The popularity of outsourcing has skyrocketed in recent decades. Driven by a desire to streamline processes and access expertise without having to cultivate it from scratch, more and more UK companies are taking the plunge and outsourcing (sometimes entire departments), freeing up time to focus on other aspects of the business.
Financial management can be tedious and time-consuming work, especially for new and growing businesses. But getting your accounts in shape is definitely something that needs to be done correctly to avoid non-compliance issues and HMRC penalties.
Outsourcing has been used as far back as the 18th century (although it has probably been around in some form for many millennia); ships traveling the oceans often suffered significant crew losses, the gaps being filled with recovered people from around the world. Eventually, the widespread availability of seafarers made it possible to recruit crews at a lower cost, thus lowering the cost of hiring a crew.
More recently, it gained momentum in the late 1980s when it was officially recognized as a business strategy. In the 1990s, outsourcing of support services grew as companies tried to reduce costs without compromising the quality of their core business.
Today, outsourcing is increasingly viewed as a strategic partnership, the goal of which is to achieve great results through carefully planned collaborations.
Outsourcing is popular in the UK
The UK is a sprawling contractor: in 2019, seven in ten UK companies outsourced their work to third parties. Only a quarter have never used any form. The reasons cited vary; Of the companies that outsource, seven out of ten do so to reduce costs, half to transform their business, and the other half to improve the quality of their services.
Access specific skills wherever you are
Naturally, some people have abilities that are useful to others, and others are willing to pay to use them. There is also the opportunity for someone looking for a specific set of skills, which may be widely available, to find the cheapest way to access them.
IT is currently the easiest function to outsource, with over a third of UK companies looking elsewhere for IT support. IT experts are not cheap and given the increasingly sophisticated computer networks available and the changing nature of cybersecurity threats, IT outsourcing is an opportunity for small businesses to operate the most reliable services without having to spend a fortune to develop its internal services. .
Finance, payroll, human resources, and marketing are other common outsourced services. Customer-facing services, such as sales and customer service, are the least likely to be outsourced.
The rapid acceleration of globalization, especially after the first few years of the COVID-19 pandemic, has made the location of employees and services irrelevant: you can work anywhere. With this in mind, Opinium and LiveArea research in 2020 suggested that outsourcing would be a major feature of post-COVID-19 work; almost a third of companies in the UK were planning to incorporate outsourcing to improve their agility and resilience.
Outsourcing promotes business continuity and scalability
The start of the pandemic saw chaos unfold for many businesses. Most weren’t ready for the quick switch to remote work, which ultimately cost them a lot of money.
Outsourcing is effectively part of a contingency plan against any similar event in the future: the provider company is already set up to provide external and external services to their network.
It also allows companies to grow quickly without having to expand internal functions. It may cost a growing company more each month to outsource its work, but a gradual increase in vendor rates probably won’t cost as much as an additional employee.
Outsourcing offers the opportunity to reduce labor costs
Outsourcing eliminates the need for an internal department for this function. That’s at least one, maybe several annual salaries that your company could avoid paying. And there’s no need to worry about annual leave – it’s all covered by your provider.
2022 is a year of sky-high costs and inflation, along with record-low unemployment and job vacancies. Employers are in a weak position when it comes to retaining talent and negotiating wages; avoiding this problem entirely is certainly attractive this year.
Access expert knowledge without paying to keep employees informed
The cost of employee training and ongoing professional development completely bypasses your profit and loss when you outsource – it’s all paid for by the vendor. You can access a source of expert knowledge knowing that it is up to date and monitored (your reputation depends on it).
Stay focused on your mission
Time is the most sought-after commodity: we simply don’t have enough of it. Small business owners have a lot on their plate and offloading some of the internal support departments is a great way to free up time to focus on developing your strategy.
UK or abroad?
Almost half of UK companies outsource their functions abroad.
India is a leading global destination for outsourcing. It has a huge population and a pool of qualified talent, plus a low average salary. Hiring a software developer in India costs less than a thirteenth as much as hiring a developer in New York. Software development and IT services are usually outsourced to India.
Other popular destinations include the Philippines, Malaysia, Eastern Europe, and South America.
Many offshore outsourcing companies strive to provide 24-hour services, making the time difference between this country and the UK irrelevant. But this is not guaranteed and time differences can create a communication challenge.
Outsourcing inevitably involves some loss of control. You don’t have the same ability to monitor outside contractors as internal employees. Building a relationship and aligning the tone of your business can also take time, which is especially important when it comes to marketing.
Existing employees may very well feel rejected if their position is terminated due to outsourcing. With labor costs often making up a large part of business spending, outsourcing, particularly overseas at the expense of UK workers, could hurt an economy already in turmoil.
Security risks are an important factor to consider when outsourcing services. Appropriate GDPR agreements must be in place to protect all data and define the risk management plan in the event of a data breach. In general, cloud computing systems come with advanced security techniques and strong encryption, but thorough research should be done on the systems and security measures that potential providers have in place.
Online Accounting can help you manage your finances
Our role as a digital accounting firm likely reveals our position on this issue. We love outsourcing so much that we base our entire business there.
Online Accounting understands the incredible benefits small businesses can reap from outsourcing their finance function and is here to support your business with robust accounting and tax consulting services as standard with monthly subscription packages.
Online Accounting offers comprehensive accounting services that can be customized to meet your business needs. Monthly or quarterly financial reports help provide regular actionable information, so you can address any issues within the business before they escalate.
Online Accounting assigns specific team members to your account, and they will contact you directly with any questions. Xero is our default accounting software – a cloud-based system designed for small businesses that come with the great security you expect.
Fees are fixed and are based on your business income and the number of transactions you regularly make; they are much lower than the cost of the monthly salary of an in-house accountant.
Outsourcing to Online Accounting could save you valuable time and money, without compromising the quality of services your business needs to thrive.