Ever hear the expression Other People’s Money? It means using loans to fund and grow your company. Well, outsourcing is using Other People’s Resources (OPR). Certain tasks must be done to run your company. In a small shop you can make yourself nuts running around wearing all the hats. Let’s explore the pros and cons of outsourcing — using OPR to get things done at your company.
My friend Jim Hamilton of Bone Sudden Services, Inc. Lenexa, KS, has a terrific motto:
“Give a hard job to a lazy man and he’ll find an easy way to get it done.”
If outsourcing had a poster child it would be Jim. He subs out just about every accounting function at his company.
Jim says: “I used to pay an in-house accountant $48,000 a year. What a hassle. All the personal problems and the struggles with the computerized accounting system. Now, I have a professional CPA and his staff do all my accounting for $27,000. I get weekly profit and loss reports. Every Friday they send over a current accounts payable list and I just mark the ones I want to pay. I have a $500,000 bond on them so I don’t worry about non-performance. They do all my corporate and personal financials, tax deposits and tax returns. I love it.”
(Incidentally, Jim is not really a lazy man. All the time he frees up by outsourcing allows him to oversee his profitable company, develop and promote the “Worry Free” utility program, and perform his duties as vice president of Contractors 2000.)
You can’t do everything that needs to be done at your company. Mary Kay Ash, founder of Mary Kay Cosmetics (you know, the pink Cadillacs), says it best: “Don’t waste dollar time on penny jobs.” Consider outsourcing when the time and headache of doing it yourself outweigh the benefits of using OPR.
OPR Help: Jim uses a full service accounting company. They handle literally every piece of paper that sifts through his office. There are specialty outsources available, too, if you are looking for specific help.
Payroll — Man, this one is a no-brainer. It is hard to do payroll functions in-house in a cost-effective way. Payroll services, such as ADP or Paychex, are terrific. They process the checks, deduct the taxes due from your account and make your payroll tax deposits on time. If you’d like they can make auto-deposits to your employees’ accounts. (Do you find that every tech has to swing by the bank on payday to make his deposit? What a time and $$$ waster.) And the payroll service fees are peanuts. They make money by having your money, and hundreds of other companies’ money, in float for a day or two while they process. So they practically give the payroll service away.
Leased Employees — Leasing employees takes the payroll services even further. Your employees are actually employed by an employee leasing company. The leasing company then leases the employees to your company for a flat fee that includes all taxes and benefits. These companies often supply temporary employment service as well.
I visited with Bobby Elvington of Gene Love Plumbing Services, Columbia, SC. All their employees and the owners are leased employees. “Our employee leasing arrangement has a lot of advantages,” Bobby says. “First they help us screen applicants. They will do drug testing. They handle all the payroll duties. We do all the hiring and firing, but they help make sure that we follow proper, legal employment procedures.
“Because they provide employees for hundreds of companies, they can negotiate much better workers’ compensation and health insurance. We now have dental and eye coverage, because their rates are so good. They set up our 401k program. They handle all the paperwork and reporting.
“They even have a safety expert that comes to the shop to help us stay in compliance with all OSHA requirements. Once we had a terrible jobsite accident and the company helped us through the entire OSHA investigation. They will check out any workers’ comp claims, to make sure that they are for real. It’s like having their whole staff working with us. It is so much easier than doing all that work ourselves.”
Inventory Management — Jim has a nice OPR arrangement with a local supply house. He buys 100 percent of his materials from the supplier and the supplier responds with “just-in-time” service. Jim compiled a complete truck inventory list and the supplier guarantees that they will keep every item in stock. Bone Sudden Services faxes over a stock list every day. By 4:30 p.m. the next day, the inventory arrives, each truck’s stock individually shrink-wrapped. The material accountability is practically perfect.
Jim says: “I pay a premium on the material for the service, but I don’t need an inventory system or a warehouse employee. Hey, I don’t even need a warehouse. The savings are incredible.”
Telemarketing — Have you considered a telemarketing campaign? I have visited with many contractors who run successful in-house telemarketing programs. Telemarketing is a tough operation. Not for the weak-kneed. You can get great results, but the percentage of “yes” responses to “no” is very small. Very disheartening and hard to keep the callers motivated.
Until you are absolutely, long-term committed to telemarketing, try using a professional telemarketing company. You must supervise the scripts and approve their systems ... and check on them constantly. Put your name on the calling list and you can keep tabs on how they are handling your customers when they call you. But OPR for telemarketing is a good way to test the waters, and determine if you are really interested in developing an in-house program.
OPR Risks: It pays to be prudent, however, with OPR. Don Miranda, Miranda Heating and Air Conditioning Sales and Service, Fort Pierce, FL, says: “I’m not comfortable relying on another company to pay my bills. What guarantee do I have that they will perform? Once I paid an advertising agency to create my newspaper ads. I paid them for the ad space and they were supposed to pay the newspaper. They never did! I had to have my lawyer help me out of the mess. I would be uneasy trusting someone else to make my payroll tax payments. Just too much is at stake if they don’t deliver.
“We once had an arrangement with a wholesaler to deliver stock to our warehouse. In spite of what I specifically ordered I was left with all sorts of ‘filler’ items that I didn’t want and had to return. We took inventory purchases back in-house.
“If you have a good computerized accounting system, why do you need to outsource?”
Sage advice. Remember, outsourcing should make life easier. But it’s not magic. If you don’t pay attention to their performance, it’s your butt hanging on the line. Beware, take care and note these negative aspects of OPR:
- Don’t expect outsources to read your mind. Develop systems, write them down and carefully communicate what you want.
- If you are computerized and your in-house accounting is working well, leave it alone. Outsourcing is not automatically better than doing it yourself.
- I recommend signing your checks yourself. It will give you an opportunity to see what’s happening with the checkbook. (If you do issue a signature stamp, be sure to get bonded.)
- Don’t outsource jobs you love to do. Would you rather stay in the field and use an accounting service? Great. If you would rather handle the office duties, find someone to take over your field job. It’s your company. Do what you want.
- Open the mail yourself! This is one of the all-time best tips I have ever heard. If something is not getting done, someone — the IRS, a vendor — will send you a letter. Take a few minutes each day to peruse each piece of mail. Glance at the bills and credit card statements. Anything look out of line?
Most importantly, develop a month-end checklist that you can use to ensure that everything you think is handled is really being handled. Be sure to:
- Check cash! Is the money present and accounted for? Is the checking account reconciled?
- Look over the transaction register (or detail trial balance). Anything stand out? Put in the wrong category?
- Match actual data with budgeted projections. You do have a budget, don’t you?
- Check accounts receivable and payable — anything old and stinky? Turn over or take action on 30-day-plus receivable or you will never see them!
- Look for copies of all tax deposits and accurately filed forms.
- What needs to be done quarterly? Check for copies of completed reports.
- Make or secure a floppy disk backup of each month’s transaction and store it always from the office.
Hope this helps you shed some of the tasks you don’t like — and focus on the things you love to do. May your days be less crazy — and more lazy.