Outsource HR? Are You Ready?

For you, the small business owner, the decision to outsource HR or your human resources department is not one that should be taken lightly. By moving your HR functions to an external firm, you will be drastically changing the organizational structure of your company, which, could be for better, or for worse, depending on a number of factors. Although the choice is yours, and do not be mistaken, the choice is a daunting one, there are a number of signs that let you know that your company is a good candidate for outsourcing HR functions such as payroll, labor relations, and employee compensation. First you must identify what stage your business is in. Are you just starting your company or has it been around for a while? As small business consultant Dino Eliadis explains, there are 5 stages in the life cycle of a small business; they are as follows:

1. Existence

This stage is often thought of as the "start-up" period of a business, which often is the case. However, even some companies that have long been established struggle to churn out a profit. In order to reach success, growth and maturity, the small business must be able to at least break even.

2. Survival

This is the stage in which the small business becomes a lucrative endeavor and stays alive. The company is approaching the turning point in its life-span; your business goes from breaking even to generating profits because you, the owner, are truly invested in it. At this stage, you must up your game by becoming more knowledgeable, and more importantly, more profitable. Otherwise, your business will remain dormant.

3. Success

Somewhere between Survival and Success is the turning point I was speaking of. If you have truly upped the ante, as in you have developed profitable systems within your company and your employees are efficient and effective, you have reached the success phase of your company’s cycle. Here, your company is capable of staying profitable even in your absence. Many times, owners confuse the Success stage with that of Survival; a common mistake that can spell the end of your small business’s growth. Survival is dependent upon you, the owner, whereas Success stems from the company as a whole. Your company can survive if you work hard enough, but you must create systems within your company to sustain your small business.

4. Rapid Growth

This stage requires a large amount of labor and capital. At this point, your small business can potentially become a large company or a large bust. If the company is monitored to make sure that financial and physical resources can support growth, it can become the large, successful business that you desire. However, if this is not done, the Rapid Growth stage can lead to a rapid death of your company.

5. Maturity

You’ve made it. At this point, your company has reached a plateau. It has reached its growth capacity and has saturated its market. Often times, corporations at this stage are so large that they cannot react to major shifts in the market and they die out. However, if managed well, an owner can always mix things up to keep things fresh and keep the company growing. This is the ultimate goal: keep growing.

Once you have identified your company’s stage of development, you can decide whether outsourcing payroll and other HR functions is right for you. Often, outsourcing HR is best suited for the company that is somewhere between the Survival and Success stages, but it can also be helpful at the other stages. According to Dr. Lawrence M. Bienati,** in addition to assessing your company’s stage of development, there are two more considerations you must take into account when deciding to outsource HR: your company’s organizational strategy and your company’s organizational size, location, and complexity. Of course, based on your assessment in each of these areas, you can decide whether your company is a good candidate for partial outsourcing, full outsourcing, or no outsourcing at all. Usually, HR functions are divided into categories.