When should Small Business outsource?

In a small business you can't do everything for yourself and still expect to grow. If you're not in a position to hire employees with the require skills and knowledge to meet your business need, you should consider outsourcing.


Companies of all sizes can benefit from sending certain job functions outside rather than dealing with them in-house. Some of those tasks may be infrequent or require special equipment; others may fall into the category of-ongoing maintenance, such bookkeeping, product management, information management, accounts payable and receivable, or human resources.

Regardless of the type of company you have - service, retail, or manufacturing - there are some activity involved in operating that will benefit for outside expertise. In fact, it makes sense to outsource any activity that someone on the outside can do better than you.  As the company owner, you then free up your own time and talent for the more profitable aspects of running your business.

Bookkeeping and keep up with payroll requirements is almost always good to outsource.  Small business just can't do it the way an outside payroll management firm does. Computer maintenance is another area where it may make sense to outsource, by buying a small amount of expertise and service that would take you or other employees a long time to master yourselves.
There are also good reasons to ask for help from a seasoned business executive when deciding what to outsource and how to select the best outsource for your business.

1. To make sure the IRS will view your outsourcing partner as an independent contractor verses an employee of your business. If the IRS sets aside your outsourcing contract, you may find yourself paying that individuals Social Security taxes and possibly other penalties.
2. It is difficult for a business owner to step outside their own business and analyze which function are most effectively done by owners and employees verses a professional outsource.
   

Most small business managers are more careful with money then with their own time.  Outsourcing certain functions may save you both.  Your local http://score.org/ chapter will help you with outsourcing decisions.  You can't beat the value.

Our thanks to Richard Strug, Greater Princeton Area SCORE (Chapter 631) for posting the core copy for this article.

How Good Is Your Marketing Plan?

Okay, you have written a plan, but how good is it? Here are some questions you can ask to test your plan for effectiveness:

• How does your plan differentiate you offering from the offering of your competition?
• Does the plan, if successful, establish a differential advantage for your products, services and your company?
• Is your differential advantage speculation on your part or have you discussed the proposed changes in your offering with ten or more customers and received favorable comments?
• If you haven't discussed the changes with enough customers to feel confident, do it now and include the comments as support material attached to your plan.
• Is your sales or marketing process unique? In other words have you come up with a way to stand out and be noticed without having to outspend your competition? Follow the leader plans are almost never cost effective if you are selling something with a cost over $500. Head to head brute force marketing is one of two things that should be avoided whenever possible. The other is competing on price alone.
• Does your plan leverage your strengths? Almost every firm has strengths to leverage, things you can do that your competition can't do. Find them and use them.
• Are you spending enough or are you resources focused enough to make a difference? If your ad campaign has less than 20 exposures to your target reader your message may not have reached a retention level to make a significant difference.
• Does your plan focus on the most susceptible customer segment?
• It is a big market out there, where are the best opportunities?
• Do you know who your competitors are targeting and who they are overlooking? If so, do the ones they are overlooking make up a market segment that would satisfy your goals, if so go after it and build a niche.

Remember, markets are always in a state of change. Be ready to adjust your plan as new market information is gathered.

Are you thinking of starting your own business and wondering where to start?

Keep it simple and do not start spending your money or your family and friends money until you collect objective data that demonstrates three things:
1. There are enough willing customers for your product or service
2. The business will be competitive enough to operate at a profit
3. You have what it takes to reach potential customers and deliver a product or service they will buy at a profitable price

Most small business experts will tell you that the first thing you need to do is write a business plan!
You should have a written business plan before you start your business and it will need to be regularly updated if and when you need a bank loan. However, the first thing you need to do is answer these questions, the answers will position you to collect the needed data and write an effective business plan.
· What are your personal goals?
· What is the source of your inspiration?
· In 25 words or less, what is your business idea?
· What is unique about your idea, or what is your twist of an old idea?
· What companies will be your three toughest competitors?
· What geography do you plan to serve?
· What is the demographic profile of the customers you plan to serve?
o E.g.― age, gender, income, race, occupation, marital status, children, ethnicity, religious affiliation, home ownership, recreational interest
· Who is going to produce the product or service?
· What will keep someone else from duplicating your business?

