Do You Know The Cost Of What You Don’t Know?

Do You Know The Cost Of What You Don’t Know?

Have you ever heard someone say, “You don’t know what you don’t know?” In business, perhaps it should be “you don’t know the cost of what you don’t know.” Jim Rohn was one of the world’s foremost motivational speakers, perhaps best known as Tony Robbins’ mentor. He put the possible consequences of this issue in perspective. Mr. Rohn said, “Failure is not a single, cataclysmic event. You don’t fail overnight. Instead, failure is a few errors in judgment, repeated every day.”

He was right. In an ecosystem where over 80% of businesses fail, the cost of what you don’t know could ultimately be your company!

I’m reminded of my college job as a construction worker. One day I asked my young boss how much he charged customers for my labor. He was only charging my base hourly rate. After an impromptu lecture explaining that his costs also included FICA taxes, workers compensation insurance and overtime premiums, an integrated cost accounting and pricing form of sorts was born that same day.

This example illustrates a basic truth. No one can know everything about running a business! Entrepreneurs are chefs, contractors, retailers and countless others who go into business because they’re passionate about what they do best. They are not simultaneously accountants, lawyers, insurance agents and computer specialists. To make matters worse, small businesses usually can’t cost justify hiring complete time professionals to fill in the gaps of their own skill set.

Fortunately, businesses have access to a cost effective different known as business course of action outsourcing (BPO).

Attend any trade show and you’ll quickly see that countless vendors are obtainable to provide a cornucopia of sets that were once the exclusive domain of company employees. BPO is all the rage these days. It involves contracting operations and responsibilities for specific business roles to third-party service providers. Originally associated with manufacturing operations, BPO is now widely applied to both front office and back office sets in virtually every industry.

McKinsey estimates the global BPO market approximates $154 billion, with retail banking, insurance, travel & hospitality and the auto industry making up two-thirds of the total. India is by far the largest provider BPO sets performed off-shore with a commanding 60% market proportion. Eastern Europe, the Philippines and several Middle Eastern markets are growing rapidly in addition.

dominant reasons given for the use of BPO include benefiting from the outsourcer’s knowledge base and economies of extent, the increased flexibility of a variable cost structure, reduced new product introduction cycles and smaller capital outlays. at all event the reason, BPO allows companies to focus on their chief competencies.

Non-chief roles most often outsourced include payroll, employee benefits and human resources, accounting and finance, supply chain management, customer service and facilities management. Information technology is such a large market for outsourcers that it’s generally considered separate from other BPO applications.

Several BPO providers specifically target small businesses. While the definition of a “small business” varies, no one disputes that the market potentials are enormous. U.S. Census Bureau statistics show that in 2007, non-farm employers with fewer than 100 workers employed 42.6 million people, 35% of the complete civilian labor force. Those employers represented over 80% of all businesses, and had estimated annual revenues of $7.8 trillion. Expand this definition to 500 workers and employment soars to 59.9 million and encompasses 85% of all employers.

Fractional CFOs are BPO providers who specialize in servicing the small business market. The basic concept of a fractional CFO is slightly similar to a vacation timeshare. You pay only for the sets you need, when you need them. Most businesses recognize the importance of experienced accounting and financial skill on their management team. however many simply don’t need a complete time CFO at a complete time salary. Retaining a part-time or fractional CFO presents a cost effective solution customized to a business’ exact needs, budget and life cycle. Fractional CFOs use from a few hours per month to several days per week on each client. Most fractional CFOs can also provide ancillary accounting sets such as tax planning, compliance and bookkeeping, all on an “as needed” basis. Using a fractional CFO also provides the additional assistance of strengthening internal controls by improving the segregation of duties, a serious risk exposure for most small businesses.

specialized Employer Organizations or PEOs also focus on small business clients. The National Association of specialized Employer Organizations estimates that approximately 700 PEOs generated $68 billion of gross revenue (defined as client payroll plus PEO fees) in 2008. PEO clients nationwide averaged 19 employees per worksite, at an average annual salary of $34,000. They provide scalable employee leasing sets including complete payroll and human resource roles. PEOs typically offer workers compensation insurance and employee assistance administration. Both are areas where economies of extent can dramatically lower employer costs. By using a PEO, businesses also move the risk of non-compliance with a myriad of government regulations including applicable portions of COBRA, ERISA, HIPPA, the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA).

The original question is worth repeating! Do you know the cost of what you don’t know?

If you’re not considering BPO as a cost effective way of filling that knowledge gap, I’ll leave you with one final quote. Mark Twain said, “It’s not what you don’t know that will get you in trouble. It’s what you know for sure that just ain’t so.”

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