December 2005 Hired Hands Not all outsourcing involves laid-off employees and foreign shores By Shayla Byrd Tonya Jones, owner of Nashville’s Mark IV Enterprises, has outsourced her construction company’s payroll services since its inception in 1985—and she wouldn’t have it any other way.
“Outsourcing allowed my company to concentrate on construction, which was our main purpose,” Jones says. “We didn’t have to be concerned with writing payroll checks or filing payroll taxes. And if the government ever wants to come in and audit, they would deal with the outsource company, not us. It’s a huge relief.”
Jones’ reliance on a payroll processing company helped her company better service its construction clients. And she didn’t have to turn to a firm in India to do it—she simply surveyed her network of business owners and through word of mouth found a small Tennessee firm, Aabakus, to do the job.
In doing so, not only did Jones’ company become more efficient, but another Tennessee company was able to benefit as well, showing that in the case of small businesses, outsourcing everyday back office functions does not necessarily lead to mass unemployment. In fact, business processing outsourcing has arguably led to the creation of new industries devoted to providing the in-demand services that other small businesses are now outsourcing.
“More companies are benefiting from outsourcing because there are just so many business processes that can be outsourced,” says Greg Sedrick, state executive director of the Tennessee Small Business Development Center.
While accounting and payroll processing services are most popular, other services like marketing, Web design and maintenance, IT maintenance, logistics, and distribution are routinely outsourced by small businesses that don’t have the time, money or manpower to handle a function internally, Sedrick maintains.
Businesses that are considering outsourcing should first examine their own expertise. “Obviously, it would not be a good idea for an accounting firm to outsource its accounting services,” Sedrick says. However, businesses in which office tasks are taking time away from productivity—and thereby decreasing the company’s competitive advantage—are prime candidates for business processing outsourcing. Also, services that can be performed better and cheaper by an external company are also candidates for outsourcing.
Companies might also benefit from outsourcing human resource management, which can be confusing, says Henry Tyler, a business development manager with Nashville-based Gevity, a consulting firm that helps businesses overhaul their HR departments.
“There are several laws governing how employees are treated, interviewed and hired,” he says. “We work with businesses and virtually become their HR department, helping those businesses whose size may prevent them from hiring a full-time staff.”
Businesses hoping to outsource services should seek assistance from someone familiar with the industry, Sedrick says. Advertisements in trade journals and recommendations from agencies like the Tennessee Small Business Development Center are the best venues—outside of word-of-mouth referral—to pursue, he says.
According to Jim Levine, a Chattanooga attorney with Baker, Donelson, Bearman, Caldwell & Berkowitz who assists companies with the drafting and review of outsourcing agreements, it’s smart to enlist legal assistance when negotiating an outsourcing contract.
“An outsourcing agreement is necessary to make sure that the scope of outsourcing services to be provided is clearly defined. It’s key to ensuring that risk is properly allocated and that the company’s confidential information is protected,” Levine says. “Outsourcing agreements can get quite complicated, but they also make it much more likely that the outsourcing relationship will be successful in the long run.”
Whether it’s to save money or to compensate for a smaller staff, more and more Tennessee small businesses are proving that outsourcing is not just for Fortune 500 companies.
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