Once you have the answers to the above, make an appointment with a SCORE counselor to help you do the market research and write your business plan. http://www.score.com/

Business is Bad, Now What?

Traditional financial wisdom calls for hunkering down to weather the storm and make an across the board cut. It is a simple and popular approach, but is it the best solution in this downturn?

Not this time! In this economy the best solution is one that conserves cash and at the same time includes prudent spending to increase value.

First thing, regardless of your size, from three employees to 1,000, keep your stakeholders (employees, banker, key suppliers, investors, customers) informed and where applicable involved:

• The unknown drives fear. Do everything possible to eliminate negative surprises
  
• Hold a “state of the business” meeting with all employees to explain you need to conserve cash and work on improving the business during this downturn. Explain that the following needs to be done and that you want their creative input and help.


• Provide a method of communicating progress.


• Establish the shortest plan and review cycle possible.

Conserve cash:

Increase accounts receivable turns (collect more as a ratio to sales):

• Review every account payment history and set credit limits that will trigger a management review early in the collection process.
  
• Update the past due collection procedure to shorten the process.
  
• CEO to review all overdue accounts weekly and assure collection calls are made, don’t just rely on past due notices sent by fax.

Increase inventory turns (lower inventory as a ratio to sales):

• Evaluate each product, identify slow moving and no moving inventory.
  
• Slash prices on slow and mo moving inventory and send special sale offers to all customers that previously purchased those inventory items.


• Determine the fully burdened cost and resulting profitability of each product and service― drop low profit items


• Reduce safety stock on all items that don’t carry a large stock-out cost


• Adjust the economic order quantity model by doubling the carry charge


• Talk to your suppliers about drop shipment options

Decrease accounts payable turns (increase what you owe to suppliers as a ratio to sales):

• Talk with your suppliers to negotiate extended payment terms. IT IS NOT AN EASY SELL, BUT STILL WORTH THE EFFORT. You will need to assure them that they will get paid which means you may need to provide financial statements or other forms of assurance, and provide a rationale as to how they will benefit from extending more credit.

Do a return on investment analysis on every recurring expense:

• Rank expenses from highest return to lowest.


• Working from the bottom up identify what would be lost if the expense item was eliminate, make your cuts based on your analysis.

Human Resources:

• Explain in your employee meeting that you will be looking at job redesign to free up time and talent to work on value improvement. In order to do the redesign you will be asking every employee to keep an activity log for one week. In the log they will be recording what they did, start time, end time, and results.


• Evaluate every job description using the activity log to identify duties that can be eliminated or reduced in frequency, and for potential position consolidation.


• If sales volume or gross profit margin is declining reduce payroll accordingly


• Evaluate outsourcing work to convert semi-fixed HR cost to variable cost.

Why is this the time to increase value?

The Company that can move quickly, increase customer visibility and offer the best value WINS. If you wait until the economy is booming again, it will be much more difficult to increase value and visibility. In a downturn the resistance to change is lessened. Stakeholders will accept what may have been unthinkable when the market was robust. Customer are actively looking for better value and willing to try new products that hold the promise of reducing their cost.

We are not just talking about products here. Everything an organization does either adds to or takes away from the value of its offering. The goal is to make your company the most effective value adding machine in your marketplace.

How to increase the value:

• Review all your products, services, and processes; make a list of those that should be eliminated because they do not add enough value, list items that should be made to add more value, and items that are currently adding full value. Most of the items to eliminate will have been addressed in your cash conservation initiative, assign someone to address the new ones.


• Prioritize the items that have to be improved and assign.


• Focus your marketing efforts on the items that are currently the best value to new customers with an incentive to purchase now.

These tactics apply to retail, manufacturing, distribution, and the B2B service industry. Interested in a free consultation? Call 919.942.1634 or email Walt@Brittle.com