Outsourcing

by CRP Partner Gene Baldwin
as published in Franchise Times

I am a proponent of outsourcing. That probably comes as no surprise to you since I make my living selling and providing services to client companies. Outsourcing has become a proven strategy to reduce costs in many businesses. Most of the talk today about outsourcing comes from the manufacturing sector where there is much controversy about outsourcing to foreign countries such as China. Since multi-unit retail companies are not manufacturers, most outsourcing is centered on services. Whether you realize it or not, your company is already outsourcing services in several areas. For example, you probably outsource the following; preparation of the Federal and State income tax returns, repair of building and equipment, and development and production of creative materials.

Basically, outsourcing is hiring outside firms to perform tasks at reduced cost or provide you access to specific industry knowledge not otherwise available in-house. Have you considered these outsourcing opportunities?

1. Payroll. This process has been outsourced by numerous companies to the point where it has almost become a standard business practice. If you operate in more than one State it is almost a necessity to outsource. It is just very difficult to keep up on all the laws surrounding tax withholding, garnishments, etc. without having a professional perform the function for you. Most payroll processing firms will accept the responsibility for the penalties associated with mistakes in filing – and those penalties can be huge.
2. Accounting. It is now possible to completely outsource the accounting department. Just visualize a finance department without the Controller and all accounting employees. As a result, there will be no need for the mainframe computer and most the of the IT department. Outsourcing companies will prepare monthly financial statements, bank reconciliations, sales tax reports, fixed asset accounting, account reconciliations, etc. All that will remain is the cash management function. The IT department will need the network administrator and the help desk – that’s it. By heading down this path you are likely to get substantial pushback from the CFO. Why these people want to keep mundane transaction processing in-house and deal with all the personnel and information technology issues that go with a full accounting department is beyond me. Also, the CFO always thinks he can do the job cheaper in-house but he never counts all the costs and he discounts the benefits of scalability. Normally, you will be charged for outsourced accounting on a per unit/per month basis. As your store count increases or decreases the accounting costs increase or decrease proportionately. By outsourcing, you are able to make the accounting department a variable cost and not a fixed cost of your business. Also, you can outsource employee benefits administration to these providers.
3. Purchasing.  Let’s face it; most multi-unit operators only need a basic purchasing function. Unless you are a major national retail chain, you are not engaged in the kinds of activities that require sophisticated purchasing or supply chain skills (e.g. hedging).  Many times all that is required is a purchasing professional to negotiate ingredient supply contracts and advise you on negotiations with your distribution company. A third party buyer who is constantly in the market can provide real value.
4. Research and Development. Having an outside party assist your company with product development can be quite useful. The right professional in this area keeps up-to-date on the latest in consumer tastes and trends. That outside perspective is much better than having the CEO go on vacation, have a nice entree at some fancy restaurant, and want operators to rollout a new product based on the tastes of one person.
5. Real estate. There are several companies who will outsource the maintenance of your lease information, watch critical dates, assist with CAM audits, etc. These firms typically set up a website for tracking essential lease information. For an additional fee they will assist with negotiating renewals and take financial responsibility if critical dates are missed. Several great companies can assist with preparation of personal property tax renditions and protests of real estate tax assessments.
6. Product preparation. Earlier in this article I made the point that multi-unit operators are not manufacturers. That is not necessarily true. Restaurants manufacture many of the products they sell. There are many products that can be either fully or partially prepared off-site and shipped to the individual restaurant. Proper use of these “speed scratch” techniques you can reduce labor and improve consistency.

With proper use of outsourcing your company can access a tremendous talent pool to help you effectively compete with companies many times your size. You only have to pay them for the time they work with you, they do not need an office or computer, they are not eligible for the 401(K) plan and you do not need to invite them to the Christmas party.

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