How To: Outsource Effectively

At a time when companies are looking for any way possible to cut costs and increase efficiency, some local firms point to outsourcing as a way to save money.

From information technology to payroll to human resources, small businesses can reap the benefits of bringing in outside help to handle the daily financial and legal ramifications that accompany running a business - if they follow a few steps.

Know your limits

When Jay Handy and partners Robin Walker and Jonathan Timson opened Walnut Capital Management in March 2007, they knew they wouldn't be able cut corners when it came to handling the boutique money management firm's information technology needs.

"We need the right hardware and software integrated," Handy said. "We don't need an IT department, but we need an IT resource to tap immediately when we need it."

Walnut Capital opted to enlist the help of ServiceWorld Computer Center, spending about $10,000 a year on its IT services. Handy said that's considerably less than it would have cost to hire a full-time technical staff member.

ServiceWorld founder Doug Pitt said that, while there is no formula to decide whether a company should hire outside help, managers should look carefully at the way the duties are handled in-house when outsourcing is being considered.

"Every organization is different; we really just have to look at the company and say, 'Some applications you have might require full-time help,'" Pitt said. "With some (full-time on-staff IT employees), I wonder what they're doing 80 percent of the time; they really don't have that much to manage."

Do the math

For Handy, who said his company also outsources its payroll work, making the decision to go with an IT company was a no-brainer.

"We only have a dozen people working here - we don't need another dozen people working in IT," Handy said.

Accountant Jeannie Huckstep, whose Springfield firm Huckstep & Associates handles payroll for several small businesses, said the key to whether outsourcing is a viable option lies in looking at whether staff members' talents could be better utilized if outsourcing took over some of their job functions.

Huckstep said a small company could save a day's worth of work every two weeks, while larger companies could save as much as three days of work every two weeks by outsourcing payroll functions.

"All they have to gather to provide to the outsource provider is new hire information and hours - they pull hours together for everybody, and send that to us," Huckstep said, adding that her payroll company also offers consulting to make sure companies are using the most efficient method for collecting hours and employee information. "Hopefully, they're not sitting around with those time sheets. I've seen organizations spend four or five days to validate time sheets."

Huckstep said her company's monthly fees for payroll services range from $50 for a very small company to $500 or more for a large business with several hundred employees.

Exploring the benefits

Beyond payroll, other aspects of hiring and human resources also can be outsourced, according to Keith Mills, co-owner of Springfield-based HR Outsourcing LLC, which generally charges $75 an hour for its services.

"We handle policies and procedures, unemployment, and even investigative measures for some litigation. Before they get a labor attorney involved, we can step in and assist a business in getting their documents in order," said Mills, whose general rule of thumb is that one full-time HR employee is warranted for every 75 to 100 employees.

Aside from the general savings in hours, Pitt said IT companies offer the added benefit of 24-hour-a-day oversight of a company's computer systems, allowing for both quicker results to problems and less need for the client's own employees to work after hours - which can lead to extra costs for overtime pay.

"If we have an alert, it tells us right away so we can address something at three in the morning and fix it before they open in the morning," Pitt said. "Regardless of the size of the company, all of these issues come into play on some scale."

Beyond the time and money savings, companies also can save themselves a lot of headaches by bringing in outside help for complicated matters, including payroll rules and regulations, Huckstep said.

"If they have staff that don't know payroll and don't know the compliance issues, they really are at risk for significant penalties," Huckstep said. "Most often, that's when I see them worry most about payroll - they just want to offload that worry, because payroll tax penalties are God-awful."

A high level of expertise also is called for under the banner of human resources, Mills said, and using outside help can provide that.

"Many companies have one person handling all the forms, the personnel files, the insurance for the employees, holidays, leave, bereavement, and that means they didn't do what they could have to prevent unemployment costs," he said.

"Once they realize that person is responsible for everything, that's when they really need to step back and hand that to someone else."

For Walnut Capital Management partner Handy, bringing in outside help allowed his employees to focus on what they were hired for, rather than dealing with technology and paperwork issues.

"Having that skill set is well worth farming that out as opposed to setting aside a particular person or hours per day to take care of that and clear any sort of problems or blow-ups," Handy said. "That stuff never goes smoothly."[[In-content Ad]]