Home' Trinidad and Tobago Guardian : August 10th 2014 Contents SBG18 COMMENTARY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 10 • 2014
Driven by advances in tech-
nology, the global reach of
the Internet and the eco-
nomic downturn, outsourc-
ing---or the practice of using
outside firms or independent
contractors to handle work traditionally per-
formed within a company---is becoming easier,
more cost justifiable and more efficient than
It is a common flaw that many entrepreneurs
possess: thinking that they can and should do
it all. But that mindset may be slowly evolving
as the ability to outsource different tasks and
responsibilities becomes increasingly viable
for even the smallest of small businesses.
Brave new world
Thanks to advances in technology and the
global reach of the Internet, outsourcing---or
the practice of using outside firms or inde-
pendent contractors to handle work tradition-
ally performed within a business---is becoming
easier, more cost justifiable and more efficient
than ever before.
Through the use of social networks such as
LinkedIn and Facebook, small businesses can
reach outside of their geographic area to find
and establish virtual relationships with out-
sourcing vendors and independent contractors
across the country or even around the world.
The Great Recession and subsequent sluggish
economic recovery also have fed the outsourc-
ing trend, driving businesses to be vigilant
about expenses and reluctant to hire new full-
time employees, while at the same time cre-
ating a vast pool of skilled workers and pro-
fessionals who vacated positions in the
corporate world---either voluntarily or through
layoffs---and who now are offering their services
to businesses as independent contractors.
While the opportunity has never been more
fertile, the decision of when---and what---to
outsource can seem daunting to the uninitiated.
To outsource or not to outsource
Here are some important questions to ask
yourself as you weigh the decision to outsource
• Is the job a core competency of your
These days, almost any business task can
be outsourced. However, just because the talent
is available in the marketplace, it does not
mean you should take advantage of it. As a
first step, assess your business s core strengths
and capabilities as well as its primary service
and or product offerings. Market experts often
recommend keeping all aspects of your core
business in-house and proprietary in order to
maintain your competitive position in the
That means, for instance, if your company
specialises in Web design, don t hire a freelance
Web designer to be the creative brain behind
your next big project.
• Is it a specialised service that you use
While your business absolutely requires
accounting, legal and tax assistance from time
to time, you most likely do not need---and
most certainly cannot afford---to hire a full-
time CPA or attorney. Similarly, while you
may require high-level marketing services
once or twice a year (eg, to manage a semi-
annual marketing campaign), that need can
easily be filled by hiring an independent con-
tractor on an as-needed basis.
• Is the task a commodity that someone
else can perform more efficiently and cost
Think payroll, data entry, accounts payable
and shipping inventory. These types of process-
es are some of the most popular to outsource
as they offer significant leverage in terms of
time and money saved.
• Is the cost of the service lower than what
it would cost (in time and resources) to perform
See "calculating the cost benefit" below for
more insights on the cost versus the benefit
of outsourcing key business functions.
Calculating the cost benefit
Following are some general guidelines to
help you assess the potential return outsourcing
may offer your business.
Factor in overhead costs.
In addition to their salary or hourly wages,
full-time employees also cost companies in
the form of payroll taxes, insurance and other
benefits. Experts suggest you should expect
to pay an additional 30 per cent above and
beyond an employee s pay for these overhead
Consider your worth.
Think through the difference between your
hourly rate and the rate that an outside con-
tractor may charge to perform the same task.
For instance, if you are a business consultant
who charges $100 an hour for your services,
you could save 75 per cent by paying a con-
tractor $25 an hour to perform administrative
tasks you are currently handling yourself. And
wouldn t your valuable time be better spent
focusing on your core business activities?
Also consider the savings that would be
realised if the contractor could complete the
task faster and with fewer mistakes than you
could. That is a winning combination that
goes beyond the bottom line.
Think high level.
Increasingly, small businesses are looking
to outsource executive-level positions, such
as chief financial officers (CFOs) and marketing
directors. In these cases, the need is for strate-
gic-level consulting to be used sparingly, for
instance, on a weekly or monthly basis. What
might be the cost savings for outsourcing a
CFO s financial expertise?
