Outsourcing is becoming a necessity for small businesses, as economic conditions necessitate keeping staffs lean and keeping businesses focused on their core functions. According to the Small Business Administration, more than half of all small businesses with fewer than 100 employees have five employees or fewer. With a small staff, performing some functions in-house is a luxury that cannot be afforded. The proliferation of the Internet, and a rising class of self-employed professionals is making outsourcing for small businesses an increasingly feasible and affordable prospect.

Benefits of outsourcing

Outsourcing certain functions of your small business can have a variety of positive impacts. For starters, it can help you control costs, converting fixed costs (such as paying an in-house bookkeeper, for example) into variable costs that you can keep down by finding the most cost effective outside contractor for a specific function.

Working with an outside firm that specializes in the function you’re outsourcing can translate to big savings because that firm can take advantage of economies of scale and efficiencies your firm, which has its focus elsewhere, cannot. You’ll also save money on training staff to perform the function you’re outsourcing.

The money you save on these costs can be funneled back into revenue-creating projects, such as purchasing more or better inventory, expanding a facility, etc. In the early stages of a business, keeping costs low and maximizing your revenue-producing investments is key, and outsourcing can help.

Also, by cutting costs, you can pass your savings on to your customers, making your firm more competitive.

By outsourcing a project to an outside firm, chances are you’ll be able to get the project done more quickly than you could in-house, particularly if you have a small staff that will have to drop what it’s currently doing to refocus on another project. Good outsourcing firms have the resources to get started on new projects right away, and provide a quick resolution to the task.

Outsourcing certain tasks also allows your business to remain focused on what it’s good at, rather than getting distracted by side projects, which while they may be necessary, aren’t exactly where you and your employees’ desire and talents lie.

For example, instead of handling packaging and shipping itself, a small firm creating unique furniture may outsource these tasks to an outside firm. This allows the business to keep its employees focused on what they do best, and hand over this task to people who are probably better qualified and capable of handling the job.

Many small firms just don’t have the resources to provide the in-house support services that big firms can provide. Outsourcing can help small businesses punch above their weight, allowing them to leverage the expertise of the outsourcing firms to provide the same level of service larger businesses can provide.

Small businesses may also be able to reduce risk by outsourcing to competent outside providers. Outsourcing prevents small staffs from being overwhelmed with tasks outside their area of expertise that they may not be capable of performing well or correctly. By turning it over to the experts, you can reduce the chance of making a costly mistake in customer service, compliance with government regulations, tax compliance, etc.

Disadvantages of outsourcing

Probably the biggest disadvantage of outsourcing is quality control. While many outsourcing firms provide excellent service, some are unable to provide the services you need at the level you expect. There are a variety of factors that can impact the quality of outsourced work, including language and cultural barriers between businesses, the experience level of the outsourcing firm, the communication and ability of the firm outsourcing the work to provide detailed instructions, needed information and clear expectations to the outsourcing firm, etc.

When you outsource work, the first time may be a little rocky as you and the outsourcing firm learn to communicate and understand one another’s business functions and rhythm. However, once a rapport is established and the outsourcing firm gets a greater understanding of your business and how it works, most qualified outsourcing firms can handle the work you send their way.

Time and project management are another downside to outsourcing, as you may not be able to influence the outsourcing firm’s schedule as well as you could the schedules of your own employees. Also, if you have multiple tasks outsourced to multiple firms, keeping track of all these projects can be a tough management challenge.

Liability is another potential pitfall of outsourcing. If there’s a blip in customer service or compliance with tax or government regulations, litigation may be necessary to determine who is responsible for the failure.

Commonly outsourced work

There are a large number of tasks that can be outsourced by small businesses, but some of the most common include:

Administrative work – Online programs and cloud computing allow many of the jobs that have been done by in-house secretaries and clerical support to be outsourced. A virtual assistant can help answer phones, file records, appointment setting, proofing, printing and distributing documents, etc.

Accounting and bookkeeping – Most businesses already outsource accounting functions to a tax professional at the end of the year, but further economies can be gained by outsourcing the bookkeeping functions of your business to an outside professional firm that specializes in accounting and bookkeeping.

Customer service – Nearly all of us have at some point spoken to an outside customer support specialist working at a call center in India. Outsourcing customer service functions can save companies big on labor, telecommunications equipment and facilities.

When outsourcing customer service, it’s important that you maintain a level of service that is acceptable to customers. Customer service reps should be able to handle customer complaints and concerns in a timely and helpful manner. Customers are the backbone of your business, and keeping them happy should be your first priority, even if you’re hiring someone else to do it.

Website maintenance and building – Not all businesses can afford to have a full-time web specialist, and doing the job in-house with limited or inexperienced staff can lead to having an unattractive or barely functional website which actually detracts from the business. Outsourcing your web needs to an outside professional can make a lot of sense.

When outsourcing web work, be sure to hire a professional with experience in the type of data and software your company uses. Hiring an inexperienced or unqualified outside contractor can have terrible results for your company, creating a website that’s inoperable or inaccessible to customers.

Marketing – Many small businesses hand off their marketing and advertising work to outsourcing firms that are experts in the field and can provide results on a limited budget. Local marketing and advertising firms know and understand the local market and have existing relationships that can help them get favorable prices from local media, printers, etc.

Online tools for outsourcing

There are a number of websites and applications online that can help you outsource projects and manage the work. Sites like Elance, Craigslist and and Guru can help you find qualified, competent help. GoogleDocs, Basecamp, Skype and Zoho can help you divide work, manage communication and facilitate collaboration among providers who may be separated by thousands of miles. PayPal provides a secure and convenient way to facilitate payment.

Finding reliable providers

When searching for reliable providers of outsourced services, conduct your search the same way you would a new employee search. Consider references, resumes and conduct an in-person or over the phone interview if possible. Also talk to other businesses and find out who they use for similar services.