When Should a Small Business Outsource?

Running a small business often means doing several jobs at once. You may be serving customers, handling administration, managing marketing, solving technical problems and keeping an eye on the finances – sometimes all in the same day.

Eventually, doing everything yourself can become a bottleneck.

Outsourcing can help, but that does not mean handing every inconvenient task to someone else. The real question is whether an outside provider can perform a particular function more efficiently, more effectively or with expertise your business does not have internally.

Knowing when to outsource is therefore just as important as knowing what you could outsource.

What Does Outsourcing Mean for a Small Business?

Outsourcing simply means obtaining a service or business function from an outside provider rather than performing it entirely within your own business.

That provider might be a freelancer, independent professional, specialist company, agency or another business.

Small businesses commonly consider outside help for areas such as:

• Bookkeeping and accounting
• IT support
• Website maintenance
• Graphic design
• Marketing
• Payroll
• Administrative support
• Recruitment and human resources
• Shipping and logistics
• Research
• Specialist technical work

The U.S. Small Business Administration has similarly identified functions including accounting, marketing, IT management, administration, customer service, research, human resources and logistics as areas small businesses may consider outsourcing.

You can read its overview of
small-business functions that can be outsourced
for additional examples.

The important point is that outsourcing is a business decision, not automatically a cost-cutting exercise.

1. Outsource When a Task Is Consuming Too Much Valuable Time

Time was one of the strongest ideas in the original version of this article, and it is still one of the best reasons to consider outsourcing.

Suppose a business owner spends five hours every week performing a repetitive administrative task.

The important question is not simply whether the owner can perform that task.

Ask what those five hours could accomplish elsewhere.

Could that time be spent serving customers, improving a product, developing new business, managing employees or solving a problem that only the owner can solve?

Look at Opportunity Cost

Your time has an opportunity cost.

If you spend three hours doing something another qualified person could complete for a reasonable cost, those are three hours you cannot spend on something else.

That does not automatically mean you should outsource the task. It means the comparison should include the value of the time being consumed, not merely the invoice from the provider.

2. Outsource When You Need Expertise You Do Not Have

Small businesses cannot realistically maintain an internal specialist for every function they may occasionally need.

You may need a web developer for a technical problem, a designer for a project, an accountant for financial work or an IT specialist when something goes wrong.

Learning every specialist skill yourself can consume far more time than the business saves.

Outsourcing can provide access to expertise without necessarily building an entire department around that skill.

Expertise Still Needs to Be Verified

Hiring an outside provider does not guarantee expert work.

Before choosing someone, investigate relevant experience, qualifications where appropriate, examples of previous work, references or reviews, and their understanding of your particular requirements.

For sensitive or highly regulated work, make sure the person or company has any professional credentials, licenses or insurance required for the job and your location.

3. Outsource When the Work Does Not Justify a Full-Time Hire

Sometimes a business needs a skill regularly – but not for 40 hours every week.

Perhaps you need a designer for several projects each month, technical support when problems arise or administrative help during particularly busy periods.

In situations like these, an outside provider may give the business access to the required capacity without creating a permanent role that does not have enough work to fill it.

However, the choice between an employee and an outside contractor is not simply a matter of preference or what terminology appears in a contract.

Employment and contractor-classification rules vary by country and jurisdiction. Businesses should check the rules that apply where they operate and obtain professional advice when necessary.

4. Outsource Repetitive Work That Has a Clear Process

Some tasks are easier to outsource than others.

Work that happens repeatedly and follows a documented process can often be transferred more successfully than work that exists only in the business owner’s head.

Before handing over a recurring task, document:

• What needs to be done
• When it needs to be completed
• What information or access is required
• What a successful result looks like
• What should happen when something goes wrong
• Who makes decisions or approves exceptions

This makes expectations clearer for both sides and reduces the risk of paying someone to guess how your business works.

Fix a Broken Process Before Outsourcing It

Outsourcing does not automatically repair an inefficient process.

If a task is confusing, duplicated or unnecessary before you outsource it, paying somebody else to perform it may simply move the inefficiency outside your business.

Simplify the process first whenever possible.

5. Compare the Real Cost of Outsourcing With Doing the Work In-House

Outsourcing should make business sense.

Do not compare only an outside provider’s fee with the amount you currently spend in cash.

Consider the broader costs on both sides.

Doing work internally may involve:

• Employee or owner time
• Training
• Software
• Equipment
• Management and supervision
• Errors and rework
• Lost time that could be spent elsewhere

Outsourcing may involve:

• Provider fees
• Setup or onboarding costs
• Time spent communicating and reviewing work
• Software or platform charges
• Contract minimums
• Additional charges when the scope changes

Our guide on
stopping cash leaks in your small business
explains why recurring expenses deserve particular attention when managing business cash flow.

What Should You Think Twice About Outsourcing?

Not every function belongs outside the business.

Be especially careful when the work involves something central to your competitive advantage, sensitive customer or company information, major strategic decisions or a relationship that customers strongly associate with your business.

Outsourcing may still be possible in some of these areas, but the decision deserves more scrutiny.

Do Not Outsource Responsibility

You can outsource a task. You cannot outsource your responsibility for the result.

If another company manages your customer support, your customers will still associate a poor experience with your business.

If someone maintains your website, you still need to know that important updates are being completed.

If an outside professional handles a financial process, the business owner still needs appropriate visibility and oversight.

Delegation should reduce workload, not eliminate accountability.

How to Choose an Outsourcing Provider

Once you decide that a task is suitable for outsourcing, choosing the right provider becomes the next challenge.

Price matters, but it should not be the only consideration.

Evaluate:

• Relevant experience
• Understanding of your requirements
• Communication and response times
• References, reviews or work samples
• Pricing and what the price includes
• Availability and turnaround time
• Data security and confidentiality where relevant
• Contract terms
• What happens if either side wants to end the arrangement

Start Small When You Can

You do not necessarily need to hand over an entire business function on day one.

A defined project or limited trial can help you evaluate communication, reliability, quality and working style before making a larger commitment.

Agree on the scope, expected result, deadlines, price and communication process before the work begins.

A Simple Outsourcing Decision Checklist

If you cannot clearly explain what you want done or what a successful result looks like, the task probably is not ready to outsource yet.

Outsource With a Purpose

Outsourcing works best when it solves a specific business problem.

Perhaps you need expertise you do not have. Perhaps routine work is consuming too much time. Perhaps demand changes throughout the year and a permanent position does not make sense.

Whatever the reason, start with the problem rather than the solution.

Decide what needs to improve, calculate what the work is really costing you now, define the result you need and then determine whether an outside provider is the best way to achieve it.

Done well, outsourcing is not simply about doing less yourself. It is about deciding where your own time and your business’s resources can create the most value.

Note: This article provides general business information and is not legal, tax, employment or financial advice. Employment and contractor rules vary by country and jurisdiction. Check the requirements that apply to your business and seek appropriate professional advice when necessary.