According to the American Institute of Cer-
tified Public Accountants (AICPA) 2013 CFO
Compensation Survey, the median CFO salary
in private companies was $150,000 in 2012,
and the corresponding median bonus was
$15,000 for a total of $165,000.1
Factor in an additional 25 per cent for taxes
and benefits and the total cost to the company
would be about $206,250 per year, or $17,185
per month. Compare that with the cost of
outsourcing a CFO s services for one day a
week, and it is easy to realise the dramatic
savings available to a small company in terms
of salary, as well as health and retirement ben-
The potential cost savings outsourcing may
offer is linked directly to the type of business
you are in and what you hope to achieve. For
this reason, many outsourcing contractors offer
free online calculators to help entrepreneurs
flesh out the specifics of their proposal and to
see clearly if the numbers add up to savings
for their company.
Go offshore or stay stateside.
Technology continues to push the envelope
on what businesses can do to leverage talent
irrespective of geographic boundaries. Estab-
lishing a presence on online networking or
business outsourcing sites makes it easier for
business owners and vendors to find each other,
to enter into business contracts and to build
lasting relationships without ever meeting face-
Information technology (IT), in particular,
is one area where connecting with offshore
programmers and technicians may well result
in considerable cost savings over using stateside
Wide disparities in the salary requirements
of offshore versus US-based IT professionals
may make this an opportunity worth pursuing.
However, as attractive as any such cost benefit
may be, it should be weighed against the poten-
tial barriers presented by language, cultural
and time zone differences. As an alternative,
think rural stateside contractors who are still
likely to represent a significant cost savings
over similarly skilled contractors based in major
Shift "fixed" to " variable" costs.
Perhaps the most obvious cost benefit of
outsourcing is the ability to move fixed costs
(ie, full-time employees) to the variable cost
side of the ledger, in the form of an outsourced
Where to find outsourcers
Here are some resources to help guide your
• Your personal network; Ask other business
owners, your accountant, lawyer or banker to
recommend a vendor offering the services you
• The Internet; LinkedIn, Facebook, Twitter
and online outsourcers can all serve as virtual
marketplaces to help match up appropriate
contractors with business owners.
• Professional trade associations; these organ-
isations may be able to recommend the right
contractor for your needs.
Making the most of outsourcing
Outsourcing can be a boon to solo practi-
tioners and small businesses, but it is not with-
out its challenges. In order to reap the full ben-
efits of any outsourcing arrangement, consider
these commonsense tips:
• Check references.
• Prepare a simple contract that states clearly
your expectations, pay rates, steps involved in
the project, schedules, etc.
• Be prepared to spend some time upfront
training your outsourcing partner. It may seem
like a bother at first, but in the end, the time
spent will provide for a more satisfactory and
When hiring offshore contractors:
• Decide what online collaboration tools you
need. Pick the ones that best fit your needs
and that do not confuse you with too many
bells and whistles.
• Offshore only those tasks that are well
defined. For tasks that need your input several
times a day, choose a provider who can work
in your own time zone.
• Manage for efficiency: Evaluate how much
time you and your employees are spending on
finding providers and on assigning and tracking
their tasks. This could be another service you
could outsource to an outside agency.
Outsourcing the right tasks allows you to
focus intently on the things that make your
company successful, and to dedicate your time,
energy and resources to keeping your company
thriving and moving forward to the next level
Article by Wealth Management Systems, Inc.
and provided courtesy of Morgan Stanley Financial
The author(s) are not employees of Morgan Stanley Smith
Barney LLC ("Morgan Stanley"). The opinions expressed by the
authors are solely their own and do not necessarily reflect those
of Morgan Stanley.
The information and data in the article or publication has
been obtained from sources outside of Morgan Stanley and
Morgan Stanley makes no representations or guarantees as to
the accuracy or completeness of information or data from sources
outside of Morgan Stanley. Neither the information provided
nor any opinion expressed constitutes a solicitation by Morgan
Stanley with respect to the purchase or sale of any security,
investment, strategy or product that may be mentioned.
Trinidad Guardian engaged David Fox to feature this arti-
cle. David Fox may only transact business in states where he
is registered or excluded or exempted from registration.
© 2014 Morgan Stanley Smith Barney LLC Member SIPC.
Cutting your business costs by...
DAVID H FOX
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