Taking Control of Your Business’ Profitability

by Nathan Devey

4 min read

Minimizing expenses is vital to succeeding in today’s cost-conscious business world. Despite the perceived complexity of accomplishing this feat, there are key steps you can follow to take control of your business’ profitability and ensure your everyday expenses don’t outweigh your profits.

Right-sizing your payroll to reduce costs

The single largest cost for many businesses is also their lifeblood; employees. Basic costs include salaries, bonuses, payroll taxes, benefits, however the list goes on and the costs can add up quickly. With this in mind, hiring decisions can be pivotal for fledgling businesses. Luckily, the risk of being stuck with a dud can be mitigated by adding a fixed term to the offer letter. If the stars align and you want to bring that employee into the fold upon expiration of the contract, that option is available.

In the short-run, payroll at a stable business is a fixed cost. So how can you cut the fat without severing an artery? One option is to hire contract staff, where project-based work can be completed by qualified individuals with relevant expertise. Having the right person on the job will get it done faster with superior results. When the project is complete, so too is your financial obligation to the contractor.

A workforce of contract staff can provide more strategic and financial dexterity, allowing you greater freedom to make decisions based on conditions of the time and implement those decisions sooner.

This staffing model does not come without its risks. Employee engagement can be a challenge without opportunity for advancement. As a result, locking in the employees of your business that are absolutely vital to its success is a no-brainer. Core staff notwithstanding, this strategy will help you cut costs by leveraging the right resources when you need them, and saving cash when you don’t.

Ultimately, even with the risks it brings, hiring contractors can be an effective way to leverage the right resources when you need them, and cuts costs when you don’t.

Shedding Distractions to Increase Revenue

Similar to the strategy behind hiring contract employees, outsourcing non-strategic functions of your business allows you to delegate the most relevant expertise to specific tasks. What’s distinctly different about farming out auxiliary duties altogether, however, is that it allows you and your contractors to focus on the key competencies that make your business successful. Directing your efforts toward endeavours that can have the greatest marginal impact – colloquially referred to as the largest bang for your buck – is simply good business.

Outsourcing doesn’t have to mean offshoring your IT department to India. There is a plethora of different outsourcing options available, most of which are customizable to your unique requirements. Example tasks you can outsource include payroll and benefits, stock option accounting, employee incentives, human resources, web design, and marketing. Chances are good that if a task is not identified as a primary strategic function of your business, it can be outsourced.

Contracting versus outsourcing: finding the right mix

The concepts are similar on the surface yet fundamentally different. In reality there are pros and cons to each, and one is likely more suitable based on your business’ circumstances. Here are a couple of key factors to consider:

Timeframe and frequency requirements

A one-time project is better suited for a contractor whereas outsourcing would be more appropriate for ongoing part-time work. The reasoning is simple – one provides short-term but constant focus while the other lends fragmented but continuing support.

Sensitivity of subject matter

While there is no guarantee that a contract employee won’t spill the beans on your business’ deeply held secrets, the chances of leakage multiply when that information is available to an entire team at a third-party service provider. Unfortunately, the sensitivity of information is not black in white and instead lands somewhere on a spectrum. Therefore, it will require judgement to determine the limits of what you are willing to reveal to an outside organization or external individuals. As a rule of thumb, the more sensitive the information is, the more you should lean toward contracting over outsourcing.

Location preferences

The nature of the task will also dictate communication requirements. It is generally accepted that more can be accomplished in face-to-face meetings than through other forms of communication. Therefore, if frequent discussions will be required to progress, you will likely want to explore the idea of an on premise contract employee. Integrating contractors into the business may also help with engagement concerns as previously discussed. On the other hand, if the work is straightforward, having someone physically present may not be necessary and you may lean toward outsourcing. In either case, technological communication tools can help lessen the effectiveness gap caused by geographical separation, but also introduce privacy concerns.

Quality control

Regardless of who is doing the work, you want it to be done with quality. However, the results you garner from contract employees and outsourcing organizations may differ greatly. Once an employee is hired, it is complicated to fire them if required. Great contract candidates on paper may still be a poor performers, and although you’re only committed to them for a limited period of time, their output may not be of the caliber required. Outsourced resources arguably have more incentive to produce high quality results, particularly if the work is intended to be recurring. It is much easier to replace a service provider than it is to replace an employee, affording you maximal flexibility.

Ultimately, contracting employees or other business’ is not for every situation and the options should be carefully considered before a decision is made. However, taking advantage of these cost-saving tactics you can position your company to flex with economic currents and direct your efforts toward where they will be most impactful.

Photo copyright: Olivier Le Moal

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