Pros and Cons of Outsourcing Services for SMEs

19th June 2020


Owners of SMEs might find that their teams either lack the time or experience to carry out all the necessary functions of a business, whether this is HR and payroll, IT, or something else. If this is the case, there are a great number of outsourcing services that can be procured, however, these are not all without their disadvantages. Before you decide to commit to an outsourcing service, make sure you’ve weighed up all the pros and cons involved.

Different Types of Outsourcing Services for Small Businesses

It’s usually possible to find outsourcing services to suit all business requirements, whether this is in the form of an accredited company or an individual freelancer. Some of the most common kinds of outsourcing services for businesses are:

IT Outsourcing

Companies that choose to find an outsourced IT company often do so so that they do not need to hire skilled IT professionals inhouse. IT can be a difficult department to maintain, because staff require regular training to keep informed of new technology, and because as your company grows, the IT team needs to keep up with it. It’s often preferable to find IT outsourcing for small businesses because of the added security and breadth of knowledge that will be available.

Accounting Outsourcing

Accounting outsourcing for small businesses can be helpful for a number of reasons. Whether you choose to explore this might depend on the size of your company; accountant salaries are notoriously high, so if you only have a handful of employees it might be more cost-effective for you to outsource your accounting. If you have a larger business, the work required to maintain the accounts might be more expensive to outsource than to hire your own accountant.

Outsourcing Marketing

There are many marketing agencies and individual freelancers who work in marketing, that have the knowledge and expertise to help your business flourish. Many SMEs choose a combined approach, having various marketing staff inhouse to carry out tasks such as putting together email marketing campaigns, or writing blogs, in addition to outsourcing other tasks to a marketing agency. This could be on an ongoing basis to maintain marketing such as paid advertising, or a one-off contract for the creation of a radio or television advert.

Outsourcing HR

A number of SMEs begin by doing all their HR work within their company, only to find that the procurement of an HR consultancy firm is necessary as the business grows. With more employees comes more responsibility to take care of each one, and as legislation changes on a regular basis, this can prove to be complicated without the skills and knowledge of experts. HR outsourcing companies for small businesses are equipped with plenty of experience and understanding, which will ensure you, as a company owner, remain compliant with the law.

Outsourcing Payroll

Some HR outsourcing companies also offer payroll services, or alternatively it should be possible to find a standalone payroll service. Similar to HR, many companies start off doing their own payroll only to move to a third-party company as they gain more employees. The reason for outsourcing payroll for small businesses is to ensure that all members of staff are paid correctly and on time, and to have support when it comes to changes in payroll legislation.

Benefits of Outsourcing for SMEs

There are many advantages to choosing outsourcing services for SMEs, including:

Access to more knowledge and experience

Those undertaking your outsourced work will have ample experience in their field, and a good understanding of how to perform their tasks to the best standard. This means that the quality of work should be high, and therefore the return on your investment significant.

Legislation compliance

UK government regularly updates legislation that can impact on many business functions, from data protection to statutory payments. A quality outsourcing company will be well-aware of recent changes and therefore equipped to ensure your business achieves compliance.

Security and peace of mind

Work undertaken by the outsourcing service is their responsibility, so if something goes wrong, such as incorrect staff expenses payments or loss of IT data, it is their responsibility to explain and remedy the problem.

Support from experts

Business owners and senior staff will benefit from the knowledge of experts working at the outsourcing service when it comes to making specific decisions. Whether this relates to ways in which to save budget to improve accounts, or which IT cloud service to use, talking to the experts at the company can prove invaluable when it comes to making an informed choice.

Outsourcing frees up time for other work

One huge benefit of choosing to use outsourcing services as a small business is that this will allow you to spend more time and attention on other tasks; i.e. the day-to-day running of your business. Whether staff had hitherto spent hours conducting payroll, or deliberating over installing new IT updates, by using outsourcing services to do this they can focus their attention on other pressing tasks.

Disadvantages of Outsourcing for SMEs

A significant proportion of SMEs choose not to use outsourcing services for a variety of reasons. These include the following:

Outsourcing can be expensive

All of the services mentioned can come with a hefty price tag, which many companies deem to be an unnecessary expense. This is likely to be the case if moving from carrying out work inhouse, to an outsourced service. The best way to tackle this problem is to do plenty of research to compare the price and what’s included from at least three outsourcing services.

The service is not always of high quality

There is a stigma surrounding some outsourcing services regarding their commitment to your company and it’s work. For example, many company-owners believe that those working at a marketing agency do not have the knowledge, understanding and passion for your products as an in-house team would. Again, to avoid this issue be sure to research and check company reviews before committing to a service.

An outsourcing service is not dedicated

Because the nature of an outsourced service is that it provides that service to multiple companies, some business owners feel that their company will not receive adequate loyalty and dedication. Whether the concern is that they are also conducting work for a competitor, or they have too many clients to offer a thorough service to everyone, again it’s important to research, read reviews, and ask the representatives of the service those frank questions.

Loss of control

For small business owners, in particular, it can be difficult to give up control and allow an outsourcing service to carry out work that was once done inhouse. This relates to both the work itself and any reporting that is required. The best way to get around this is to find a service that you trust, and one that is known for good, regular communication. It’s important to be able to contact the service provider whenever you feel necessary and have someone there confidently answer your questions.


Choosing to make a change by moving over to an outsourced service as an SME – whatever that service might be – could have both negative and positive outcomes. It’s important to be aware of all the pitfalls so that you know what to look out for while researching and comparing services, but likewise, keep the advantages in mind to help you remember why you’ve chosen to explore this option.

At IRIS FMP, we provide an outsourced payroll service that is reliable and cost-effective. With our team’s knowledge and experience, we know how to keep our customers fully compliant with employment legislation, giving them valuable peace of mind. We offer a dedicated, high-quality service in which we keep all customers in the loop with regular communication.

For more advice about taking care of your business and all its employees, keep an eye on our blog, or find out more about outsourcing with IRIS FMP for a fully managed or part-managed payroll service.