What is Outsourcing?
The business consists of functions like Sales, Marketing, Finance, Compliance, Accounting, and Customer Service. Activities related to business where the business growth is directly lined are called core activities and others are non-core.
Core activities are:
- Sales: Purchase and sales of goods and services
- Marketing: Branding and marketing of products and services
- Finance: Movement of funds to run the business
All core activities require a direct focus of the founders as it impacts the business if not done with conviction and commitment. Core activities require the engagement of business owners for monitoring, strategy, growth and transaction management.
Non-Core activities are:
- Manufacturing: There are manufacturing setups which have spare capacities and they offer manufacturing of products of your choice, packaging, brand, etc. at affordable prices.
- Customer Service: After sales services are something which is of repetitive nature and mostly standard process, this activity is also outsourced to companies.
- Accounting and bookkeeping: Day to day accounting of sales and purchase invoices, expenses, payments, bank reconciliation, and other vouchers are outsourced to accounting firms like CFO Angle.
- Taxation: Income tax and GST monthly, quarterly and annual compliance are outsourced to firms like CFO angle.
- Company Compliance: A business which is incorporated as LLP or company has to full fill Registrar of companies quarterly and annual requirement, in CFO angle we do timely completion of these activities.
Non-Core activities are routine in nature and owners and business doesn’t get involved as they need experts to deal with it. In the case it is not dealt with experts, it can result in issues like penalties, notices, customer issues, accounting mess up and many more.
How to decide on Outsourcing?
There are few steps a business to follow to decide what activity calls for outsourcing and what requires in house focus.
- Look for Core and Non-Core activities. Refer to the above para.
- From the Non-Core activities identify the activities based on:
- The nature of the activity which is of repetitive nature and does not require the owner focus;
- Activities which are process driven and once set can be of repetitive nature;
- Activities which is most technical and hiring a resource only for that purpose is costly and utilization is not in full like a taxation person. Activities like income tax and GST.
- Standard Statutory compliance like ROC
- Look for reasons like:
- When the activity is important and it is costly to do in house
- A highly technical person is required to do the activity, but the salary at which he can be hired is very high
- To create a set up to that activity is added cost to the company
- The person is not fully utilized so the overhead costs are very high to maintain him
- Utilization of resource cannot be 100% but it is important to complete the activity on time
- Too much time and the cost is spent in the business continuity plan
- Expenses incurred on overheads are high
- High attrition of employees and it sometimes difficult to replace the position timely
- When business is engaged too much in day today to complete non-core activities and core activity is ignored
- Too much time is consumed to turnaround the activities
- When it is difficult to find trained experienced staff
- New technology and expertise are required with the ever-changing business
- Business is engaged too much in managing the day today for non-core activities.
- Decide a portion or complete activity which can be outsourced
- Engage a professional company like CFO Angle to discuss the process gaps and how they would transition from the current process to a new outsourcing model
- Firm up the thoughts and outsource the activities
Type of Outsourcing Model
- Supply of contract staff
- Project-based outsourcing
- Outsource work which requires expertise
How does Outsourcing works?
- Business engages a professional company, basically experts of the functions, who are technical experts and does the outsourcing activity day in and day out. CFO Angle helps organizations for outsourcing non-core activities.
- Discuss the activities and functions which can be outsourced.
- Ask the service provider to detailed the process which is outsourced.
- A process note before the outsourcing of the activity
- A process note after the outsourcing of the activity
- Get in an agreement for non-disclosure and service level agreement.
- Start transitioning the process in stages to the outsourcing company. This includes:
- Software and other related activities.
- Do a parallel run during the transition period.
- Monitor the transition process by reviewing the reports.
- Set the MIS and reporting requirements with the company.
- Monitor ongoing engagement.
Advantage of Outsourcing
- Per transaction, processing cost comes down in outsourcing. In Outsourcing model shared resources are used by the company to optimize the process, this helps them to scale the transaction with a marginal increase in cost.
- Saves cost as an outsourcing company works on economies of scale
- Optimum utilization of company resources. A resource freed from non-core activity can be utilized better on outsourcing.
- Outsourcing reduces the need to invest in technology, infrastructure, hire, train, mentor and upgrade the staff.
- Save up to government mandate on social security and regulation to hire and maintain labor.
- Improves company focus on core activities and business spends more time on growth than in the transaction.
- Ever-changing tax and company compliance cannot be always expected with the existing team and hiring a new talent would prove costly. On outsourcing, the service provider is responsible for its deliverables.
- Outsourcing helps overcome difficulties with the increase in business operation.
- Achieve better success within the business with increased efficiency and profitability.
- Data security is a challenge especially when the staff changes between different outsource companies. Usually, this can be managed through a binding contract.
- Once improper SLA’s are drafted the time commitment to the business may not be proper as the staff is engaged with multiple businesses.
- Clearly define the contractual terms and condition to avoid legal hassles.
- Losing management control on outsourcing activities once on outsourcing makes it difficult to pull back. If done it comes with the high cost.
- Communication could be one of the challenges faced with the responsibilities are not clearly defined. A usual blame game approach is used in the absence of defined roles.
- Inefficient process and improper hiring by an outsourcing company to save cost can lead to quality issues in the deliverable.
- In the process of outsourcing critical functions sometimes leads to over-dependence on the outsourcing company.
CFO Angle Advisory Services LLP and Outsourcing
CFO Angle is a professional company which is helping the organization with outsourcing their non-core activities and saving cost and improve efficiencies.
CFO Angle has a team of qualified Chartered Accountants, Company Secretaries, and Accountants who understand the process in detail and complete the work in cost efficient way timely.
CFO Angle is currently outsourcing following activities:
- Bookkeeping and Accounting
- Salary processing
- Income tax
- Labour compliance
- Registrar of Companies
- PF / ESI
- Employee supply