How outsourcing can improve your cash flow

There are many different ways in which a business can improve its cash flow management procedures. However, for the purpose of this blog, we will address just one solution that can have a positive effect overall: investing in an offshore resourcing strategy like outsourcing.

What is outsourcing?

Outsourcing is a strategy that involves hiring a team member outside of your organisation to take care of tasks usually completed by your local team. The terms outsourcing and offshoring are often used interchangeably just as business process outsourcing (BPO) is sometimes used instead to describe both. While outsourcing means hiring a team member(s) outside of your business anywhere in the world, offshoring means hiring a team member(s) overseas specifically.

How could outsourcing help improve your cash flow?

The three main areas of cash flow for a business are cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Outsourcing has direct benefits that can positively impact activities across all three cash flow areas, leaving businesses with a more reliable and sustainable bottom line.

1. Labour

   One of the biggest costs of doing business is the cost of labour. Labour costs can account for up to 70% of total business costs. This includes salaries, wage benefits, payroll expenses and other related labour-related tax obligations. Wages for employees and tax payments have a major impact on an organisation’s cash flow.

   In fact, businesses are currently facing one of the toughest recruitment markets the world has ever seen: 'a labour shortage sinkhole.' With one in five businesses experiencing difficulties in finding suitably skilled or qualified staff, when they do source someone of value, 81% of those candidates demand a higher salary.

   Outsourcing allows additional work to be completed at significantly reduced costs. Depending on the outsourcing model your offshore provider uses, they can even take care of labour costs including recruitment, superannuation, payroll tax and worker's compensation. Hiring offshore team members in lower-cost economies, such as the Philippines, can be very cost-effective, meaning your business could save up to 70% on employment costs.

2. Equipment and overheads

   Hiring offshore teams can also minimise overhead costs such as the cost of office space. Gone is the need to purchase additional office space for new hires, provide them with additional facilities like a canteen or cafeteria or purchase new furniture and equipment. This is all taken care of by your outsourcing partner.

   While your outsourcing provider may charge you a fee or include some of these costs in an agreed-upon rate, it’s still likely that the total costs will be less than if compared locally.

3. Productivity and efficiency

   One of the many reasons businesses struggle to grow is a lack of funds to invest in additional resources to support growth objectives. Businesses often don't have the time to recruit new employees to leverage potential growth opportunities. On top of this, there are businesses that go through peak periods where there are notable increases in the volume of work and then times when it isn’t as much. Outsourcing provides scalability during these times without a huge impact to cash flow.

   There is often a very short lead time to hiring offshore. This provides a further advantage in that it can be very quick to scale up a business, depending on the role type. Outsourcing can also free up funds that can be used to reinvest back into the growth of your business. With the additional support of outsourced team member(s), you can increase the capacity for your business to take on more work.

   Increased efficiencies usually translate to better sales. Better sales create better bottom-line figures. A stronger financial year can often mean better payouts of dividends to shareholders.

   Check out our top tips for improving efficiencies in your business in the video below:

Want to see these cash flow outsourcing benefits in action?

Our eBook, 'Outsourcing success - a collection of case studies', showcases 12 real-life success stories to demonstrate how outsourcing became the solution to overcoming individual business challenges. From reducing costs to increasing headcount to support rapid business growth, this eBook reviews businesses from various industries including accounting, finance, technology, real estate and general business.

Reference:

1. https://www.paycor.com/resource-center/guides-white-papers/the-state-of-american-business-2021/
2. https://www.abs.gov.au/media-centre/media-releases/one-five-businesses-face-skills-shortages
3. https://www.roberthalf.com.au/salary-guide?utm_source=roberthalf&utm_medium=pressrelease&utm_campaign=all-salaryguide2022-ongoing