax authorities, sort out tax for workers on your payroll including national insurance contributions and pensions, and deal with things like corporation tax if you make a profit.
Outsourcing finance reduces your risk because you are much less likely to get fined if you make a mistake. Finance companies carefully ensure that all your reporting is accurate and that you avoid costly issues with the tax authorities in the future.
So now that you know how outsourcing reduces risk is it something that you will try in your company?