Gone are the days when a business would have a department for everything. Outsourcing is now both possible and the norm for companies of all sizes. From small-scale operations with just a few staff to multinational businesses, there are a host of services that can be outsourced to third parties. From payroll and accounts to IT and fleet management, there’s virtually nothing that the market doesn’t have an answer for.
However, it’s crucial to strike the right deal with the right outsourcing partner. Outsource your payroll, for example, to the wrong supplier and you could end up with a staff revolt. Choose the wrong IT company and your operations could grind to a halt. You need to be clear in your thinking and approach, know what you want and how you plan to get it.
Plan of action
Before outsourcing anything, carefully consider why you’re doing it and how it will fit into your growth strategy. There are two main reasons to take a function out of house: it’s cheaper and more efficient to do so, or the service will add a new dimension to your business, which will improve either internal operations or your offering to clients.
It’s common for businesses to focus on the former, but all too many rush in and regret it later. Cashflow problems cause many companies to start manically slashing costs, and outsourcing is seen as being cheaper than staff. But this can lead to problems further down the line, particularly because many suppliers offer three to five-year contracts as standard, loaded with terms and conditions heavily weighted in their favour. Peter Lunio, a business adviser at Baker Tilly, has observed the approach many entrepreneurs take to suppliers.
“Entrepreneurs usually get involved in contract negotiations, but often they don’t have much experience of doing this,” he explains. “These deals are often several years in duration and can be a significant barrier to growth if you don’t get the details right from the outset. I would advise entrepreneurs not to bet their businesses on such agreements.”
As Lunio suggests, entrepreneurs always want to be involved in pulling the outsourcing deal together, – and so you should be, it’s your business. But remember that the guy selling the contract has done it many times before and has you at a disadvantage. So here’s some advice to help you turn the tables:
Write your own contract
You might require legal help to do this, but if you’re going to enter a long-term deal involving substantial sums, it’s worth the cost. Some suppliers might be wary of this, but respectable ones should be prepared to negotiate if the deal is worth it. Either way, it will start the negotiations in a place where you are comfortable. Juan Crosby is a solicitor at CMS Cameron McKenna and specialises in outsourcing. He says: “Entrepreneurs should certainly have a very close read of any contract, as they are often drafted in a very self-serving way. You should get advice if you are uncertain about anything, and get a lawyer to draft an agreement if the contract is for a service that is particularly critical to your business.”