The basic concept of outsourcing is the practice of contracting out specific business functions, Accounting Services Buffalo, or processes to an external third-party provider. Instead of performing a task or function internally using one’s own staff and resources, a company chooses to hire another company specializing in that area to do it for them.
Core Idea
At its heart, outsourcing is a strategic business decision driven by the desire to:
Reduce Costs: The external provider may be able to perform the task more cheaply, often due to economies of scale or lower labor costs (especially in the case of offshoring, which is a form of outsourcing where the provider is in a foreign country).
Focus on Core Competencies: By delegating non-essential or support functions (like payroll, IT support, or manufacturing a specific component) to experts, the company can dedicate its internal resources and management focus to the activities that truly differentiate it in the market (its core business).
Access Expertise and Technology: The external provider often possesses specialized knowledge, advanced technology, or a skilled workforce that the client company might not have internally or wouldn’t be cost-effective to develop.
How it Works
Identification: A company identifies a function that can be performed externally (e.g., customer service, software development, data entry).
Contracting: A formal Service Level Agreement (SLA) is established, detailing the scope of work, quality standards, timelines, and payment terms.
Transfer: The responsibilities, and sometimes the necessary assets, are transferred to the third-party provider.
Execution: The external provider performs the contracted services for the client company on an ongoing basis.
In essence, Bookkeeping and Accounting Services Buffalo transforms a function’s fixed costs (salaries, equipment depreciation) into variable costs (the contracted service fees).